Problem 1: If the supply of a good is relatively elastic, changing the price causes
a. a relatively small change in the amounts that buyers are willing to buy.
b. a relatively small change in the amounts sellers are willing to sell.
c. a relatively large change in the amounts sellers are willing to sell.
d. no change in the amounts sellers are willing to sell.
Problem 2: Taxes on labor encourage all of the following EXCEPT
a. older workers to take early retirement from the labor force.
b. mothers to stay at home rather than work in the labor force.
c. workers to work overtime.
d. people to be paid under the table.
Problem 3: One result of a tax, whether the tax is placed on the buyer or the seller, is that the
a. size of the market is reduced.
b. price the seller receives is higher.
c. supply curve will shift upward.
d. demand curve will shift upward.
Problem 4: A $2.00 tax placed on the sellers of potting soil will shift the supply curve
a. right (downward) by exactly $2.00.
b. left (upward) by less than $2.00.
c. left (upward) by exactly $2.00.
d. right (downward) by less than $2.00.
Problem 5: When a tax is levied on a good
a. the market price falls because demand declines.
b. the market price falls because supply falls.
c. a wedge is placed between the price buyers pay and the price sellers receive.
d. the market price rises because demand falls.
Problem 6: Deadweight loss is the
a. reduction in total surplus that results from a tax.
b. loss of profit to businesses when a tax is imposed.
c. reduction in consumer surplus when a tax is placed on buyers.
d. decline in government revenue when taxes are reduced in a market.
Scenario:
Assume that Tammy cleans Ryan's house weekly for $80. Ryan would be willing to pay as much as $100 weekly to have his house cleaned. Tammy's opportunity cost is $70.
Problem 7: Refer to Scenario. If Tammy cleans Ryan's house, the producer surplus is
a. $100.
b. $80.
c. $70.
d. $10.
Problem 8: When externalities are present in a market
a. the established equilibrium maximizes the total benefit to society as a whole.
b. market participants lose some market benefits to bystanders.
c. both equity and efficiency are maximized.
d. the market fails to allocate resources efficiently.
Problem 9: Private contracts between parties with mutual interests
a. can only reduce the well-being of society.
b. will always lead to market outcomes in which the public interest is sacrificed for personal gain.
c. can solve some inefficiencies associated with positive externalities.
d. will always cause negative externalities to arise.
Problem 10: Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is true?
a. If Dick's benefit exceeds Jane's cost, government intervention is necessary.
b. Dick will pay to keep his dog if his benefit exceeds Jane's cost.
c. If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog.
d. If Jane has legal right to peace and quiet, she only has to pay Dick when her cost is below his benefit.
Problem 11: One reason private solutions to externalities do not always work is because
a. government participation in such solutions complicates the process.
b. some people benefit from externalities.
c. interested parties incur costs in the bargaining process.
d. the actual costs and benefits of the problem are different to determine.
Problem 12: In a market economy, economic activity is guided by
a. the government.
b. businesses.
c. central planners.
d. prices.
Problem 13: If education produces positive externalities we would expect
a. government to tax education.
b. government to subsidize education.
c. people to realize the benefits and therefore cause demand for education to increase.
d. colleges to relax admission requirements.
Problem 14: In the absence of externalities the invisible hand of the market place
a. leads to a market outcome that maximizes total benefit to society.
b. is unable to resolve inherent inefficiencies in the market system.
c. induces people to act in a manner inconsistent with self interest.
d. increases the transactions cost of contracting between parties to an exchange.
Problem 15: Since air pollution creates a negative externality,
a. welfare will be enhanced when some, but not all air pollution is eliminated.
b. social welfare is optimal when all air pollution is eliminated.
c. governments should encourage all private firms to consider only private costs.
d. the free market result maximizes social welfare.
Problem 16: One advantage market economies have over other types of economies is that market economies
a. provide an equal distribution of goods and services to consumers.
b. establish government economic control.
c. solve the problem of scarcity.
d. are more efficient.