Micro Chapter 11

Assume, for Mexico, that the domestic price of oranges without international trade is lower than the world price of oranges. This suggests that, in the production of oranges, a. Mexico has a comparative advantage over other countries and Mexico will export oranges. b. Mexico has a comparative advantage over other countries and Mexico will import oranges. c. other countries have a comparative advantage over Mexico and Mexico will export oranges. d. other countries have a comparative advantage over Mexico and Mexico will import oranges.

a. Mexico has a comparative advantage over other countries and Mexico will export oranges.

The price elasticities of supply and demand affect a. both the size of the deadweight loss from a tax and the tax incidence. b. the size of the deadweight loss from a tax but not the tax incidence. c. the tax incidence but not the size of the deadweight loss from a tax. d. neither the size of the deadweight loss from a tax no

a. both the size of the deadweight loss from a tax and the tax incidence.

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic, a. buyers of the good will bear most of the burden of the tax. b. sellers of the good will bear most of the burden of the tax. c. buyers and sellers will each bear 50 percent of the burden of the tax d. both equilibrium price and quantity will increase

a. buyers of the good will bear most of the burden of the tax.

When a country allows trade and becomes an exporter of a good, a. domestic producers gain and domestic consumers lose. b. domestic producers lose and domestic consumers gain. c. domestic producers and domestic consumers both gain. d. domestic producers and domestic consumers both lose.

a. domestic producers gain and domestic consumers lose.

A tariff on a product makes a. domestic sellers better off and domestic buyers worse off. b. domestic sellers worse off and domestic buyers worse off. c. domestic sellers better off and domestic buyers better off. d. domestic sellers worse off and domestic buyers better off.

a. domestic sellers better off and domestic buyers worse off.

The size of the deadweight loss generated from a tax is affected by the a. elasticities of both supply and demand. b. elasticity of demand only. c. elasticity of supply only. d. total revenue collected by the government.

a. elasticities of both supply and demand.

When a good is rival in consumption, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. an unlimited number of people can use the good at the same time. d. everyone will be excluded from obtaining the good

a. one person's use of the good diminishes another person's ability to use it.

As the size of a tax rises, the deadweight loss a. rises, and tax revenue first rises, then falls. b. rises as does tax revenue. c. falls, and tax revenue first rises, then falls. d. falls as does tax revenue.

a. rises, and tax revenue first rises, then falls.

Suppose Jamaica has an absolute advantage over other countries in producing sugar, but other countries have a comparative advantage over Jamaica in producing sugar. If trade in sugar is allowed, Jamaica a. will import sugar. b. will export sugar. c. will either import sugar or export sugar, but it is not clear from the given information. d. would have nothing to gain either from exporting or importing sugar.

a. will import sugar.

The difference between social cost and private cost is a measure of the a. loss in profit to the seller as the result of a negative externality. b. cost of an externality. c. cost reduction when the negative externality is eliminated. d. cost incurred by the government when it intervenes in the market.

b. cost of an externality.

Consider a good for which the number of people who benefit from the good is large and the exclusion of any one those people is impossible. In this case, the market for this good will likely a. be provided by a private firm rather than the government. b. have a free-rider problem. c. not exist. d. be limited to a small number of units of production.

b. have a free-rider problem.

A tariff on a product a. enhances the economic well-being of the domestic economy. b. increases the domestic quantity supplied. c. increases the domestic quantity demanded. d. results in an increase in producer surplus that is greater than the resulting decrease in consumer surplus.

b. increases the domestic quantity supplied.

2. A deadweight loss is a consequence of a tax on a good because the tax a. induces the government to increase its expenditures. b. induces buyers to consume less, and sellers to produce less. c. increases the equilibrium price in the market. d. imposes a loss on buyers that is greater than the loss to sellers.

b. induces buyers to consume less, and sellers to produce less.

A free rider is a person who a. will only purchase a product on sale. b. receives the benefit of a good but avoids paying for it. c. can produce a good at no cost. d. rides public transit regularly.

b. receives the benefit of a good but avoids paying for it.

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic, a. buyers of the good will bear most of the burden of the tax. b. sellers of the good will bear most of the burden of the tax. c. buyers and sellers will each bear 50 percent of the burden of the tax d. the effective price paid by buyers will decrease as a result of the tax

b. sellers of the good will bear most of the burden of the tax.

If education produces positive externalities, we would expect a. the government to tax education. b. the government to subsidize education. c. people to realize the benefits, which would increase the demand for education. d. colleges to relax admission requirements.

b. the government to subsidize education.

Public schools, parks, libraries, and roads are paid for largely through tax revenue because a. society finds them so valuable that citizens are happy to pay for their full cost. b. these goods create a free-rider problem. c. if they were funded privately, too many of these goods would be produced. d. All of the above are correct.

b. these goods create a free-rider problem.

Private markets fail to account for externalities because a. externalities don't occur in private markets. b. sellers include costs associated with externalities in the price of their product. c. Decision makers in the market fail to include the costs of their behavior to third parties. d. the government cannot easily estimate the optimal quantity of pollution

c. Decision makers in the market fail to include the costs of their behavior to third parties.

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called a. control taxes. b. command levies. c. Pigovian taxes. d. Marshallian taxes.

c. Pigovian taxes.

When a country allows trade and becomes an importer of a good, a. both domestic producers and domestic consumers become better off. b. domestic producers become better off, and domestic consumers become worse off. c. domestic producers become worse off, and domestic consumers become better off. d. both domestic producers and domestic consumers become worse off.

c. domestic producers become worse off, and domestic consumers become better off.

A tariff a. lowers the domestic price of the exported good below the world price. b. keeps the domestic price of the exported good the same as the world price. c. raises the domestic price of the imported good above the world price. d. lowers the domestic price of the imported good below the world price

c. raises the domestic price of the imported good above the world price.

The Laffer curve illustrates that a. deadweight loss rises by the square of the increase in a tax. b. deadweight loss rises exponentially as a tax increases. c. tax revenue first rises, then falls as a tax increases. d. Both a) and b) are correct.

c. tax revenue first rises, then falls as a tax increases.

If a country is an exporter of a good, then it must be the case that a. the world price is less than its domestic price. b. consumer surplus is higher than a no trade situation. c. the world price is greater than its domestic price. d. they used an infant-industry argument to protect its producers

c. the world price is greater than its domestic price.

1. Taxes cause deadweight losses because they a. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. b. distort incentives to both buyers and sellers. c. prevent buyers and sellers from realizing some of the gains from trade. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements about private goods and public goods is correct? a. Private goods and public goods are both excludable. b. Private goods and public goods are both rival in consumption. c. Private goods are not excludable and public goods are excludable. d. Private goods are rival in consumption and public goods are not excludable.

d. Private goods are rival in consumption and public goods are not excludable.

Which of the following is a way to address an externality problem? a. command and control solution b. corrective tax c. corrective subsidy d. all of the above.

d. all of the above.

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the a. tax is placed on the sellers of the product. b. tax is placed on the buyers of the product. c. supply of the product is more elastic than the demand for the product. d. demand for the product is more elastic than the supply of the product.

d. demand for the product is more elastic than the supply of the product.

If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention.

d. government intervention.

When an externality is present, the market equilibrium is a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. efficient, but the equilibrium does not maximize the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

A cost imposed on someone who is neither the consumer nor the producer is called a a. corrective tax. b. command and control policy. c. positive externality. d. negative externality.

d. negative externality.

Goods that are excludable include both a. club goods and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and club goods.

d. private goods and club goods.

A streetlight is a a. private good. b. club good. c. common resource. d. public good.

d. public good.

The phenomenon of free riding is most closely associated with which type of good? a. private goods b. club goods c. common resources d. public goods d. public goods

d. public goods

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called a. the Pigovian theorem. b. a corrective tax. c. the externality theorem. d. the Coase theorem.

d. the Coase theorem.