Dr. Shishkin ECON 2106 Fall Submit your scantron and questions sheet

Transcription

1 PRINT YOUR NAME Exam 2 Submit your scantron and questions sheet Version A 1. Which of the following is necessary for allocative efficiency to be achieved? A) Marginal benefit must equal marginal cost B) Marginal cost must be minimized C) Marginal benefit must be maximized D) The difference between marginal benefit and marginal cost must be maximized 2. When the marginal cost of producing a bike is smaller than the marginal benefit of the bike, to achieve allocative efficiency A) more bikes should be produced B) fewer bikes should be produced C) no more and no fewer bikes should be produced D) more information is required to figure out how the level of output should be changed 3. If a firm produces five chairs with marginal costs of $25, $30, $40, $55, and $75, respectively, and sells them for $80 each, what is the firm's total producer surplus? A) $400 B) $225 C) $200 D) $ Graphically, producer surplus is the area under the A) demand curve and above the supply curve, up to the relevant quantity B) price and above the supply curve, up to the relevant quantity C) price and above the demand curve, up to the relevant quantity D) price and above the quantity axis, up to the relevant quantity 5. Suppose the equilibrium price of a gallon of milk is $4. If the government imposes a price floor of $5 per gallon of milk, the A) quantity supplied of milk falls short of the quantity demanded B) quantity supplied of milk exceeds the quantity demanded C) supply increases D) demand decreases 6. If a price ceiling is set above the equilibrium price, then A) there will be a surplus of the good B) there will be a shortage of the good C) there will be neither a shortage nor a surplus of the good D) the price ceiling will generate revenue for the government Version A 1

2 7. Suppose both demand and supply for Mexican food are unit elastic. If the government imposes a tax on Mexican food, then A) The deadweight from this tax will be zero B) The tax burden will fall mostly on buyers C) The tax burden will fall mostly on sellers D) The tax burden will be equally distributed between sellers and buyers 8. For a given supply elasticity, the smaller the elasticity of the demand for a good, the larger the tax burden falling on A) buyers B) sellers C) participants other than the buyers and sellers D) government The figure shows the market for computer chips. Suppose that the government imposes a tax of $10 per chip charged from the buyers. 9. What is the price paid by buyers after the tax? A) 10 B) 20 C) 30 D) What is the price received by sellers after the tax? A) 10 B) 20 C) 30 D) 40 Version A 2

3 11. How much tax revenue would the government collect from this tax? A) 200 B) 400 C) 600 D) What is the deadweight loss from this tax? A) 100 B) 200 C) 300 D) The marginal tax rate is the A) percentage of an additional dollar of income paid in tax B) percentage of total income that is paid in tax C) average amount paid as taxes D) total amount of tax paid as a percentage of total income earned 14. Which of the following is correct? A) If your income is $20,000 and you are paying $2,000 in taxes, your marginal tax rate is 10 percent. B) If your income is $20,000 and you are paying $2,000 in income taxes, the income tax you are paying is progressive. C) If you paid $0.39 as tax from an additional dollar you earned, your marginal tax rate is 39 percent. D) If your marginal tax rate falls as your income increases, the tax is progressive. 15. If the average tax rate falls as income increases, the tax is A) regressive B) proportional C) progressive D) definitely fair 16. If the average tax rate remains constant as income changes, the tax is A) regressive B) proportional C) progressive D) definitely fair Version A 3

4 The figure shows the market for pesticides. When pesticides are applied to crops, it runs off into neighboring streams and ponds, killing fish and creating an external cost. 17. What is the equilibrium quantity of pesticides in an unregulated, competitive market? A) 1 ton per day B) 2 tons per day C) 3 tons per day D) 4 tons per day 18. What is the efficient quantity of pesticides? A) 1 ton per day B) 2 tons per day C) 3 tons per day D) 4 tons per day 19. What is the deadweight loss borne by society if the externality is left uncorrected? A) $2,500 per day B) $2,000 per day C) $1,500 per day D) $1,000 per day 20. Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers after implementation of the tax? A) $4,000 B) $5,000 C) $6,000 D) $8,000 Version A 4

5 21. At the output level in the previous question, how much is the tax per one ton? A) $1,000 B) $2,000 C) $3,000 D) $4, How much total tax revenue does government collect? A) $8,000 B) $6,000 C) $4,000 D) $2, Suppose that in a particular town people like trashing their front yards with their old pickup trucks. The local government decided to limit the number of old vehicles in town to one per a household, issuing a transferable permit to each homeowner in the town. Because the permits are transferable, a household can have more than one truck in its yard as long as it has a permit for each. Jim has two Chevys in his yard and it costs him $200 per truck to remove one. His neighbor John has two Fords in his yard, and it costs him $300 per truck to remove one. Neither John nor Jim has special emotional attachments to their rusted trucks, and they are good neighbors who are always up to a mutually beneficial deal. What is the likely outcome for this situation? A) John will keep both his Fords and will buy a permit from Jim for $250. B) John will remove both his Fords and will sell his permit to Jim for $250 C) Jim will remove both his Chevys and will sell his permit to John for $350 D) Jim will remove one of his Chevys, and John will remove one of his Fords to comply with the ordinance. Version A 5

6 The figure shows the market for education in a small town. Education has an external benefit. Refer to this diagram to answer questions If the market is competitive and left unregulated, how many students will be enrolled per year? A) 1,000 B) 2,000 C) 3,000 D) 4, What is the efficient number of students? A) 1,000 B) 2,000 C) 3,000 D) 4, What is the deadweight loss resulting from an inefficient amount of education provided by the market that does not take into account external benefits of education? A) 1 million B) 2 million C) 3 million D) 4 million Suppose that the government introduces a subsidy paid to colleges that moves the market to the efficient number of students 27. Which curve is going to be affected on the diagram above? A) D B) S C) MSB D) neither one Version A 6

7 28. What is the amount of the subsidy per student should be paid in this case? A) $1,000 B) $2,000 C) $3,000 D) $4, How much would be paid by a student? A) $10,000 B) $8,000 C) $6,000 D) $5, What amount per student would be received by colleges (both tuition plus subsidy)? A) $5,000 B) $6,000 C) $8,000 D) $10, How much would it cost to the government per year to support this program? A) $4 million B) $6 million C) $8 million D) $9 million Version A 7

8 Number of boats Total catch (tons per month) , , , , , , ,400 The table above shows how the sustainable catch of lobster in the Red Sea depends on the number of boats that go fishing. The marginal cost of operating a fishing boat is the same for all producers, the equivalent of 30 tons of lobster a month. Assume that boats can only go fishing in groups of What would be the equilibrium number of boats in the Red Sea in this case? A) 20 B) 40 C) 60 D) If 10 extra boats getting into fishing while there are 20 boats currently fishing, what would be the marginal social benefit (i.e. an increase in the total catch for the whole fishing area) from this increase in the number of boats fishing (tons of lobster per boat)? A) 20 B) 40 C) 60 D) What is the efficient number of fishing boats in the Red Sea, if boats can only be added in groups of 10? A) 10 B) 30 C) 40 D) If individual transferable quotas (ITQs) are issued to fishing boats to limit the catch in the Red Sea to the efficient quantity, what would be the price of an ITQ if measured in tons of lobster per month? A) 70 B) 50 C) 30 D) 10 Version A 8

9 36. If the quota is introduced, what is the major concern regarding the fishermen s behavior according to our discussion in class? A) They would be tempted to cheat on their quotas and fish too much B) They would sell their quotas to outsiders C) They would get too rich and lazy D) They would be discouraged from meeting their quota and will fish too little 37. A good is nonrival if A) only the government can produce it B) it is very difficult or impossible to prevent someone from consuming this good C) when you pay for the good, you are guaranteed to be the sole consumer D) when you consume a unit, that means there is no less for someone else 38. A public good is defined as a good or service that is A) something tangible B) rival and excludable C) rival and nonexcludable D) nonrival and nonexcludable 39. A good is nonexcludable if A) only the government can produce it B) it is very difficult or impossible to prevent someone from consuming this good C) when you pay for the good, you are guaranteed to be the sole consumer D) when you consume a unit, that means there is no less for someone else Quantity of cats John s marginal benefit, dollars per month Mary s marginal benefit, dollars per month John and Mary are considering getting cats in their house. The table above gives their marginal benefits from cats, a public good in their household. Suppose that the marginal cost of keeping a cat is $100 per month. What is the efficient quantity of cats in their household? Apply the marginal analysis approach to answer this question. A) 3 B) 2 C) 1 D) none Version A 9