Economics 3 & 4

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Surpluses drive market prices up; shortages drive them down.

False

If demand increases and supply simultaneously decreases, equilibrium price will rise.

True

The rationing function of prices refers to the fact that government must distribute any surplus goods that may be left in a competitive market.

False

An increase in quantity supplied might be caused by an increase in production costs.

False

Supply refers to the amount of a product that a producer will offer in the market at some particular price.

False

An increase in demand accompanied by an increase in supply will increase the equilibrium quantity but the effect on equilibrium price will be indeterminate.

True

A government subsidy per unit of output increases supply.

True

Consumers buy more of normal goods as their incomes rise.

True

Toothpaste and toothbrushes are substitute goods.

False

A government tax per unit of output reduces supply.

True

If market demand increases and market supply decreases, the change in equilibrium price is unpredictable without first knowing the exact magnitudes of the demand and supply changes.

False

A decrease in supply of X increases the equilibrium price of X, which reduces the demand for X and automatically returns the price of X to its initial level.

False

In a competitive market, every consumer willing to pay the market price can buy a product and every producer willing to sell the product at the price can sell it.

True

A price floor in a competitive market will result in persistent shortages of a product.

False

A price ceiling in a competitive market will result in persistent surpluses of a product.

False

A government-set price ceiling will lower equilibrium price and quantity in a market.

False

If the legal price floor is set below the equilibrium price in a market, then a surplus will develop in the market.

False

If the government sets a price floor above what would be the competitive market price of a product, a shortage of the product will develop.

False

A price ceiling set by government will increase the equilibrium price and quantity in a market.

False

If the government pre-sets a price that turns out to be above the actual equilibrium price, a surplus will develop in the market.

True

Market failure occurs when not every consumer who wants a good can obtain it.

False

Productive efficiency means that goods and services are being produced by society in the least costly way.

True

Allocative efficiency means achieving the optimal or most desired point on the production possibilities curve.

True

Excludability means that buyers who are willing and able to pay the market price for the product do not obtain its benefits, but those unable or unwilling to pay that price do obtain the benefits.

False

The free-rider problem makes a good profitable to provide by a private firm.

False

Rivalry means that when one person buys and consumes a product, it is not available for purchase and consumption by another person.

True

Goods that are subject to exludability provide examples of private goods.

True

The market demand curve for a pure public good shows the total value that all individuals place on each unit of the good.

True

The government receives all of the benefits associated with the production of a public good.

False

The types and quantities of public goods are determined through the political process.

True

Government should subsidize a product whose consumption results in spillover costs in order to achieve the optimal level of output.

False

Whenever there are negative or positive externalities, the Coase theorem suggests that it is economically efficient for the government for the government to intervene to resolve the externality problem.

False

Taxes on specific goods are a method to reduce negative externalities of polluting firms.

True

Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed, the supply of pollutant rights will be perfectly elastic.

False

The Clean Air Act of 1990 sought to reduce acid rain by cutting emissions of sulfur dioxide.

True

The levying of government revenue through the payment of licensing fees for automobiles is an example of the ability-to-pay principle of taxation.

False

Payroll taxes are regressive because they apply to only a fixed amount of one’s income.

True

The probable incidence of the tax on business property is on consumers.

True

The overall tax structure of the United States is proportional or slightly progressive.

True

The state and local tax structure is largely progressive.

False

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