Econ 2 Review Problem Sets

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Which of the following is not an example of​ rent-seeking behavior?
Aterm-103.
engaging in aggressive advertising that slams a​ competitor’s product
B.
competition for subsidies
C.
competition for the exclusive right to import a product
D.
lobbying the government to impose tariffs on certain imported products

When economists speak of a shortageshortage​, they mean a situation in which
A.
some consumers a are unable to makeunable to make a purchase ata purchase at the current price..
B.
the market price is below the equilibrium price.
C.
the quantity demandeddemanded exceeds quantity supplied.
D.
all of the above.
E.
A and B only.

d. all of the above

Let​ D= demand, S​ = supply, P​ = equilibrium​ price, and​ Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be​ logged?
A.
S​ decreases, D no​ change, P​ increases, Q decreases.
B.
D​ decreases, S no​ change, P and Q decrease.
C.
D no​ change, S​ decreases, P​ increases, Q increases.
D.
D and S​ decrease, P and Q increase

A. S​ decreases, D no​ change, P​ increases, Q decreases.

Let D​= ​demand, S​ = supply, P​ = equilibrium​ price, and Q​= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of​ cholesterol?
A.
D no​ change, S​ increases, P​ decreases, Q decreases
B.
D​ increases, S no​ change, P and Q increase
C.
S​ increases, D no​ change, P​ decreases, Q increases
D.
D and S​ increase, P and Q decrease

B. D​ increases, S no​ change, P and Q increase

In​ 2004, hurricanes destroyed a large portion of​ Florida’s orange and grapefruit crops. In the market for citrus​ fruit,
A.
the demand curve shifted to the right resulting in an increase in the equilibrium price.
B.
the supply curve shifted to the left resulting in an increase in the equilibrium price.
.C.
the demand curve shifted to the left resulting in a decrease in the equilibrium price.
D.
the supply curve shifted to the right resulting in an increase in the equilibrium price.

B. the supply curve shifted to the left resulting in an increase in the equilibrium price.

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton​ (assume that cotton is a normal​ good) to​ increase?
A.
a decrease in consumer income
B.
unusually good weather that results in a bumper crop of cotton
C.
an increase in consumer income
D.
a drought that sharply reduces cotton output

C. an increase in consumer income

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that
A.
the demand for tarot card readers has increased.
B.
the law of demand has been violated.
C.
tarot card readers are deliberately charging high prices because they provide services for superstitious clients.
D.
the number of tarot card readers has increased.

A. the demand for tarot card readers has increased

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the​ surgery, including blurred vision. The second development was that the companies renting eyeminus−surgery machinery to doctors had reduced their charges. In the market for laser eye​ surgeries, these two developments
A.
decreased demand and decreased​ supply, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price of laser eye surgeries.
B.
decreased demand and increased​ supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.
C.
decreased demand and increased supply resulting in an increase in both the equilibrium quantity and the equilibrium price of laser eye surgeries.
D.
decreased demand and increased​ supply, resulting in a decrease in both the equilibrium price and the equilibrium quantity of laser eye surgeries.

B. decreased demand and increased​ supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.

Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else​ constant, how would this affect the market for Bluminus−ray players​ (a complement to LCD​ televisions)?
A.
The demand for Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would decrease.
B.
The demand for Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would increase.
C.
The demand for Bluminus−ray players would decrease because consumers could afford to buy fewer LCD televisions and Bluminus−ray players.
D.
The supply of Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would decrease.

B. The demand for Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would increase.

An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else​ constant, how would this affect the market for gasolineminus−powered automobiles​ (a substitute for electric​ automobiles)?
A.
The demand for gasolineminus−powered automobiles would decrease because consumers could afford to buy fewer gasolineminus−powered automobiles.
B.
The demand for gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would increase.
C.
The demand for gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would decrease.
D.
The supply of gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would decrease.

B. The demand for gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would increase.

Complete the following​ statement:
​"When there is a shortage.. of a good
A.
consumers compete against one another by bidding the price upward.
B.
producers react to shortages by lowering prices.
C.
as prices​ increase, consumer demand more of a particular good.
D.
as prices​ increase, producers are driven to produce less.
E.
decreasing prices lead to a change in demand.

A. consumers compete against one another by bidding the price upward.

If a market is in equilibrium LOADING… ​, is it necessarily true that all potential buyers and sellers are satisfied with the market​ price?
yes or no

no

A news story from 2015 about the oil market​ stated, "the global glut of crude that has hit​ [oil] prices is starting to​ shrink."
. In referring to a​ "global glut of​ crude," the article describes the result of a significant
A.
increase in demand​ for, relative to the supply​ of, crude oil.
B.
increase in demand​ for, and the supply​ of, crude oil.
C.
increase in supply​ of, relative to the demand​ for, crude oil.
D.
decrease in supply​ of, relative to the demand​ for, crude oil.

C. increase in supply​ of, relative to the demand​ for, crude oil.

This change resulted in a
A.
a surplus of oil such that there is a greater quantity demanded than quantity supplied of crude oil.
B.
a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil.
C.
a shortage of oil such that there is a greater quantity supplied than quantity demanded for crude oil.
D.
a shortage of oil such that there is a greater quantity demanded than quantity supplied of crude oil.

B. a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil.

In response to the global glut of​ oil, the market price will
A.
fall to a​ new, lower equilibrium price at which the quantity demanded would equal the quantity supplied.
B.
fall to a​ new, lower equilibrium price at which the quantity demanded would be lower than the quantity supplied.
C.
rise to a​ new, higher equilibrium price at which the quantity demanded would equal the quantity supplied.
D.
rise to a​ new, higher equilibrium price at which the quantity demanded would be greater than the quantity supplied.

A. fall to a​ new, lower equilibrium price at which the quantity demanded would equal the quantity supplied.

The glut will start to shrink when crude oil producers
A.
reduce the amount that they offer for​ sale, and buyers decrease the amount they buy.
B.
increase the amount that they offer for​ sale, and buyers decrease the amount they buy.
C.
reduce the amount that they offer for​ sale, and buyers increase the amount they buy.
D.
increase the amount that they offer for​ sale, and buyers increase the amount they buy.

C. reduce the amount that they offer for​ sale, and buyers increase the amount they buy.

The demand for grapes is highest during summer and lowest during winter. Yet grape prices are normally lower in summer than in winter. What must be happening to the supply of grapesgrapes​, from winter to​ summer, for the equilibrium price to​ fall?
A.
The supply does not change.
B.
The supply​ increases, but less than the demand increases.
C.
The supply increases more than the demand increases.
.D.
The supply for grapesgrapes decreases.

C. The supply increases more than the demand increases.

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for ​$10, a second lawn for ​$16​, and a third lawn for ​$21. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay ​$34 to have her lawn​ mowed, Mr. Wilson would be willing to pay ​$27​, and Ms. Smith would be willing to pay ​$21.
If Tim offers to mow lawns for ​$21 ​each, what will be his producer​ surplus?
Considering Mrs.​ Jones, Mr.​ Wilson, and Ms. Smith​ together, what will be their consumer​ surplus?

$16 ; $19

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called
A.
the income effect.
B.
consumer surplus.
C.
the substitution effect.
D.
producer surplus.

B. consumer surplus.

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay​ $200 for a new​ racquet, but buys one on sale for​ $125. Paul’s consumer surplus from the purchase is
A.
​$75
.B.
​$125
C.
​$325
D.
​$200

A. ​$75

Each point on a​ ________ curve shows the willingness of consumers to purchase a product at different prices
A.
supply
B.
marginal cost
C.
production possibilities
D.
demand

D. demand

The area​ ________ the market supply curve and​ ________ the market price is equal to the total amount of producer surplus in a market.
A.
​below; below
B.
​below; above
C.
​above; above
D.
​above; below

D. ​above; below

Consumer surplus in a market for a product would be equal to​ ________ if the market price was zero.
A.
the area between the supply curve and the demand curve
B.
zero
C.
the area under the demand curve
D.
the area above the supply curve

C. the area under the demand curve

Suppliers will be willing to supply a product only if
A.
the price is higher than the average cost of producing the product.
B.
the price received is at least double the additional cost of producing the product.
C.
the price received is less than the additional cost of producing the product.
D.
the price received is at least equal to the additional cost of producing the product

D. the price received is at least equal to the additional cost of producing the product

Consumer surplus is
A.
the highest price a consumer is willing to pay to consume a good or service.
B.
the difference between the highest price a consumer is willing to pay and marginal benefit.
C.
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
D.
the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept.
E.
the difference between the lowest price a firm would be willing to accept and the price it actually receives.

C. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

How does consumer surplus change as the equilibrium price of a good rises or​ falls?
As the price of a good​ rises, consumer surplus _____ and as the price of a good​ falls, consumer surplus ________

decreases ; increases

Economic surplus
A.
is the difference between quantity demanded and quantity supplied when the market price for a product is greater than the equilibrium price.
B.
is equal to the sum of consumer surplus and producer surplus.
C.
does not exist when a competitive market is in equilibrium.
D.
is equal to the difference between consumer surplus and producer surplus.

B. is equal to the sum of consumer surplus and producer surplus.

________ is maximized in a competitive market when marginal benefit equals marginal cost.
A.
Deadweight loss
B.
Selling price
C.
Marginal profit
D.
Economic surplus

D. Economic surplus

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of​ production, and in which
A.
economic surplus is minimized.
B.
the sum of consumer surplus and producer surplus is at a maximum.
C.
the sum of consumer surplus and producer surplus is minimized.
D.
the sum of the benefits to firms is equal to the sum of the benefits to consumers.

B. the sum of consumer surplus and producer surplus is at a maximum.

Marginal benefit is
A.
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
B.
the additional benefit from consuming one more unit.
C.
a legally determined maximum price that sellers may charge.
D.
the additional cost of producing one more unit.

B. the additional benefit from consuming one more unit.

Why is the demand curve referred to as a marginal benefit​ curve?
A.
It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept.
B.
It shows the difference between the highest price a consumer is willing to pay and the marginal benefit of consumption.
C.
It shows the willingness of consumers to purchase a product at different prices.
D.
It shows the willingness of firms to supply a product at different prices.
E.
It shows the price consumers actually pay to consume a product.

C. It shows the willingness of consumers to purchase a product at different prices.

Marginal cost is
A.
the additional benefit from consuming one more unit.
B.
the difference between the lowest price a firm would be willing to accept and the price it actually receives.
C.
the cost of producing output.
D.
a legally determined minimum price that sellers may charge.
E.
the additional cost of producing one more unit.

E. the additional cost of producing one more unit.

Why is the supply curve referred to as a marginal cost​ curve?
A.
It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept.
B.
It shows the price producers actually receive in the market.
C.
It shows the difference between the lowest price a firm would be willing to accept and the marginal cost of production.
D.
It shows the willingness of firms to supply a product at different prices.
E.
It shows the willingness of consumers to purchase a product at different prices.

D. It shows the willingness of firms to supply a product at different prices.

On a shopping​ trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was​ $79.95. When she brought the coat to the​ store’s sales​ clerk, Melanie was told that the coat was on​ sale, and she would pay 20 percent less than the price on the tag. After the discount was​ applied, Melanie paid​ $63.96, $15.99 less than the original price.The value of​ Melanie’s consumer surplus from this purchase is
A.
​$79.95 since this is the price she is willing to pay.
B.
exactly​ $15.99 since this is the difference between the maximum price Melanie is willing to pay for the coat and the actual price she pays.
C.
at least​ $15.99 since this is the difference between the price Melanie is willing to pay for the coat and the actual price she​ pays, but she could have be willing to pay more than​ $79.95 for the coat.
.D.
​$63.96 since this is the actual price she pays.

C. at least​ $15.99 since this is the difference between the price Melanie is willing to pay for the coat and the actual price she​ pays, but she could have be willing to pay more than​ $79.95 for the coat.

A student makes the following​ argument:
​"When a market is in​ equilibrium, there is no consumer surplus LOADING… . We know this because in​ equilibrium, the market price is equal to the price consumers are willing to pay for the​ good."
Briefly explain whether you agree with the​ student’s argument.
A.
The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed.
B.
The student is correct because the highest price consumers are willing to pay and the price consumers actually pay are equal.
C.
The student is incorrect because the market price is greater than marginal cost.
D.
The student is incorrect because consumer surplus equals the price consumers are willing to pay for a​ good, which is a positive amount.
E.
The student is correct because the highest price consumers are willing to pay and the lowest price firms are willing to accept are equal.

A. The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for ​$13, a second lawn for ​$16​, and a third lawn for ​$25. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay ​$33 to have her lawn​ mowed, Mr. Wilson would be willing to pay ​$28​, and Ms. Smith would be willing to pay ​$25. If Tim offers to mow lawns for ​$25 ​each, what will be his producer​ surplus? Considering Mrs.​ Jones, Mr.​ Wilson, and Ms. Smith​ together, what will be their consumer​ surplus? ​

$21 ; $11

A student​ argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is​ largest."This statement is false because
A.
the level of output where the difference between marginal benefit and marginal cost is largest will be above the output level needed to have the maximum economic surplus.
B.
the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.
.C.
the level of output where the difference between marginal benefit and marginal cost is largest will also have the highest producer and consumer surplus.
D.
the marginal benefit and marginal cost relationship has no relevance to economic surplus.

B. the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.

Economic efficiency is
A.
a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
B.
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is not at a maximum.
C.
a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
D.
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

D. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

The competitive equilibrium rent in the city of Lowell is currently​ $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of​ $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off.
Someone currently renting an apartment in Lowell
A.
will be better off if they keep their apartment because rent is lower due to the price ceiling.
B.
will be worse off if they lose their apartment.
C.
will be worse off regardless of whether they keep their apartment because there is a shortage of apartments.
D.
will be better off regardless of whether they keep their apartment because rent is lower due to the price ceiling.
E.
both a and b

E. both a and b

Someone who will be moving to Lowell next year and who intends to rent an apartment
A.
will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling.
B.
will be worse off if they are unable to find an apartment to rent.
C.
will be better off regardless of whether they find an apartment to rent because rent is lower due to the price ceiling.
D.
will be worse off regardless of whether they find an apartment to rent because there is a shortage of apartments.
E.
both a and b.

E. both a and b.

A landlord who intends to abide by the rent control law
A.
will be worse off because he will be receiving less rent.
.B.
will be worse off because there will be a shortage of apartments.
C.
will be better off because there will be a shortage of apartments.
D.
will be better off because he will be receiving more rent.
E.
both a and b.

A. will be worse off because he will be receiving less rent.

A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments
A.
will be better off if he does not get caught because that amount will be above the equilibrium.
B.
will be worse off if he gets caught.
C.
will be better off because the highest rent possible and the price ceiling are both above the equilibrium.
D.
will be worse off regardless of whether he gets caught because that amount will still be below the equilibrium.
E.
both a and b.

E. both a and b.

A price ceiling
A.
does increase the amount of the product that consumers buy because it lowers the price.
B.
does increase the amount of the product that consumers buy because it creates a surplus.
C.
does not increase the amount of the product that consumers buy because it creates a surplus.
D.
does not increase the amount of the product that consumers buy because it creates a shortage.
.E.
both a and b.

D. does not increase the amount of the product that consumers buy because it creates a shortage.

Do you agree with the​ argument? Should the government treat kidneys like other goods and allow the market to determine​ price?
A.
Yes. Legalizing the exchange of kidneys would increase the quantity​ supplied, benefiting those who need a kidney but are unable to obtain one due to the shortage.
B.
No. Legalizing the exchange of kidneys would hurt those who otherwise would have been supplied a kidney at no cost.
C.
Yes. Legalizing the exchange of kidneys would benefit consumers by lowering the price.
D.
Yes. Legalizing the exchange of kidneys would hurt suppliers by decreasing the amount they could receive for providing a kidney.
E.
Both a and b are reasonable arguments.

E. Both a and b are reasonable arguments.

When the government imposes price floors or price​ ceilings,
A.
everyone​ wins, goods and services distribution is more​ just, and there is an increase in economic efficiency.
B.
some people​ win, some people​ lose, and there is a loss of economic efficiency.
.C.
some people​ win, some people​ lose, and there is an increase in economic efficiency.
D.
everyone​ wins, goods and services distribution is more​ just, and there is a loss of economic efficiency

B. some people​ win, some people​ lose, and there is a loss of economic efficiency.

Why do some consumers tend to favor price controls while others tend to oppose​ them?
A.
Price floors generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.
B.
Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.
C.
Price ceilings generate surpluses.​ Consequently, consumers who obtain the product at a lower price​ win, but consumers who obtain the product at a higher price lose.
D.
Price ceilings generate shortages.​ Consequently, consumers surplus​ increases, but producer surplus decreases.
E.
None of the above.

B. Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.

According to an article in the New York Times​, the Venezuelan government​ "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to​ find. Imposing price controls on goods would make them hard to find because
A.
the high price level would encourage producers to supply​ more, but buyers would not want to pay the higher price.
B.
producers would not want to supply as much as they did before the price controls.
.C.
the high price level would discourage buyers.
D.
there would be too much of the product supplied and the price would fall.

B. producers would not want to supply as much as they did before the price controls.

​"Rent controls, government farm​ programs, and other price ceilings and price floors are​ bad." This is an example of a
A.
normative statement. The statement is concerned with what is.
B.
positive statement. The statement is concerned with what should be.
C.
normative statement. The statement is concerned with what should be.
D.
positive statement. The statement is concerned with what is.

C. normative statement. The statement is concerned with what should be.

Tax incidence indicates
A.
the burden of a tax on consumers.
B.
the burden of a tax on producers.
C.
the actual division of the burden of a tax.
D.
who is not legally required to send a tax payment to the government.
E.
who is legally required to send a tax payment to the government.

C. the actual division of the burden of a tax

Do the people who are legally required to pay a tax always bear the burden of the​ tax? Briefly explain
A.
No. Producers always bear the burden of the tax.
B.
No. Consumers always bear the burden of the tax.
C.
Yes. Those who are legally required to send a tax payment to the government bear the burden of the tax.
D.
No. Those who are legally required to send a tax payment to the government never bear the burden of the tax.
E.
No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.

E. No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.

Does it matter whether buyers or sellers are legally responsible for paying a​ tax?
A.
​No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax.
B.
​Yes, the tax is more equitable if sellers pay the tax.
C.
​Yes, the tax is more efficient if consumers pay the tax.

A. ​No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax.

The term tax incidence refers to
A.
the actual versus the desired division of a tax burden.
B.
the actual division of the burden of a tax between buyers and sellers in a market.
C.
the amount of revenue collected by the government from a tax.
D.
the type of product the tax is levied on.

B. the actual division of the burden of a tax between buyers and sellers in a market.

A marginal tax rate is
A.
the fraction of income that must be paid in​ taxes, while the average tax rate is the total tax paid divided by total income.
B.
the total tax​ paid, while the average tax rate is the total tax paid divided by total income.
C.
a federal ​tax, while the average tax rate is a state or local tax
D.
the fraction of each additional dollar of income that must be paid in​ taxes, while the average tax rate is the total tax paid divided by total income.
E.
a tax for which people with lower incomes pay a higher percentage of their income in tax than do people with higher​ incomes, while the average tax is a tax for which people with lower incomes pay a lower percentage of their income in tax than do people with higher incomes.

D. the fraction of each additional dollar of income that must be paid in​ taxes, while the average tax rate is the total tax paid divided by total income.

Which is more important in determining the impact of the tax system on economic​ behavior?

marginal tax rate

Which of the following is the average tax​ rate?
A.
the total tax paid divided by total income
.B.
the income range within which a tax rate applies
C.
the fraction of each additional dollar of income that must be paid in taxes
D.
the tax rate paid by the average taxpayer

A. the total tax paid divided by total income

Which of the following tax rates has the greatest effect on​ people’s willingness to​ work, save, and​ invest?
A.
The marginal tax rate.
B.
Neither the average tax rate nor the marginal tax rate affects those decisions.
C.
The average tax rate.
D.
The average and the marginal tax rates have the same effect.

A. The marginal tax rate

When the demand for a product is more elastic than​ supply, _______
pay the majority of the tax on a product​; when supply for a product is less elastic than the​ demand, ________ pay the majority of the tax on the product.

firms ; firms

​"Another crucial principle​ [of tax incidence… ​] is that only people can pay taxes. Businesses and other artificial entities cannot pay​ taxes."
Is this statement correct or​ incorrect?
A.
Correct. The tax is borne by the workers in the form of lower​ wages, the customers in the form of higher​ prices, and the shareholders in the form of lower returns.
.B.
Incorrect. Firms pay federal and state corporate income tax.
C.
Incorrect. A corporation is treated like a living entity and as such pays taxes. For​ example, federal corporate income tax.
D.
Correct. The tax is borne by the customers in the form of higher prices.

A. Correct. The tax is borne by the workers in the form of lower​ wages, the customers in the form of higher​ prices, and the shareholders in the form of lower returns.

Your neighbor John has a barking dog.
Which of the following statements is​ true?
A.
It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders.
.B.
It does not create any externality because John bought the dog from a shelter.
C.
It does not create any externalities because you do not own the dog.
D.
It creates only a negative externality by disrupting your sleep

A. It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders.

What externality does obtaining human food pose for the​ bear?
When campers and hikers leave human food for bears to​ consume, that poses
A.
a negative externality for the bears because the taste of human food often causes the bears to be aggressive and since they pose a threat to human​ safety, they are eventually removed from the park or even destroyed
.B.
a positive externality for the bears because they enjoy consuming human food.
C.
a negative externality for the bears because they dislike human food.
D.
no externality for the bears because they do not consume human food.

A. a negative externality for the bears because the taste of human food often causes the bears to be aggressive and since they pose a threat to human​ safety, they are eventually removed from the park or even destroyed

What externality does the​ bear’s obtaining human food pose for future campers and​ hikers?
When campers and hikers leave human food for bears to​ consume, that poses
A.
a negative externality for the campers and hikers who leave food unattended because bears eat up their supplies.
B.
a negative externality for the future campers and hikers since they may be attacked by aggressive bears who are searching for more human food.
C.
a negative externality for the future campers and hikers because aggressive bears may be destroyed.
D.
no externality because there is a very small chance that they will have any encounter with a bear in the park.

B. a negative externality for the future campers and hikers since they may be attacked by aggressive bears who are searching for more human food.

Land use provides many economic and social​ benefits, but often comes at a substantial cost to the environment. Although most economic costs are figured into land use​ decisions, most environmental externalities are not. These environmental​ "externalities" cause a divergence between private and social costs for some land​ uses, leading to an inefficient land allocation. For​ example, developers may not bear all the environmental and infrastructural costs generated by their projects. Such​ "market failures" provide a justification for private conservation efforts and public land use planning and regulation.
By market​ failure, the author means
A.
a situation in which the market fails to produce the efficient level of output.
B.
a situation in which a benefitbenefit is present that affects someone who is not directly involved in the consumptionconsumption of a good or service.
C.
the tendency for a common resource to be underused.
D.
benefiting from a good without paying for it.
E.
a situation that occurs when one​ person’s consumption of a unit of a good means no one else can consume it.

A. a situation in which the market fails to produce the efficient level of output.

The author suggests the market for converting land to urban uses results in​ "inefficient land use​ allocation" because
A.
the marginal social benefit from consuming land converted to urban uses is greater than the marginal private benefit.
B.
the marginal social cost of converting land to urban uses is greater than the marginal private cost.
.C.
the marginal private cost of converting land to urban uses is lessless than the marginal private benefit from consuming land converted to urban uses.
D.
the marginal social cost of converting land to urban uses is greatergreater than the marginal social benefit from consuming land converted to urban uses.
E.
the marginal privateprivate cost of converting land to urban uses is equal to the marginal privateprivate benefit from consuming land converted to urban uses.

B. the marginal social cost of converting land to urban uses is greater than the marginal private cost.

What are the sources of externalities and market​ failure?
A.
incomplete property rights
B.
the difficulty of enforcing property rights in certain countries
C.
a lack of understanding of the market system
D.
Both​ (a) and​ (b).

D. Both​ (a) and​ (b).

The Coase Theorem states that
A.
if transaction costs are​ low, private bargaining will result in an efficient solution to the problem of externalities.
.B.
if transaction costs are​ low, private deals will create externalities and result in inefficient outcomes.
C.
if transaction costs are​ low, the government will regulate an efficient solution to the problem of externalities.
D.
if transaction costs are​ low, private markets will create externalities and result in efficient outcomes.
E.
if imposed on free​ markets, government regulations will result in inefficient outcomes and create deadweight loss.

A. if transaction costs are​ low, private bargaining will result in an efficient solution to the problem of externalities.

The parties involved in an externality have an incentive to reach an efficient solution because
A.
both parties become better off when an efficient solution is reached.
B.
the party that causes negative externality does not have any legal right to do so.
C.
it is morally the right thing to do.
D.
government regulations compel private parties.

A. both parties become better off when an efficient solution is reached.

Examples of transaction costs include ​(check all that​ apply):
A.
the cost of the externality.
B.
the cost of drafting a contract or agreement.
C.
the time required to negotiate an agreement.
D.
the difference between the private costs and social costs of production.
E.
the cost of monitoring an agreement.

BCE

When are we likely to see private solutions to the problem of​ externalities?
A.
When the parties involved have information about the externality.
B.
When transaction costs are low.
C.
When the number of parties involved is small.
D.
both a and b.
E.
all of the above.

E. all of the above.

Farmer Owens has an apple orchard that must be pollinated by bees in order to bear fruit. Farmer​ Owens’s neighbor,​ Maude, owns beehives with bees that can pollinate the apple trees. Suppose the benefit of the bees to Farmer Owens is ​$4,000 per year. Suppose the bees provide no benefit to Maude but she must pay ​$5 comma 0005,000 per year to maintain the hives. If Farmer Owens and Maude engage in Coase​ bargaining, what would likely​ result?
A.
Maude would pay Farmer Owens between ​$4,000 and ​$5,000 to maintain the hives.
B.
Farmer Owens would not be willing to pay Maude an amount such that she would maintain the hivesFarmer Owens would not be willing to pay Maude an amount such that she would maintain the hives.
C.
Farmer Owens would pay Maude at least ​$5,000 to maintain the hives.
D.
Farmer Owens would pay Maude between​ $0 and ​$4000 to maintain the hives.
E.
Farmer Owens would pay Maude between $ 4 000 and $ 5000 to maintain the hivesFarmer Owens would pay Maude between $4,000 and $5,000 to maintain the hives.

B. Farmer Owens would not be willing to pay Maude an amount such that she would maintain the hivesFarmer Owens would not be willing to pay Maude an amount such that she would maintain the hives.

Jess practices her electronic keyboard every evening for an upcoming musical concert. The sound disturbs​ Felix, who usually works on his college assignments around the same time. The value of the practice to Jess is​ $100, while the cost of the practice to Felix is​ $80. According to​ George, a student of​ economics, Jess should pay Felix​ $80 to continue her practice for the musical concert.
Which of the following assumptions is being made by​ George?
A.
He assumes that this is the only concert Jess has this year.
B.
He assumes that Felix and Jess are friends.
C.
He assumes that​ Felix’s cost of a college education is more than​ $100.
D.
He assumes that Felix has the right to quiet studying conditions.
E.
He assumes that​ Jess’s income from the concert would be less than​ $80.

D. He assumes that Felix has the right to quiet studying conditions.

When there are many people involved in attempting to reach an​ agreement, the transactions costs are often​ _______ than the net benefits from reducing an externality. In such​ cases, a private solution to an externality problem​ _______ feasible.
A.
​lower; is not
B.
​lower; is
C.
​higher; is
D.
​higher; is not

D. ​higher; is not

A Pigovian tax is
A.
a tax to bring about an efficient level of output in the presence of externalities.
.B.
a cost that parties incur in the process of agreeing to and carrying out an exchange of goods and services.
C.
a tax that creates deadweight loss.
D.
a tax that creates an externality.
E.
a tax to completely eliminate externalities.

A. a tax to bring about an efficient level of output in the presence of externalities.

At what level must a Pigovian tax be set to achieve​ efficiency? A Pigovian tax must be set equal to
A.
the cost of the externality.
B.
the marginal private cost of production.
C.
the marginal social cost of production.
D.
the market equilibrium price.
E.
the transaction cost associated with Coase bargaining.

A. the cost of the externality.

An individual producer or a consumer​ "internalizes an​ externality" when
A.
they keep knowledge of the externalities private to them.
B.
in their own decisions they take into account the external effects of their actions.
C.
they ignore the externalities created by their actions.
D.
they lobby against any government action related to the externalities caused by their actions.

B. in their own decisions they take into account the external effects of their actions.

A producer or a consumer will internalize an externality because
A.
they face government regulation.
B.
they have an incentive to consider the external effects of their actions due to taxes that are imposed or subsidies that they receive.
C.
they are compelled by law.
D.
they are driven by their individual moral codes

B. they have an incentive to consider the external effects of their actions due to taxes that are imposed or subsidies that they receive.

The author of a newspaper article remarks that many economists​ "support Pigovian taxes​ because, in some​ sense, we are already paying​ them."A Pigovian tax is a government tax intended to
A.
bring about an efficient level of output in the presence of externalities.
.B.
bring in revenue.
C.
reduce producer surplus.
D.
reduce the national debt.

A. bring about an efficient level of output in the presence of externalities.

In a​ sense, consumers in a market might be​ "paying" a Pigovian tax even if the government​ hasn’t imposed an explicit tax if there are
A.
negative externalities in that market so that consumers are experiencing an external cost.
B.
negative externalities in that market so that consumers are experiencing an external benefit.
C.
positive externalities in that market so that consumers are experiencing an external benefit.
D.
positive externalities in that market so that consumers are experiencing an external cost.

A. negative externalities in that market so that consumers are experiencing an external cost.

The advanced machinery used for limestone quarrying in a particular region leads to noise pollution and affects the hearing ability of people residing in the neighborhood. The quarrying activity also results in soil erosion. According to an environmental research​ group, the market price and output of limestone in this region is much higher than the socially efficient​ level, as the limestone producers do not include the social cost of production in their output decision. The group formally requests the government to impose a tax on limestone production to internalize the externality.
Which of the​ following, if​ true, would support the taxation policy proposed by the research​ group?
A.
Limestone producers in this region pay very high income taxes.
B.
The limestone industry provides employment opportunities to a significant percentage of unskilled laborers in the region.
C.
This country is the largest exporter of limestone.
D.
Recent environmental research reveals that the dust from the limestone quarrying site has severely contaminated the water at a nearby lake.
E.
Scientists have recently developed​ cost-effective and​ easy-to-install sound filtering systems for limestone plants.

D. Recent environmental research reveals that the dust from the limestone quarrying site has severely contaminated the water at a nearby lake.

The advanced machinery used for limestone quarrying in a particular region leads to noise pollution and affects the hearing ability of people residing in the neighborhood. The quarrying activity also results in soil erosion. According to an environmental research​ group, the market price and output of limestone in this region is much higher than the socially efficient​ level, as the limestone producers do not include the social cost of production in their output decision. The group formally requests the government to impose a tax on limestone production to internalize the externality.
Suppose the government responds by imposing a tax on the production of limestone. After the tax is​ imposed, total production of limestone declines by the amount the environmental research group had estimated. This convinces them that limestone production is now socially efficient.
Which of the following conclusions can most reasonably be drawn from the given​ information?
A.
Since the demand for limestone is highly​ inelastic, limestone manufacturers are able to shift the entire burden of the tax to consumers.
B.
Production in the cement​ industry, a major consumer of​ limestone, has decreased by 5 percent.
C.
The marginal private cost of producing limestone at this quarry is now equal to the marginal social cost as estimated by the research group.
D.
The social cost of reducing the production level equals the economic benefit of the goodwill generated as a result of this.
E.
The reduced production caused unemployment in the region to reach unprecedented levels.

C. The marginal private cost of producing limestone at this quarry is now equal to the marginal social cost as estimated by the research group.

What is the focus of a​ command-and-control approach to reducing​ pollution?
A.
The government imposing taxes intended to bring about an efficient level of output in the presence of externalities.
B.
The government trading emissions allowances to pollute for cash payments.
C.
The government imposing quantitative limits on the amount of pollution firms are allowed to generate.
D.
The government offering subsidies intended to bring about an efficient level of output in the presence of externalities.

C. The government imposing quantitative limits on the amount of pollution firms are allowed to generate.

What is free​ riding?
A.
Free riding is paying for a good but not benefiting from it.
B.
Free riding is paying less for a good than it is worth.
C.
Free riding is benefiting from a good because it is rival.
D.
Free riding is benefiting from a good and paying for it.
E.
Free riding is benefiting from a good without paying for it

E. Free riding is benefiting from a good without paying for it

How is free riding related to the tendency of a public good to create market​ failure? Free riding results in
A.
the market producing a quantity of public goods that is inefficiently high because they are nonexcludable.
B.
the market producing a quantity of public goods that is inefficiently low because they are nonexcludable.
C.
the market producing a quantity of public goods that is inefficiently low because they are nonrival.
D.
the market producing a quantity of public goods that is efficient because they are nonexcludable and nonrival.
E.
the government providing a quantity of public goods that is inefficient because they are nonexcludable and nonrival.

B. the market producing a quantity of public goods that is inefficiently low because they are nonexcludable.

As readers of Herman​ Melville’s 1851 novel Moby Dick​ know, at one time oil made from whale blubber was an important source of energy that was widely used by households and firms in oil lamps. Other sources of energy supplanted whale oil in the second half of the nineteenth​ century, and today many Americans consider whales only as a source of entertainment on visits to aquariums and whale watching excursions. But some species of whaleslong dash—including baleen and gray whaleslong dash—are in danger of extinction. The U.S. Department of Agriculture estimates that over 9 billion chickens are raised for food annually.
​Chickens, unlike​ whales, are not threatened with extinction because chickens
A.
are privately owned and their owners have an incentive to ensure that they do not become extinct.
B.
can be wild but are generally kept in captivity.
C.
are easier to breed.
D.
live in flocks and can easily be protected and kept healthy.

A. are privately owned and their owners have an incentive to ensure that they do not become extinct.

A television broadcast of the World​ Series:
A.
A private good
B.
A common resource
C.
A public good
D.
A​ quasi-public good
Mail​ delivery:
A.
A public good
B.
A private good
.C.
A​ quasi-public good
D.
A common resource
Education in a public school​ (Grades K through​ 12):
A.
A​ quasi-public good
B.
A public good
C.
A private good
D.
A common resource
Education in a private school​ (Grades K through​ 12):
A.
A common resource
B.
A​ quasi-public good
C.
A public good
D.
A private good
Hiking in a large park​ (no congestion) surrounded by a​ fence:
A.
A private good
B.
A​ quasi-public good
C.
A public good
D.
A common resource
Hiking in a large park​ (no congestion) not surrounded by a​ fence:
A.
A​ quasi-public good
B.
A private good
C.
A public good
D.
A common resource
An​ apple:
A.
A common resource
B.
A private good
C.
A​ quasi-public good
D.
A public good

C.A public good ; B.A private good ; D.A common resource ; D.A private good ; B.A​ quasi-public good ; C.A public good ; B private good

B.Barney subscribes to the NFL Sunday​ Ticket, a program package offered by DirecTV that allows Barney to watch every regular season NFL game played on Sundays.​ (Barney can watch Sunday Night Football without subscribing to the Sunday​ Ticket.) The subscription price for the Sunday Ticket is in addition to the fee paid for​ Barney’s DirecTV package. Barney invites two friends who work with him to watch football on Sundays at his home.
a. Considering that Barney can watch any football game broadcast on​ Sundays, including those games not shown on his local television​ stations, he is
A.
a free rider because Barney invites two friends who work with him to watch football on Sundays at his home.
B.
not a free rider because Barney can watch Sunday Night Football without subscribing to the Sunday Ticket.
C.
a free rider because Barney can watch Sunday Night Football without subscribing to the Sunday Ticket.
D.
not a free rider because Barney pays for the program package.A private good

D. not a free rider because Barney pays for the program package.A private good

Barney’s friends are
A.
free riders because Barney can watch Sunday Night Football without subscribing to the Sunday Ticket.
B.
free riders because because they benefit from watching Sunday games without paying for them.
C.
not free riders because they benefit from watching Sunday games without paying for them.
D.
not free riders because Barney invited them to watch Sunday Night Football.

B. free riders because because they benefit from watching Sunday games without paying for them.

Jeff and James have different opinions regarding the amount the U.S. government should spend on national defense. Jeff believes that more should be spent in order to ensure that the​ country’s enemies will not challenge the United States militarily. James believes that a lot of defense spending is wasted on overpriced military equipment and that the United States​ "should not be the​ world’s policeman." Suppose that instead of the U.S. Congress and the president having the authority to determine the amount the military has to​ spend, this authority is turned over to the private sector. A privately owned firm conducts a survey to determine the willingness of people to pay for national defense.
In response to the​ survey, both Jeff and James state that they are not willing to pay anything for national defense.
If Jeff and James made this response they would
A.
be free riders because private provision of national defense suffers from excludability.
B.
be free riders because they would still receive the same amount of protection as everyone else whether or not they pay.
C.
not be free riders because they would still receive the same amount of protection as everyone else whether or not they pay.
D.
not be free riders because private provision of national defense suffers from nonexcludability.

B. be free riders because they would still receive the same amount of protection as everyone else whether or not they pay.

The village elders were trying to prevent the economic problem of
A.
free riding.
B.
the tragedy of the commons.
].C.
a positive externality.
D.
the overuse of a public good.

B. the tragedy of the commons

The solution of the village elders to outcast those who committed the breach of trust by fishing in the pond when it was forbidden is an example of
A.
a​ "Pigouvian tax" which was not likely to be effective because it was very difficult to design the proper tax rate.
B.
using community norms to solve the problem. The solution would most likely be effective because it was used in a small community.
C.
using a​ "cap-and-trade" system which could not be very effective because it was too complex for the villagers to understand.
D.
assigning property rights to solve the problem which would have been effective given that it was a small village.

B. using community norms to solve the problem. The solution would most likely be effective because it was used in a small community

The tragedy of the commons occur because some goods are​ ________ in consumption.
A.
excludable
B.
​non-rival and​ non-excludable
C.
​non-excludable but rival
.D.
​non-rival

C. ​non-excludable but rival

Traffic congestion is an example of a​ ________.
A.
​free-rider problem
B.
pecuniary externality
C.
positive externality
D.
negative externality

D. negative externality

When a Pigouvian tax is​ imposed, ________.
A.
the marginal social cost curve shifts downward
B.
the demand curve shifts rightward
C.
the marginal private cost curve shifts upward
D.
the marginal social benefit curve shifts downward

C. the marginal private cost curve shifts upward

A corrective subsidy induces the​ ________ to the socially optimal level.
A.
producers of a positive externality to reduce the quantity produced
B.
producers of a negative externality to increase the quantity produced
C.
consumers of a negative externality to increase the quantity consumed
D.
consumers of a positive externality to increase the quantity consumed

D. consumers of a positive externality to increase the quantity consumed

The presence of a positive externality in a market leads to​ ________.
A.
a deadweight loss
B.
underproduction of the good
C.
a fall in consumer surplus
D.
overproduction of the good

B. underproduction of the good

the public choice model
A.
shows government intervention improves efficiency.
B.
applies economic analysis to government decision making.
.C.
shows the democratic system of votingthe democratic system of voting will consistently represent the underlying preferences of voters.
D.
states the outcome of a majority vote is likelylikely to represent the preferences of the voter who is in the political middle.
E.
explains the choices of households and firmshouseholds and firms.

B. applies economic analysis to government decision making.

Rent seeking is an attempt to
A.
use the government to improve economic efficiency. Regulatory capture is an example of​ this, where a regulatory agency improves economic efficiency.
B.
represent underlying voter preferences with majority voting. Regulatory capture is an attempt to represent underlying voter preferences with government regulations.
C.
use the government for individual benefit at the expense of others. Regulatory capture is an example of​ this, where a regulatory agency makes decisions benefiting the firm being regulated.
.D.
use the government for individual benefit at the expense of others with logrollinglogrolling. Regulatory capture seeks to achieve the same objective with rational ignorancerational ignorance.
E.
use the government to improve economic efficiency. Regulatory capture is an example of government​ failure, where the government reduces economic efficiency.

C. use the government for individual benefit at the expense of others. Regulatory capture is an example of​ this, where a regulatory agency makes decisions benefiting the firm being regulated.

"It was important… to understand the ways that government could fail​ systematically.In this​ context, government failure means
A.
politicans making bad decisions for their own selfish reasons.
B.
the President investigating congressmen for sleeping with interns.
C.
the most popular ideas are not realized.
D.
the government is spending more money than it taking in from taxes.

A. politicans making bad decisions for their own selfish reasons.

Public choice theory helps us to understand how government could fail systematically because it recognizes that policymakers are
A.
elected and are bound by the interests of consumers.
B.
no different than consumers or managers of firms and are likely to pursue their own​ self-interest, even if their​ self-interest conflicts with the public interest.
]C.
elected and are bound by the interests of producers.
D.
different than consumers or managers of firms and are unlikely to pursue their own​ self-interest, even when their​ self-interest conflicts with the public interest.

B. no different than consumers or managers of firms and are likely to pursue their own​ self-interest, even if their​ self-interest conflicts with the public interest.

The same article notes​ that:
​"Rent-seeking is a very useful concept to have around when thinking about​ policy."
Rent seeking is
A.
finding the least cost areas in which to locate.
B.
running advertising in order to change public opinion.
C.
lobbying or bribing politicians to gain favorable legislation or regulations.
.D.
the use of government action to make everyone better off.

C. lobbying or bribing politicians to gain favorable legislation or regulations.

Rent seeking can be useful in understanding why government policies
A.
often result in very inexpensive outcomes.
B.
often result in unfair tax policies that punish the most productive people.
C.
infringe upon our civil rights and right to privacy.
D.
sometimes produce results that are inefficient and harmful to the people.

D. sometimes produce results that are inefficient and harmful to the people

Which of the following best describes the process of regulatory​ capture?
A.
Major League Baseball spends money lobbying members of congress to keep its​ anti-trust exemption.
B.
An Alabama senator agrees to vote for a Kentucky​ senator’s bridge​ project, in hopes that the Kentucky senator will vote for the Alabama​ senator’s electric dam project.
C.
Michigan decides to lower its sales tax rate while increasing the income tax rate on incomes above​ $200,000.
D.
Bank of America encourages the​ FDIC-Federal Deposit Insurance​ Corporation- to make banks with less than​ $50 million of deposits pay a higher percentage into the insurance fund​ "for the protection of​ consumers."

D. Bank of America encourages the​ FDIC-Federal Deposit Insurance​ Corporation- to make banks with less than​ $50 million of deposits pay a higher percentage into the insurance fund​ "for the protection of​ consumers."

Are policymakers susceptible to​ rent-seeking behavior? Explain.
​Rent-seeking behavior
A.
may succeed when policymakers are not subject to regulatory capturemay succeed when policymakers are not subject to regulatory capture.
B.
may succeed when voters are not rationally ignorantmay succeed when voters are not rationally ignorant.
C.
does not succeed because policymakers are not allowed to accept campaign contributions from firms seeking special interest legislation.
D.
may succeed when policymakers engage in logrollingmay succeed when policymakers engage in logrolling.
.E.
does not succeed because government failure may reduce economic efficiency.

D. may succeed when policymakers engage in logrollingmay succeed when policymakers engage in logrolling

Suppose a​ firm, like Comcast​ Cable, spends a great deal of money to convince a local governement that it should be the only cable provider of a region. Or a​ union, like the​ UAW, spends a great deal of money lobbying the government to create legislation granting unions special bargaining rights.
These examples are created by
A.
regulatory capture.
B.
logrolling.
C.
regressive taxation.
D.
rent seeking.

D. rent seeking.

Why is a typical person likely to gather more information when buying a new car than when voting for a member of​ Congress?
A.
because a​ person’s preferences are more likely to be met with little effort in the political sphere but this is not the case when buying a car in the private marketplace
B.
because buying a new car affects a person more immediately and personally compared to voting for a member of Congress. In the​ latter, a​ person’s vote is only one of many voters and​ therefore, not likely to have a large impact on the outcome.
C.
because it is less costly to acquire information about consumer items than it is about political candidates
D.
because the effects of buying a car are long term while a member of Congress has e relatively short tenure

B. because buying a new car affects a person more immediately and personally compared to voting for a member of Congress. In the​ latter, a​ person’s vote is only one of many voters and​ therefore, not likely to have a large impact on the outcome.

Which of the following is not an example of​ rent-seeking behavior?
A.
engaging in aggressive advertising that slams a​ competitor’s product
B.
competition for subsidies
C.
competition for the exclusive right to import a product
D.
lobbying the government to impose tariffs on certain imported products

A. engaging in aggressive advertising that slams a​ competitor’s product

One important difference between the political process and the market process is that
A.
the political process results in collective actions that maximize economic surplus while the market process may lead to efficiency losses.
B.
the political process results in collective actions in which everyone is obliged to participate while in the market process individuals are free to participate or not.
C.
the political process results in collective actions in which everyone is made better off while the market process results in actions that favor some groups only.
D.
the political process results in collective actions in which not everyone is required to participate while in the market process individuals are obliged to participate.

B. the political process results in collective actions in which everyone is obliged to participate while in the market process individuals are free to participate or not.

Which of the following is an example of rent seeking​ behavior?
A.
Amazon introduced the Kindle to compete with​ Sony’s Digital Reader. Amazon was motivated by the desire to earn profits from the Kindle but also increased the choice of digital music players available to consumers.
B.
Apple earned large profits from the development and sale of the iPhone.
C.
Recent increases in cigarette taxes faced little opposition from​ voters, many of whom were rationally ignorant with respect to the tax.
D.
U.S. sugar firms convinced Congress to impose a quota on imports of sugar. .

D. U.S. sugar firms convinced Congress to impose a quota on imports of sugar. .

he public choice model can be used to examine voting models that contrast the manner in which collective decisions are made by governments​ (state, local, and​ federal) and the manner in which individual choices are made in markets. Which of the following descriptions is consistent with the difference between collective decisionminus−making and decisionminus−making in​ markets?
A.
Individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets.
B.
Everyone who votes must agree with a decision made collectively through​ government, but in markets individuals can make their own choices.
C.
The cost of a government policy is determined by a majority vote of members of the​ public; decisions made in markets are based on individual willingness to pay.
D.
Choices made through government policies are more important than decisions individuals make through markets.

A. Individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets.

One result of the public choice model is that most economists believe that
A.
policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency.
.B.
when market failure​ occurs, government intervention will always lead to a more efficient outcome.
C.
the voting paradox will prevent voters from selecting the best person for public office.
D.
government intervention will always result in a reduction in economic efficiency in regulated markets

A. policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency.

The public choice model raises questions about the​ government’s ability to regulate economic activity efficiently. Which of the following statements represents the views of most economists with regard to the role of​ government?
A.
Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful​ purpose, but we need to take the costs of regulation into account along with the benefits.
.B.
U.S. citizens can afford more government regulation if the cost of this regulation is borne mostly by taxpayers with the highest incomes.
C.
Government should do more to regulate markets. The public choice model has shown that rent seeking and rational ignorance affect more markets than are currently subject to regulation.
D.
Congress should abolish the Food and Drug​ Administration, the Environmental Protection​ Agency, and other agencies and commissions because the costs of their actions exceed the benefits they provide to the public.

A. Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful​ purpose, but we need to take the costs of regulation into account along with the benefits.

Suppliers will be willing to supply a product only if
A.
the price is higher than the average cost of producing the product.
B.
the price received is at least double the additional cost of producing the product.
C.
the price received is less than the additional cost of producing the product.
D.
the price received is at least equal to the additional cost of producing the product

D. the price received is at least equal to the additional cost of producing the product

Suppliers will be willing to supply a product only if

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