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WorksheetsEC 110: Exam 2
Total questions: 88
Worksheet time: 51mins
For a price ceiling to be a binding constraint on the market, the government must set it
below the equilibrium price
at any price because all price ceilings are binding constraints
precisely at the equilibrium price
above the equilibrium price
A tariff
(a)
Producer surplus measures the
(a)
A legal maximum on the price at which a good can be sold is called a price
(a)
A tax on an imported good is called a
(a)
When a tax is placed on the buyers of lemonade, the
(a)
The decrease in total surplus that results from a market distortion, such as a tax, is called a
(a)
Total surplus in a market is equal to
(a)
Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?
(a)
At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true?
(a)
Producer surplus is
(a)
A price ceiling will be binding only if it is set
(a)
If Martin sells a shirt for $40, and his producer surplus from the sale is $8, his cost must have been
(a)
We can say that the allocation of resources is efficient if
(a)
A price floor is
a legal minimum on the price at which a good can be sold
often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor
a source of inefficiency in a market
All of the above are correct
On a graph, the area below a demand curve and above the price measures
producer surplus
consumer surplus
deadweight loss
willingness to pay
If a binding price floor is imposed on the video game market, then
the demand for video games will decrease
the supply of video games will increase
a surplus of video games will develop.
All of the above are correct
A consumer's willingness to pay directly measures
the extent to which advertising and other external forces have influenced the consumer’s preferences
the cost of a good to the buyer
how much a buyer values a good
consumer surplus
Tax incidence
depends on the legislated burden
is entirely random
depends on the elasticities of supply and demand
falls entirely on buyers or entirely on sellers
A price floor will be binding only if it is set
equal to the equilibrium price
above the equilibrium price
below the equilibrium price
either above or below the equilibrium price
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,
the demand for treadmills will increase
the supply of treadmills will decrease
a shortage of treadmills will develop
All of the above are correct
The term tax incidence refers to
whether buyers or sellers of a good are required to send tax payments to the government
whether the demand curve or the supply curve shifts when the tax is imposed
the distribution of the tax burden between buyers and sellers
widespread view that taxes (and death) are the only certainties in life
A tax burden falls more heavily on the side of the market that
has a fewer number of participants
is more inelastic
is closer to unit elastic
is less inelastic
The price of a good that prevails in a world market is called the
absolute price.
relative price.
comparative price.
world price.
Suppose an industry emits a negative externality such as pollution, and the possible methods to internalize the externality are command-and-control policies, corrective taxes, and tradable pollution permits. If economists were to rank these methods for internalizing a negative externality based on efficiency, ease of implementation, and the incentive for the industry to further reduce pollution in the future, they would likely rank them in the following order (from most favored to least favored):
tradable pollution permits, command-and-control policies, corrective taxes.
tradable pollution permits, corrective taxes, command-and-control policies.
They would all rank equally high because the same result can be obtained from any one of the policies.
command-and-control policies, tradable pollution permits, corrective taxes.
When wealthy alumni provide charitable contributions to their alma mater to reduce the tuition payments of current students, it is an example of
an attempt to internalize a negative externality.
a corrective tax.
an attempt to internalize a positive externality.
a command-and-control policy.
Tradable pollution permits
determine the demand for pollution rights.
set the quantity of pollution.
set the price of pollution.
reduce the incentive for technological innovations to further reduce pollution.
A corrective tax on pollution
sets the quantity of pollution.
determines the demand for pollution rights.
sets the price of pollution.
reduces the incentive for technological innovations to further reduce pollution.
The gas-guzzler tax that is placed on new vehicles that get very poor mileage is an example of
an application of the Coase theorem.
a tradable pollution permit.
an attempt to internalize a negative externality.
an attempt to internalize a positive externality.
Which of the following is true regarding tradable pollution permits and corrective taxes?
Corrective taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits.
Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can reduce pollution at the lowest cost.
To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights.
Corrective taxes and tradable pollution permits create an efficient market for pollution.
Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at a value of $150. Which of the following statements is true about an efficient solution to this externality problem if Bob has the right to play loud music and if there are no transaction costs?
Tom will pay Bob between $100 and $150 and Bob will continue to play loud music.
Bob will pay Tom $100 and Bob will stop playing loud music.
Tom will pay Bob between $100 and $150 and Bob will stop playing loud music.
Bob will pay Tom $150 and Bob will continue to play loud music.
Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at a value of $150. Which of the following statements is true?
It is efficient for Bob to stop playing loud music only if Tom has the property right to peace and quiet.
It is efficient for Bob to continue to play loud music.
It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound.
It is efficient for Bob to stop playing loud music only if Bob has the property right to play loud music.
According to the Coase theorem, private parties can solve the problem of externalities if
there are no transaction costs.
each affected party has equal power in the negotiations.
the government requires them to negotiate with each other.
there are a large number of affected parties.
The most efficient pollution control system would ensure that
no pollution of the environment is tolerated.
each polluter reduce its pollution an equal amount.
the regulators decide how much each polluter should reduce its pollution.
the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.
When an individual buys a car in a congested urban area, it generates
a technology spillover.
an efficient market outcome.
a negative externality.
a positive externality.
The government engages in an industrial policy
by allocating tradable technology permits to high technology industry.
to internalize the negative externality associated with industrial pollution.
to help stimulate private solutions to the technology externality.
to internalize the positive externality associated with technology-enhancing industries.
To internalize a negative externality, an appropriate public policy response would be to
ban the production of all goods creating negative externalities.
tax the good.
have the government take over the production of the good causing the externality.
subsidize the good.
Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality?
costs incurred due to lawyers' fees
costs incurred to reduce the pollution
costs incurred to enforce the agreement
costs incurred due to a large number of parties affected by the externality
A positive externality (that has not been internalized) causes the
equilibrium quantity to exceed the optimal quantity.
equilibrium quantity to equal the optimal quantity.
equilibrium quantity to be either above or below the optimal quantity.
optimal quantity to exceed the equilibrium quantity.
A negative externality (that has not been internalized) causes the
optimal quantity to exceed the equilibrium quantity.
equilibrium quantity to equal the optimal quantity.
equilibrium quantity to exceed the optimal quantity.
equilibrium quantity to be either above or below the optimal quantity.
A positive externality generates
a social cost curve that is above the supply curve (private cost curve) for a good.
a social value curve that is above the demand curve (private value curve) for a good.
a social value curve that is below the demand curve (private value curve) for a good.
none of the above.
A negative externality generates
a social cost curve that is above the supply curve (private cost curve) for a good.
a social cost curve that is below the supply curve (private cost curve) for a good.
a social value curve that is above the demand curve (private value curve) for a good.
none of the above.
An externality is
the benefit that accrues to the buyer in a market.
the cost that accrues to the seller in a market.
the uncompensated impact of one person's actions on the well-being of a bystander.
the compensation paid to a firm's external consultants.
Trees take carbon dioxide out of the air and convert it to oxygen, so the government funds a tree-planting initiative by offering $200 to any citizen who plants a tree.
Command-and-Control Policy
Tradable Permit System
Corrective Subsidy
Corrective Tax
If the impact on the third party is adverse, it is called a _____ externality.
Positive
Negative
Because producers are better able to organize than consumers are, we would expect there to be political pressure to create
free trade.
import restrictions.
export restrictions.
none of the above.
Which of the following is not employed as an argument in support of trade restrictions?
Free trade harms infant industries in an importing country.
Free trade destroys domestic jobs.
Free trade harms the national security if vital products are imported.
Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.
Which of the following statements about import quotas is true?
An import quota reduces the price to the domestic consumers.
Import quotas are preferred to tariffs because they raise more revenue for the imposing government.
For every tariff, there is an import quota that could have generated a similar result.
Voluntary quotas established by the exporting country generate no deadweight loss for the importing country.
Which of the following statements about a tariff is true?
A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and increases total surplus.
A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and increases total surplus.
A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and reduces total surplus.
A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus.
When politicians argue that outsourcing or offshoring of technical support to India by Dell Computer Corporation is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade?
the national-security argument
the infant-industry argument
the jobs argument
the deadweight-loss argument
When a country allows trade and exports a good,
domestic consumers are better off, domestic producers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners.
domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.
domestic consumers are better off, domestic producers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.
domestic producers are better off, domestic consumers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners.
If the world price for a good exceeds the before-trade domestic price for a good, then that country must have
an absolute disadvantage in the production of the good.
a comparative advantage in the production of the good.
an absolute advantage in the production of the good.
a comparative disadvantage in the production of the good.
Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,
consumers will gain and producers will lose.
producers will gain and consumers will lose.
both producers and consumers will gain.
both producers and consumers will lose.
If free trade is allowed, a country will export a good if the world price is
below the before-trade domestic price of the good.
above the before-trade domestic price of the good.
equal to the before-trade domestic price of the good.
none of the above.
When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has
reduced the price buyers pay.
caused a deadweight loss.
generated no tax revenue.
increased efficiency.
The reduction of a tax
could increase tax revenue if the tax had been extremely high.
causes a market to become less efficient.
will always reduce tax revenue regardless of the prior size of the tax.
will have no impact on tax revenue.
If a tax on a good is doubled, the deadweight loss from the tax
stays the same
doubles
could rise or fall
increases by a factor of four
The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a
deadweight curve
tax revenue curve
laffer curve
reagan curve
When a tax on a good starts small and is gradually increased, tax revenue will
rise
fall
rise then fall
fall then rise
Taxes on labor income tend to encourage
workers to work fewer hours.
second earners to stay home.
the elderly to retire early.
the unscrupulous to enter the underground economy.
all of the above
Suppose the supply of diamonds is relatively inelastic. A tax on diamonds would generate a
small deadweight loss and the burden of the tax would fall on the buyer of diamonds.
large deadweight loss and the burden of the tax would fall on the buyer of diamonds.
large deadweight loss and the burden of the tax would fall on the seller of diamonds.
small deadweight loss and the burden of the tax would fall on the seller of diamonds.
Deadweight loss is greatest when
both supply and demand are relatively inelastic.
both supply and demand are relatively elastic.
supply is elastic and demand is perfectly inelastic.
demand is elastic and supply is perfectly inelastic.
A tax on gasoline is likely to
cause a greater deadweight loss in the long run when compared to the short run.
cause a greater deadweight loss in the short run when compared to the long run.
generate a deadweight loss that is unaffected by the time period over which it is measured.
None of the above is correct.
Which of the following is true with regard to the burden of the tax in Exhibit?
The sellers pay a larger portion of the tax because supply is more elastic than demand.
The buyers pay a larger portion of the tax because demand is more elastic than supply.
The sellers pay a larger portion of the tax because supply is more inelastic than demand.
The buyers pay a larger portion of the tax because demand is more inelastic than supply.
Which of the following would likely cause the greatest deadweight loss?
a tax on salt
a tax on cigarettes
a tax on gasoline
a tax on cruise line tickets
For which of the following products would the burden of a tax likely fall more heavily on the sellers?
clothing
food
entertainment
housing
Which of the following statements about the burden of a tax is correct?
The tax burden generated from a tax placed on a good consumers perceive to be a necessity will fall most heavily on the sellers of the good.
The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation.
The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavorable to them.
The burden of a tax lands on the side of the market (buyers or sellers) from which it is collected.
The burden of a tax falls more heavily on the buyers in a market when
demand is inelastic and supply is elastic.
demand is elastic and supply is inelastic.
both supply and demand are elastic.
both supply and demand are inelastic.
A tax placed on a good that is a necessity for consumers will likely generate a tax burden that
falls more heavily on buyers.
is evenly distributed between buyers and sellers.
falls more heavily on sellers.
falls entirely on sellers.
The burden of a tax falls more heavily on the sellers in a market when
demand is inelastic and supply is elastic.
demand is elastic and supply is inelastic.
both supply and demand are elastic.
both supply and demand are inelastic.
A tax of $1.00 per gallon on gasoline
increases the price the buyers pay by $1.00 per gallon.
places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive.
decreases the price the sellers receive by $1.00 per gallon.
increases the price the buyers pay by precisely $0.50 and reduces the price received by sellers by precisely $0.50.
When a tax is collected from the buyers in a market,
the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.
the tax burden falls most heavily on the buyers.
the buyers bear the burden of the tax.
the sellers bear the burden of the tax.
Which of the following takes place when a tax is placed on a good?
an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold
a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold
a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold
an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold
Within the supply-and-demand model, a tax collected from the sellers of a good shifts the
demand curve upward by the size of the tax per unit.
demand curve downward by the size of the tax per unit.
supply curve upward by the size of the tax per unit.
supply curve downward by the size of the tax per unit.
Within the supply-and-demand model, a tax collected from the buyers of a good shifts the
demand curve upward by the size of the tax per unit.
supply curve upward by the size of the tax per unit.
supply curve downward by the size of the tax per unit.
demand curve downward by the size of the tax per unit.
Studies show that a 10 percent increase in the minimum wage
decreases teenage employment by about 1 to 3 percent.
decreases teenage employment by about 10 to 15 percent.
increases teenage employment by about 10 to 15 percent.
increases teenage employment by about 1 to 3 percent.
Which of the following statements is true if the government places a price ceiling on gasoline at $4.00 per gallon and the equilibrium price is $3.00 per gallon?
There will be a shortage of gasoline.
A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint.
A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint.
There will be a surplus of gasoline.
Which of the following is an example of a price floor?
rent controls
restricting gasoline prices to $2.00 per gallon when the equilibrium price is $3.00 per gallon
the minimum wage
All of the above are price floors.
The surplus caused by a binding price floor will be greatest if
both supply and demand are elastic.
both supply and demand are inelastic.
supply is inelastic and demand is elastic.
demand is inelastic and supply is elastic.
Which side of the market is more likely to lobby government for a price floor?
Neither buyers nor sellers desire a price floor.
Both buyers and sellers desire a price floor.
the sellers
the buyers
Which of the following statements about a binding price ceiling is true?
The surplus created by the price ceiling is greater in the short run than in the long run.
The surplus created by the price ceiling is greater in the long run than in the short run.
The shortage created by the price ceiling is greater in the short run than in the long run.
The shortage created by the price ceiling is greater in the long run than in the short run.
A price floor
always determines the price at which a good must be sold
sets a legal maximum on the price at which a good can be sold
sets a legal minimum on the price at which a good can be sold
is not a binding constraint if it is set above the equilibrium price
Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls?
Landlords may discriminate among apartment renters
There may be long lines of buyers waiting for apartments
The quality of apartments will improve
There will be a shortage of housing
Landlords may be offered bribes to rent apartments
A binding price ceiling creates
a shortage
a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price
a surplus
an equilibrium
The government limits total carbon-dioxide emissions by all factories to 290,000 tons per year. Each individual factory is given the right to emit 300 tons of carbon dioxide, and factories may buy and sell these rights in a marketplace.
Command-and-Control Policy
Tradable Permit System
Corrective Subsidy
Corrective Tax
The government charges factories $200 for every ton of carbon dioxide they emit.
Command-and-Control Policy
Tradable Permit System
Corrective Subsidy
Corrective Tax
The government orders every factory to reduce its emissions to no more than 300 tons of carbon dioxide per year.
Command-and-Control Policy
Tradable Permit System
Corrective Subsidy
Corrective Tax
To internalize a positive externality, an appropriate public policy response would be to
ban the production of all goods creating negative externalities.
tax the good.
have the government take over the production of the good causing the externality.
subsidize the good.
