89)
In order to be binding a price floor
89)
A)
must lie below the free market equilibrium price.
B)
must coincide with the free market equilibrium price.
C)
must be high enough for firms to earn a profit.
D)
must lie above the free market equilibrium price.
90)
What is the rationale behind a tradable emissions allowance scheme?
90)
A)
to raise revenue for the government through the sale of emission permits and at the same time
set an emissions target
B)
to create a market for externalities: the scheme brings together buyers and sellers of
marketable permits
C)
to discipline polluting firms by specifying the maximum amount of emissions allowed and
giving them permits to pollute up to their allowance
D)
to provide firms with the incentive to consider less costly alternatives to pollution reduction
by making firms pay for the right to pollute beyond their specified allowance
D
91)
Which of the following could be evidence of a market failure?
91)
A)
The market price of a product is above the average cost of production.
B)
Market prices do not reflect true production costs.
C)
Resources in an economy are not fully utilized.
D)
There are only a handful of firms competing against each other in an industry.
B
92)
Issuing tradable emissions allowances to polluting firms
92)
A)
encourages more pollution.
B)
gives the industry the right to a specific level of pollution.
C)
has the same impact as a subsidy on production.
D)
generates income for the government.
B
D
93)
Willingness to pay measures
93)
A)
the maximum price that a buyer is willing to pay for a good.
B)
the maximum price a buyer is willing to pay minus the minimum price a seller is willing to
accept.
C)
the maximum price a buyer is willing to pay for a product minus the amount the buyer
actually pays for it.
D)
the amount a seller actually receives for a good minus the minimum amount the seller is
willing to accept for the good.
Figure 4–12
Figure 4–12 shows a market with a negative externality.
94)
Refer to Figure 4–12. What is the true marginal cost of the last unit produced?
94)
A)
$Pb
B)
$Pc
C)
$Pf
D)
$Pa
95)
Economic surplus
95)
A)
is equal to the difference between consumer surplus and producer surplus.
B)
is equal to the sum of consumer surplus and producer surplus.
C)
is the difference between quantity demanded and quantity supplied when the market price
for a product is greater than the equilibrium price.
D)
does not exist when a competitive market is in equilibrium.
Figure 4–14
Figure 4–14 shows a market with a positive externality.
96)
Refer to Figure 4–14. The efficient output level is
96)
A)
Qo.
B)
Qn.
C)
Qo –Qm.
D)
Qm.
97)
If, in a competitive market, marginal benefit is greater than marginal cost
97)
A)
the government must force producers to lower price in order to achieve economic efficiency.
B)
the quantity sold is greater than the equilibrium quantity.
C)
the quantity sold is less than the equilibrium quantity.
D)
the net benefit to consumers from participating in the market is greater than the net benefit to
producers.
98)
An external cost can be calculated as the difference between
98)
A)
a producer’s cost of production and the price at which the good is sold.
B)
the social cost of production and the social benefit of production.
C)
the private cost of production and the social benefit of production.
D)
the social cost of production and the private cost of production.
99)
In cities with rent controls, the actual rents paid can be higher than the legal maximum. One
explanation for this is
99)
A)
rent control laws are so complicated that landlords and tenants may not be aware of what the
legal price is.
B)
because there is a shortage of apartments, tenants often are willing to pay rents higher than
the law allows.
C)
landlords are allowed to charge more than the legal maximum on some apartments so long as
they charge less on others.
D)
the legal penalty landlords face for charging more than the legal maximum rent is less than
the revenue earned by charging their tenants more than the maximum rent.
100)
If equilibrium is achieved in a competitive market
100)
A)
the deadweight loss will equal the sum of consumer surplus and producer surplus.
B)
the deadweight loss will be maximized.
C)
there will is no deadweight loss.
D)
the deadweight loss will be the same as the opportunity cost of the last unit of output sold.
101)
The total amount of producer surplus in a market is equal to
101)
A)
the area between the demand curve and the supply curve below the market price.
B)
the difference between quantity supplied and quantity demanded.
C)
the area above the market supply curve.
D)
the area above the market supply curve and below the market price.
Table 4–1
Consumer Willingness to Pay
Tom $40
Dick $30
Harriet $25
102)
Refer to Table 4–1. The table above lists the highest prices three consumers, Tom, Dick and Harriet,
are willing to pay for a short–sleeved polo shirt. If the price of one of the shirts is $28 dollars
102)
A)
Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts.
B)
Tom will receive $12 of consumer surplus from buying one shirt.
C)
Harriet will receive $25 of consumer surplus since she will buy no shirts.
D)
Tom and Dick receive a total of $70 of consumer surplus from buying one shirt each. Harriet
will buy no shirts.
Table 4–2
Marko’s Polos
Marginal Cost
(Dollars)
1st shirt $7
2nd shirt 10
3rd shirt 15
4th shirt 20
103)
Refer to Table 4–2. The table above lists the marginal cost of polo shirts by Marko’s, a firm that
specializes in producing men’s clothing. If the market price of Marko’s polo shirts is $18
103)
A)
there will be a surplus; as a result, the price will fall to $7.
B)
producer surplus will equal $22.
C)
producer surplus from the first shirt is $18.
D)
Marko’s will produce four shirts.
104)
Suppliers will be willing to supply a product only if
104)
A)
the price is higher than the average cost of producing the product.
B)
the price received is less than the additional cost of producing the product.
C)
the price received is at least equal to the additional cost of producing the product.
D)
the price received is at least double the additional cost of producing the product.
Figure 4–2
105)
Refer to Figure 4–2. What area represents the increase in producer surplus when the market price
rises from P1to P2?
105)
A)
B +D
B)
A+C+E
C)
A+B
D)
C+E
Table 4–3
Hourly Wage
(Dollars)
Quantity of
Labor Supplied
Quantity of
Labor
Demanded
$6.00 350,000 390,000
6.50 360,000 380,000
7.00 370,000 370,000
7.50 380,000 360,000
8.00 390,000 350,000
8.50 400,000 340,000
Table 4–3 shows the demand and supply schedules for the low–skilled labor market in the city of Westover.
106)
Refer to Table 4–3. If a minimum wage of $7.50 an hour is mandated, what is the quantity of labor
demanded?
106)
A)
360,000
B)
380,000
C)
370,000
D)
10,000
107)
Which of the following describes the difference between “scarcity” and “shortage”?
107)
A)
There is a shortage of almost everything. Scarcity occurs only if the quantity demanded of a
good or service is greater than the quantity supplied at the current market price.
B)
There is no difference; either word can be used to describe the situation that exists when there
is less of a good or service available than people want.
C)
In the economic sense, almost everything is scarce. A shortage of a good or service occurs
when the quantity demanded is greater than the quantity supplied at the current market
price.
D)
In the economic sense, almost everything is scarce. A shortage of a good or service occurs
when the quantity demanded is greater than the quantity supplied at the equilibrium price.
108)
Refer to Figure 4–5. The figure above represents the market for iced tea. Assume that this is a
competitive market. At a price of quantity of 10,000
108)
A)
the marginal cost of iced tea is greater than the marginal benefit; therefore, output is
inefficiently low.
B)
the marginal benefit of iced tea is greater than the marginal cost; therefore, output is
inefficiently high.
C)
the marginal benefit of iced tea is greater than the marginal cost; therefore, output is
inefficiently low.
D)
producers should lower the price to $1 in order to sell the quantity demanded of 10,000.
Table 4–3
Hourly Wage
(Dollars)
Quantity of
Labor Supplied
Quantity of
Labor
Demanded
$6.00 350,000 390,000
6.50 360,000 380,000
7.00 370,000 370,000
7.50 380,000 360,000
8.00 390,000 350,000
8.50 400,000 340,000
Table 4–3 shows the demand and supply schedules for the low–skilled labor market in the city of Westover.
109)
Refer to Table 4–3. If a minimum wage of $7.50 is mandated there will be a
109)
A)
surplus of 10,000 units of labor.
B)
shortage of 10,000 units of labor.
C)
surplus of 20,000 units of labor.
D)
shortage of 20,000 units of labor.
110)
Which of the following represents the true economic cost of production when firms produce goods
that cause negative externalities?
110)
A)
the private cost of production
B)
the external cost of production
C)
the social cost of production
D)
the explicit cost of production
Figure 4–14
Figure 4–14 shows a market with a positive externality.
111)
Refer to Figure 4–14. The deadweight loss due to the externality is represented by the area
111)
A)
mtn.
B)
nso.
C)
mso.
D)
msn.
112)
Which of the following statements is correct?
112)
A)
External cost minus private cost equals social cost.
B)
Private cost equals external cost.
C)
Private benefit equals external benefit minus social benefit.
D)
Private benefit plus external benefit equals social benefit.
113)
David Card and Alan Kruger conducted a study of fast–food restaurants in New Jersey and
Pennsylvania. The study found that
113)
A)
increases in the prices of food have a greater effect on wage increases in New Jersey than in
Pennsylvania.
B)
increases in the minimum wage had a very small impact on employment.
C)
there was a large reduction in employment of low–skilled workers when the minimum wage
was raised in these states.
D)
the earned income tax credit is more effective in raising the incomes of low–skilled workers
than increases in the minimum wage.
114)
A market supply curve reflects the
114)
A)
external costs of producing a good or service.
B)
private costs of producing a good or service.
C)
social costs of producing a good or service.
D)
external benefits of producing a good or service.
B
115)
A positive externality causes
115)
A)
the marginal social benefit to be equal to the marginal private cost of the last unit produced.
B)
the marginal social benefit to exceed the marginal private cost of the last unit produced.
C)
the marginal private benefit to exceed the marginal social cost of the last unit produced.
D)
the marginal social benefit to be less than the marginal private cost of the last unit produced.
B
116)
In its first attempts to control pollution, Congress
116)
A)
specified the fines firms were assessed for not paying pollution taxes.
B)
gave utility companies allowances to produce a target rate of pollution.
C)
specified the methods firms had to use to reduce pollution.
D)
allowed firms to prove they were small enough to not have to reduce pollution.
C
B
Figure 4–13
Figure 4–13 shows a market with an externality.
117)
Refer to Figure 4–13. The current market equilibrium output of Q1 is not the economically efficient
output. The economically efficient output is Q2. Therefore, the diagram shows
117)
A)
the effect of an excess demand in a market.
B)
the effect of a positive externality on the consumption of a good.
C)
the effect of a negative externality on the consumption of a good.
D)
the effect of a subsidy granted to producers of a good.
118)
Vaccinating people against a communicable disease such as influenza not only reduces the chances
that the person vaccinated will catch the disease but also reduces the probability that an epidemic
of the disease will occur. Which of the following statements is true?
118)
A)
Vaccinating people against communicable diseases yields private benefits in excess of social
benefits.
B)
The benefits of the influenza vaccination outweigh the costs.
C)
Reducing the chances that the person vaccinated will catch the disease is a private benefit
while reducing the probability of an influenza epidemic is a social benefit.
D)
Reducing the chances that the person vaccinated will catch the disease is a private cost while
reducing the probability of an influenza epidemic is a social benefit.
119)
The area above the market supply curve and below the market price
119)
A)
is equal to the total amount of producer surplus in a market.
B)
is equal to the total amount of economic surplus in a market.
C)
is equal to the total cost of production.
D)
is equal to the marginal cost of the last unit produced.
Figure 4–6
Figure 4–6 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0.
120)
Refer to Figure 4–6. What area represents the deadweight loss after the imposition of the ceiling?
120)
A)
C + E
B)
G + H
C)
C +E+ J +H
D)
J+H
Figure 4–15
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and
causes substantial environmental damage. Figure 4–15 illustrates this situation in the toilet paper market.
121)
Refer to Figure 4–15. The efficient output is
121)
A)
Q3.
B)
Q4.
C)
Q2.
D)
Q1.
122)
Government intervention is agricultural markets in the U.S. began
122)
A)
after World War I in order to assist farmers to adjust from a war–time economy to a
peace–time economy.
B)
during World War II to ensure that enough food was available for domestic consumption.
C)
during the Great Depression.
D)
during the Korean War.
Figure 4–5
123)
Refer to Figure 4–5. The figure above represents the market for iced tea. Assume that this is a
competitive market. If 20,000 units of iced tea are sold
123)
A)
producer surplus equals consumer surplus.
B)
the marginal benefit of each of the 20,000 units of iced tea equals $3.
C)
marginal benefit is equal to marginal cost.
D)
the deadweight loss is equal to economic surplus.
124)
Deadweight loss refers to
124)
A)
the reduction in economic surplus resulting from not being in competitive equilibrium.
B)
the sum of consumer and producer surplus.
C)
the loss of economic surplus when the marginal benefit equals the marginal cost of the last
unit produced.
D)
the opportunity cost to firms from producing the equilibrium quantity in a competitive
market.
Explanation:
Explanation:
125)
Private costs
125)
A)
are borne by producers of a good while social costs are borne by those who cannot afford to
purchase the good.
B)
are borne by consumers of a good while social costs are borne by government.
C)
are borne by producers of a good while social costs are borne by society at large.
D)
are borne by producers of a good while social costs are borne by government.
126)
Increases in the minimum wage are intended to raise the incomes of low–income workers. Many
economists favor a different policy to achieve this goal, a policy that avoids the deadweight losses
that result from the minimum wage. What is this policy?
126)
A)
the Alternative Minimum Tax
B)
the earned income tax credit
C)
distribution of food stamps to low–income consumers
D)
distribution of vouchers that can be used for rent or mortgage payments
Figure 4–15
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and
causes substantial environmental damage. Figure 4–15 illustrates this situation in the toilet paper market.
127)
Refer to Figure 4–15. The private profit–maximizing output level is
127)
A)
Q4.
B)
Q2.
C)
Q3.
D)
Q1.
128)
Which of the following is an example of a negative externality?
128)
A)
Not qualifying for financial aid because your parents make too much money
B)
Receiving a failing grade in a college course
C)
Closing down a segment of a beach because of an oil spill
D)
Purchasing a home that has an unobstructed view of rolling hills
C
129)
The 1997 Kyoto Treaty is an agreement among industrial nations to
129)
A)
reduce carbon dioxide emissions.
B)
provide fast growing developing countries such as India and China with the technology to
reduce their carbon emissions.
C)
establish a tradable carbon emissions permit system.
D)
impose a carbon tax by the year 2010 on all industries that emit carbon dioxide.
A
C
130)
Which of the following activities create a negative externality?
130)
A)
electricity generation by utilities produces acid rain
B)
repainting the house you live in to improve its appearance
C)
graduating from college
D)
cleaning up the sidewalk on your block
131)
The difference between the highest price a consumer is willing to pay for a good and the price the
consumer actually pays is called
131)
A)
the substitution effect.
B)
the income effect.
C)
consumer surplus.
D)
producer surplus.
132)
If you burn your trash in the back yard in spite of regulations against it, then you are
132)
A)
saving landfill space and creating a social benefit.
B)
avoiding the private costs associated with disposing your trash some other way and creating
a social cost.
C)
acting economically irrationally and creating a social cost.
D)
acting rationally and creating a positive externality.
133)
Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase.
How much does Brett value his cell phone?
133)
A)
$180
B)
$20
C)
$100
D)
$80