ECON 213 quiz 6 complete solutions answers Liberty University

ECON 213 quiz 6 complete solutions answers Liberty University

More than 7 different versions

Question 1 The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

Question 2 Refer to the following information to answer the questions that follow. Two firms both emit a pollutant, and the government wants to reduce emissions of this pollutant. Each firm can choose to emit up to six units. As firms reduce emissions, there is a marginal cost per unit. This data is presented in the accompanying table.

The government allocates three allowances to each firm, where each allowance allows one unit to be emitted. The optimal outcome in this case is for __________ to sell one permit to the other firm, and a price that will be agreeable to both is __________.

Question 3 The tragedy of the commons occurs because the good being produced is:

Question 4 The ability to download music and movies from the Internet without paying is:

Question 5 You share a house with two other people. You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of __________; for the other roommate, it is an example of __________.

Question 6 An external cost is best defined as the cost of an activity paid for by:

Question 7 The costs or benefits of a market activity that affect a third party are called:

Question 8 Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Question 9 When a negative externality is not internalized, then the equilibrium price of the good produced is too __________ and the equilibrium quantity produced is too __________.

Question 10 To reduce the level of pollution emitted by firms in an industry, the government could use a capand­trade policy or a carbon tax. Which of the following is true?

Question 11 Consider the accompanying figure to answer the questions that follow

When a positive externality exists, which point best identifies the social optimum?

Question 12 Copyright laws exist to:

Question 13 A good that is rival and nonexcludable is defined as a:

Question 14 The government identifies a situation where production of a good is generating a negative externality. A reasonable option for the government to consider is to:

Question 15 The amount you pay for gasoline for your car is an example of a(n):

Question 16 The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

Question 17 The market overproduces common­resource goods because private decision­makers consider __________ costs but society experiences __________ costs.

Question 18 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Question 19 Which of the following is true of a negative externality?

Question 20 Museum visits in a particular city are free. This good is:

Question 1 The costs or benefits of a market activity that affect a third party are called:

Question 2 When production of a good creates an external benefit:

Question 3 External costs are the result of the actions of:

Question 4 When people elect to spend more years in school, this results in a __________ externality because there are __________ associated with this decision.

Question 5 The costs of a market activity paid for by an individual engaged in the market activity are:

Question 6 Refer to the accompanying figure to answer the questions that follow.

At the market equilibrium, price is equal to __________ units of the good are produced.

Question 7 Refer to the accompanying table, where Q represents the quantity produced, internal cost and external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

The market equilibrium occurs where price is __________ and quantity is __________.

Question 8 The tragedy of the commons occurs for goods that are:

Question 9 Consider the following scenario when answering the questions that follow: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data:

If property rights over the river are assigned to Jones, then:

Question 10 The cost of an activity paid for by the individual and the third party is defined as a(n):

Question 11 Consider a market where production of a good generates a negative externality. In the market equilibrium,

Question 12 Which of the following characteristics best defines a public good?

Question 13 Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

Question 14 Refer to the accompanying figure. Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?

Question 15 Which of the following characteristics best defines a private good?

Question 16 When a negative externality is not internalized, then the equilibrium price of the good produced is too __________ and the equilibrium quantity produced is too __________.

Question 17 Consider the production of a private good such as a car, and a common­resource good such as fish. What do the markets for these two goods have in common?

Question 18 The amount you pay for insurance on your car is an example of a(n):

Question 19 Which good has well­defined property rights?

Question 20 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Question 1

Copyright laws exist to:

Question 2

Externalities are minimized if:

Question 3

To reduce the level of pollution emitted by firms in an industry, the government could use a capandtrade policy or a carbon tax. Which of the following is true?

Question 4

External benefits arise from the actions of:

Question 5

What type of good is often provided by the government because it is hard to get people to voluntarily contribute their fair share of the expense?

Question 6

Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

Question 7

A good that is nonrival and excludable is defined as a:

Question 8

Which goods are sold in markets?

Question 9

The thirdparty problem:

Question 10

An internal cost is best defined as the cost of an activity paid for by:

Question 11

A major reason why the market equilibrium for a manufactured good may not be efficient is:

Question 12

The city decides to offer a subsidy to each homeowner’s association that plants more flowers in their common areas. In the market for flowers, this will cause the:

Question 13

Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow.

If the government sets a quota of 300 pounds of fish caught per day and issues a license that entitles the holder to catch 20 pounds of fish per day, then the value of the license is:

Question 14

Consider the accompanying figure to answer the questions that follow.

When a positive externality exists, which point best identifies the social optimum?

Question 15

Consider the following scenario when answering the questions that follow:

Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data:

If property rights over the river are assigned to Smith, then:

Question 16

Externalities exist because:

Question 17

Consider the following scenario when answering the questions that follow:

Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data:

If property rights over the river are assigned to Jones, then:

Question 18

The music you buy on the Internet is:

Question 19

Congestion charges cause the price of driving to __________. Therefore, the number of cars on the road will __________.

Question 20

According to the Coase theorem, negative externalities can be internalized if:

The city decides to offer a subsidy to each homeowner’s association that plants more flowers in their common areas. In the market for flowers, this will cause the

Museum visits in a particular city are free. This good is

Which of the following characteristics best defines a common-resource good

If the government imposes a tax on each aluminum can sold, payable by consumers when they purchase the item, then, in the market for goods sold in aluminum cans, the

Consider a market where production of a good generates a negative externality. In the market equilibrium,

Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of

Which of the following is the best definition of a cap-and-trade policy for pollution

Which of the following characteristics best defines a private good?

The Coase theorem suggests that private parties:

Which good is nonrival?

Consider a market with a negative externality. The market will tend to __________ the good because the market participants tend to ignore the __________ of their decision.

The tragedy of the commons occurs for goods that are:

Consider the accompanying figure to answer the questions that follow.
A positive externality exists and the government does not intervene. Which point best identifies the market equilibrium?

Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point:

If the government implements a cap-and-trade system to reduce pollution in a particular industry, then the:

When people elect to spend more years in school, this results in a __________ externality because there are __________ associated with this decision.

Which goods are sold in markets?

The personal decisions of consumers and firms are based on:

You share a house with two other people. You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of __________; for the other roommate, it is an example of __________.

A major reason why public goods are not supplied by the market is the:

If the government imposes a tax on each aluminum can sold, payable by consumers when they purchase the item, then, in the market for goods sold in aluminum cans, the

Consider a market where production of a good generates a negative externality. In the market equilibrium

Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point

If the government implements a cap-and-trade system to reduce pollution in a particular industry, then the

When people elect to spend more years in school, this results in a __________ externality because there are __________ associated with this decision

Which goods are sold in markets?

You share a house with two other people. You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of __________; for the other roommate, it is an example of __________.

Question 1 The government imposes a tax on the sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, you would expect:

Question 2 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day, then fish will sell for:

Question 3 The tragedy of the commons occurs for goods that are:

Question 4 Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

Question 5 A positive externality exists whenever:

Question 6 Consider a market with a negative externality. The market will tend to __________ the good because the market participants tend to ignore the __________ of their decision.

Question 7 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Question 8 Which of the following characteristics best defines a private good?

Question 9 Consider the market for refined oil. In the market equilibrium,

Question 10 Common resources are:

Question 11 Which good is nonrival?

Question 12 If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to __________ and the equilibrium quantity to __________.

Question 13 Refer to the accompanying figure to answer the questions that follow. The figure best illustrates what type of market?

Question 14 A negative externality exists whenever:

Question 15 Refer to the accompanying table, where Q represents the quantity produced, internal cost and external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities. The market equilibrium occurs where price is __________ and quantity is __________.

Question 16 It is best to reduce the level of pollution:

Question 17 Refer to the accompanying figure. Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?

Question 18 Positive externalities have __________ for third parties.

Question 19 Global warming is an example of:

Question 1 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day, then fish will sell for __________ more per pound than the cost of catching the fish.

Question 2 The tragedy of the commons occurs because the good being produced is:

Question 3 The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

Question 4 Which of the following characteristics best defines a public good?

Question 5 The market works efficiently in the absence of externalities if the good is:

Question 6 Visiting the public beach during summer is an example of an activity that is:

Question 7 Copyright laws exist to:

Question 8 The market overproduces common­resource goods because private decision­makers consider __________ costs but society experiences __________ costs.

Question 9 Which of the following characteristics best defines a private good?

Question 10 Your neighbor is an avid gardener who changes his flower displays four times per year and who was given the “best yard on the block” award last year. While you personally enjoy these changing flower displays, some of your neighbors have said they do not like some of the flowers your neighbor chooses to plant. For you, this is an example of:

Question 11 The ability to download music and movies from the Internet without paying is:

Question 12 Consider the following scenario when answering the questions that follow: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data: If property rights over the river are assigned to Jones, then:

Question 13 Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Question 14 It is best to reduce the level of pollution:

Question 15 To reduce the level of pollution emitted by firms in an industry, the government could use a cap­and­trade policy or a carbon tax. Which of the following is true?

Question 16 Which rule would not protect fish populations?

Question 17 The costs of a market activity paid for by an individual NOT engaged in the market activity are:

Question 18 The city decides to offer a subsidy to each homeowner’s association that plants more flowers in their common areas. In the market for flowers, this will cause the:

Question 19 Which good has well­defined property rights?

Question 20 If the government decides to adopt a carbon tax, the price of goods whose production generates carbon emissions will __________ and the quantity produced will __________.

Question 1 Refer to the following scenario to answer the questions that follow. Five fishermen live in a village and have no other employment or income­earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that, when there are more of them out on the river fishing, they each catch fewer fish per month. If four boats operate, then each boat will make a profit of:

Question 2 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day and issues a license that entitles the holder to catch 20 pounds of fish per day, then the value of the license is:

Question 3 If government regulation forces firms in an industry to internalize the externality, then the:

Question 4 Consider the following scenario when answering the questions that follow: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data: If property rights over the river are assigned to Jones, then:

Question 5 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day, then fish will sell for __________ more per pound than the cost of catching the fish.

Question 6 Copyright laws exist to:

Question 7 A good that is nonrival and excludable is defined as a:

Question 8 Which of the following is the best definition of a cap­and­trade policy for pollution?

Question 9 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Question 10 Refer to the following scenario to answer the questions that follow. Five fishermen live in a village and have no other employment or income­earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that, when there are more of them out on the river fishing, they each catch fewer fish per month. How many fishermen will choose to operate their boats?

Question 11 For a market to work efficiently:

Question 12 A major reason why public goods are not supplied by the market is the:

Question 13 Which of the following is true?

Question 14 The ability to download music and movies from the Internet without paying is:

Question 15 Externalities exist because:

Question 16 Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Question 17 Refer to the accompanying figure to answer the questions that follow. At the market equilibrium, price is equal to __________ units of the good are produced.

Question 18 Two policy options for reducing emissions are cap­and­trade and the carbon tax. Which of the following is true?

Question 19 The personal decisions of consumers and firms are based on:

Question 20 Which of the following is the best example of a common­resource good?

A good that is rival and excludable is defined as a

The costs or benefits of a market activity that affect a third party are called

Museum visits in a particular city are free. This good is

The Coase theorem suggests that private parties

Refer to the accompanying figure to answer the questions that follow. Total utility is maximized at the:

Timothy is trying to figure out what combination of bags of peanuts and bags of popcorn he should buy with his $13 budget. The price of peanuts is currently $5 per bag and the price of popcorn is currently $2 per bag. If Timothy’s marginal utility from consuming his third bag of peanuts is 15 utils and his marginal utility from consuming his second bag of popcorn is 6 utils, Timothy should:

Diminishing marginal utility:

Utility theory seeks to measure:

Kati-Lyn has to choose between eating Chinese food and Indian food. Both Chinese food and Indian food cost the same. Which of the following equations, where MU is marginal utility and U is total utility, will lead to the optimal level of consumption?

Phillip is deciding between consuming Good X and Good Y. At his current level of consumption, his marginal utility per dollar for Good X is less than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Phillip needs to:

Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was:

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:

When the average total cost curve is downward-sloping, what must be true about the marginal cost curve?

Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are:

Total revenue minus total cost is equal to:

In the short run, average total costs and average variable costs converge as output increases because:

When the average variable cost curve is upward-sloping, what must be true about the marginal cost curve?

Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. From this information, we know that his accounting profit was:

If the market price of a product is between the minimum average variable cost (AVC) and minimum average total cost (ATC) of a firm, that firm will...

When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

You share a house with two people . You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of ______; for the other roommate it is an example of _____.

An example of price discrimination is when:

Monopolistically competitive firms that are earning zero economic profit would most likely:

If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to _____ and the equilibrium quantity to _____.

The change in total cost given a change in output is also known as:

What is necessary for price discrimination to occur

Kim owns a cupcake shop in Newport, CA. The market for cupcakes is very competitive. At Kim's current production level, her marginal cost is $25 and her marginal revenue is $29. To maximize profits, Kim should?

Accounting profit is equal to:

Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

Total revenue minus total cost is equal to:

What is an example of a good that is non rival

A tax on apples would cause consumers to suffer because:

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of:

If a monopolistically competitive firm is incurring losses, then at the profit maximizing output amount:

In 1996 Victoria's Secret shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with high prices for those same items. What is the firm's motivation for practicing price discrimination, despite knowing that if their customers' found out, the company could potentially experience a loss in sales?

If Tommy's Tank Tops is a perfectly competitive firm and is currently making a positive economic profits of $1,000:

Charlie's Churros is a perfectly competitive firm that sells desserts in Houston, Texas. Charlie's Churros currently is taking in $40,000 in revenues, and has $15,000 in explicit costs and $25,000 in implicit costs. Charlie's Churro's economic profits are:

Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:

Compared to producers, consumers will lose the greater amount of surplus from a tax if:

You can tell a firm is operating in a market that is in long run competitive equilibrium if:

When talking about economic profits in a perfectly competitive market, the difference between the long run and the short run is that, in the short run, firms:

When a negative externality is not internalized, then the equilibrium price of the good purchased is too___ and the equilibrium quantity produced is too ___.

Consumer surplus is defined as the:

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should:

A tax on apples would cause apple growers to suffer because:

Both monopolies and competitive firms:

If a firm's average total costs decrease as it increases its scale of production, the firm is experiencing:

Which of the following is a question that a firm must answer in the long run but not in the short run?

Fast food restaurants are a good illustration of:

If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should:

The incidence of a tax is determined by:

It is unrealistic to regulate a natural monopoly at marginal cost pricing because:

Two government created barriers to entry are:

Compared to consumers, producers will lose the greater amount of surplus from a tax if:

In competitive markets:

The fast food, bottled water, and cereal markets are all examples of:

When demand is perfectly inelastic, the demand curve is:

The government imposes a tax on sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, you would expect:

Nathan owns a coffee roasting company. He buys raw coffee beans, roasts them, grinds them, and sells them to stores. He recently moved into a larger factory so that he can sell coffee to more stores. How would Nathan know if he is experiencing constant returns to scale from increasing the size of his factory?

If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of tax will be borne:

If a firm hires another worker and her marginal product of labor is zero, we know that the firm's total output is:

To maximize profits, a monopolist chooses the quantity where:

If Nicole's Knick Knacks is a perfectly competitive firm and is making zero economic profits:

Despite creating maximum market efficiency, perfect price discrimination is often disliked by consumers because it transfers the gains in trade from:

1. The Sunny Softball league finds that when it changed its ticket prices from $10 to $5, there was a more than proportional increase in attendance.  The price elasticity of demand is:

a.              perfectly inelastic.

b.              inelastic.

c.               elastic.

d.              perfectly elastic.

e.               unitary elastic.

2. When the price elasticity of demand is elastic, a consumer is

a.              completely unresponsive to a change in price.

b.              relatively unresponsive to a change in price.

c.               unaffected by a change in price.

d.              relatively responsive to a change in price.

e.               completely responsive to a change in price.

3. Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs.  Calculate the absolute value of the price elasticity of demand.

a.  1.67

b.  1.0

c.  0.6

d.  0.53

4. Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs.  Calculate the absolute value of the price elasticity of demand. Use the midpoint method.

a.  1.67

b.  1.0

c.  0.6

d.  0.53

5. There are two goods: good A and good B. Good A has a demand curve with a flatter slope; good B has a more steeply sloped demand curve.  Which good is more price elastic?

a.              Good A

b.              Good B

c.               They are equally price elastic

d.              There is not enough information to decide

6. There are two goods: good A and good B. Good A has a demand curve with a flatter slope; good B has a more steeply sloped demand curve.  For which good are consumers more price sensitive?

a.              Good A

b.              Good B

c.               They are equally price elastic

d.              There is not enough information to decide

7. The introduction of new gaming systems that effectively competed for the Nintendo console market share will made the demand for Nintendo consoles become:

a.              more price elastic

b.              more price inelastic

c.               perfectly price elastic

d.              perfectly price inelastic

e.               unchanged

8. The curve in the above graph is a

a.              standard demand curve

b.              standard supply curve

c.               perfectly elastic demand or supply curve

d.              perfectly inelastic demand or supply curve

9. Which price elasticity of demand indicates an elastic good?

a.              0

b.              -0.25

c.               -1

d.              -2.5

10. Which income elasticity of demand indicates a normal good—necessity?

a.              -0.5

b.              0.5

c.               1

d.              2.2

11. Which income elasticity of demand indicates a normal good—luxury?

a.              -0.5

b.              0.5

c.               1

d.              2.2

12. Which income elasticity of demand indicates an inferior good?

a.              -0.5

b.              0.5

c.               1

d.              2.2

13. Which cross-price elasticity of demand indicates substitute goods?

a.              0.5

b.              0

c.               -0.5

d.              -2.5

14. Consumer surplus is the difference between ________ and ________.

a. supply; demand.

b. the price the producer receives; the willingness to sell a good.

c. the willingness to pay for a good; the willingness to sell a good.

d. the willingness to pay for a good; the amount that is paid to get it

e. the price paid for a good; the amount of the good produced.

15. A nonbinding price ceiling would result in a

a. Surplus

b. Shortage

c. Both a surplus and a shortage

d. Neither a surplus nor a shortage

The following diagram illustrates the demand and supply curves for taxi rides to and from Atlanta International Airport.  Assume that originally, the market is in equilibrium with a price of $16 and an equilibrium quantity of 320 taxi rides.  Next suppose that the city of Atlanta imposes a price ceiling on the price of taxi rides that limits the legal price that can be charged for a taxi ride to $10.

16. Prior to the imposition of the price ceiling what is the value of producer surplus in the taxi ride market? 

a. A+B+C (10,240)

b. D+E+H (2,560)

c. B+D (6,000)

d. C+E (1,800)

17. After the imposition of the price ceiling what is the value of producer surplus in the taxi ride market? 

a. D+E+F (1920)

b. D+E+H (2,560)

c. H (1,000)

d. C+E (1,800)

18. The deadweight loss associated with the price ceiling is

a)       B+D (6,000)

b)       C+E (1,800)

c)       F (360)

d)       There is no deadweight loss

19. After the imposition of the price ceiling, there is:

a)  an excess supply of taxi rides

b) an excess demand for taxi rides

c)  market clearing

d) some excess supply, but more excess demand

The figure above shows the market for root beer.  The government plans to impose a unit tax in this market.

20. The price sellers receive after the tax is

A) $7.

B) $20.

C) $22.

D) $27.

21. What is consumer surplus after the tax is imposed?

A) $5.

B) $10.

C) $125.

D) $250.

22.       Graciela is willing to sell 1 dozen roses for $50, while Giuseppe is willing to sell 1 dozen roses for $60.  Carlos is willing to buy 1 dozen roses for $60, while Yuriko is willing to pay $50.  If the market price is $52, how many roses are sold and what is the sum total of consumer and producer surplus after the transaction(s)?

a)        One dozen roses will be sold, and the total consumer and producer surplus will be $10.

b)        One dozen roses will be sold, and the total consumer and producer surplus will be $16.

c)         Two dozen roses will be sold, and the total consumer and producer surplus will be $16.

d)        No roses will be sold, and consequently the total consumer and producer surplus will be $0.

23.       Under what circumstances does the burden of an excise tax fall mainly on producers?

a)        when the supply is relatively inelastic and demand is fairly elastic

b)        when the supply is relatively elastic and demand is fairly inelastic

c)         when consumers do not have many substitutes for the good

d)        when it is easy for suppliers to expand production of the good

24.       Which of the following statements is true?

a)        The amount of deadweight loss from an excise tax will increase as the demand becomes more inelastic.

b)        The amount of deadweight loss resulting from an excise tax will increase as the demand becomes more  elastic

c)         An excise tax does not create a deadweight loss if the taxed good is a necessity.

d)        An excise tax does not create a deadweight loss if the taxed good is a luxury.

25. Taxes will almost always cause the price charged to consumers to increase. How much the consumer price increases depends on:

a. how often the government collects the tax.

b. the amount of the tax.

c. who pays the tax out of pocket.

d. who is legally obligated to pay the tax.

e. the elasticities of supply and demand.

26. Taxing goods with very elastic supply generates more deadweight loss than taxing goods with very inelastic supply because:

a. the amount of the tax is larger.

b. the change in producer behavior is greater

c. producers have to pay these taxes out of pocket.

d. the change in producer behavior is smaller.

e. the government does not bother collecting the revenue.

27. The revenue generated from a tax equals:

a. the amount of the good sold times the original price of the good.

b. the amount of the tax times the quantity sold after the tax is imposed

c. the total social welfare lost as a result of the tax.

d. the deadweight loss from the tax.

e. the total consumer and producer surplus before the tax.

28. The costs of a market activity paid for by an individual engaged in the market activity are:

a.         external costs.

b.        internal costs.

c.         free-rider costs.

d.        social costs.

e.         common costs.

29. The costs of a market activity paid for by an individual NOT engaged in the market activity are:

a.         external costs.

b.        internal costs.

c.         free-rider costs.

d.        social costs.

e.         common costs.

30. Consider the table below where Q represents the quantity produced, internal cost and external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

Q         Internal Cost                External Cost                P

1         $2                             $4                             $14

2         $4                             $4                             $12

3         $6                             $4                             $10

4         $8                             $4                             $8

5         $10                            $4                             $6

6         $12                            $4                             $4

The market equilibrium occurs where price is ____ and quantity is _____.

a.         $4; 2.

b.        $8; 4

c.         $10; 3.

d.        $10; 5.

e.      &a