micro midterm 2
A traffic light at an intersection is
not rival and not excludable in consumption.
A good is excludable if
people can be prevented from using it.
The size of a tax and the deadweight loss that results from the tax are
positively related.
The goal of requiring licenses for hunting and fishing is to
reduce the use of a common resource.
Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is
120
For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is
2250
Which of the following illustrates the concept of a negative externality?
A college student plays loud music on his new stereo system at 2:00 a.m.
The tax causes producer surplus to decrease by the area
D+F, The area above the supply curve. The middle line
Which of the following statements is not correct?
Government policies cannot improve upon private market outcomes.
Which of the following statements regarding a Laffer curve is the most plausible?
Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.
What causes the Tragedy of the Commons?
Social and private incentives differ, and common resources are not excludable but are rival in consumption.
Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good that is not excludable and not rival in consumption?
Tablet computer, national defense
Which of the following is not a commonly-advanced argument for trade restrictions?
The efficiency argument
Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the f
The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?
The response of buyers and sellers to a change in the price of bananas is strong.
Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?
They are equal.
The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could
auction off a limited number of sheep-grazing permits.
Market failure associated with the free-rider problem is a result of
benefits that accrue to those who don't pay.
Pay-per-view broadcasts are
club goods.
Goods that are rival in consumption include both
common resources and private goods.
Before considering any public project, the government should
conduct a cost-benefit analysis and compare the total cost and total benefits of the project.
When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,
consumer surplus decreases and total surplus decreases in the market for that good.
When a country that imports a particular good imposes an import quota on that good,
consumer surplus decreases and total surplus decreases in the market for that good.
Refer to Figure 9-4. When the country for which the figure is drawn allows international trade in crude oil
consumer surplus for domestic crude oil consumers decreases.
When trade in coffee is allowed, consumer surplus in Guatemala
decreases by the area B + D. The area under the tax to the supply curve
If the government changed the per-unit tax from $5.00 to $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would
decrease government revenue and decrease the deadweight loss from the tax.
If this market is currently producing at Q4, then total economic well-being would be maximized if output
decreased to Q2. (The social equilibrium)
Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax
increases by more than 20 percent.
When the nation of Worldova allows trade and becomes an exporter of silk,
residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.
Scenario 10-1The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10;• a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. From the given information, it is apparent that
the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable.