Econ 101, section 4, S07 Schroeter Exam #3, Red. Choose the single best answer for each question.

Transcription

1 Econ 101, section 4, S07 Schroeter Exam #3, Red Choose the single best answer for each question. 1. When President Bush imposed tariffs on imported steel in March 2002, which of the following groups supported the move? *. U.S. steel companies. b. U.S. steel consumers. c. Foreign steel companies. d. the World Trade Organization. 2. A particular country prohibits international trade in corn and the price of corn in the country's domestic market is higher than the world market price. If the country's government were to lift the trade ban, the country would become an *. importer of corn and domestic consumer surplus would increase. b. importer of corn and domestic consumer surplus would decrease. c. exporter of corn and domestic consumer surplus would increase. d. exporter of corn and domestic consumer surplus would decrease. 3. The country of Suzannistan initially prohibits international trade in cotton. When the trade ban is repealed, Suzannistan engages in trade in cotton with other countries. Which of the following will occur as a result, regardless of whether Suzannistan finds itself importing or exporting cotton? a. The price of cotton in the domestic market will increase. b. Domestic production of cotton will increase. c. Domestic consumers of cotton will be better off. *. Total surplus in the domestic market for cotton will increase. 4. In the current free trade situation, the country of Quasiland produces some beef domestically, but also imports some beef from abroad. If the government of Quasiland were to impose a tariff on beef, domestic consumption of beef would a. decrease and domestic production of beef would decrease. *. decrease and domestic production of beef would increase. c. increase and domestic production of beef would decrease. d. increase and domestic production of beef would increase. 5. When U.S. companies argue in favor of tariff protection on the grounds that their foreign competitors receive subsidies from their governments, they are making which of the following arguments for restricting trade? a. The jobs argument. b. The national security argument. c. The infant-industry argument *. The unfair competition argument.

2 2 Questions 6, 7, 8, and 9 refer to the following figure. It depicts the domestic demand (D d ) and supply (S d ) of copper, a homogeneous product, in Monrovia, a small country. (When we say that Monrovia is a "small" country, we mean that the price of copper in the rest-of-the-world will not be affected by changes in Monrovia's trade policy.) ($/lb.) 8.00 S d D d 4,500 6,000 9,000 11,250 12,375 (lbs./week) 6. If the world market price of copper is $2.50/lb., in a free trade situation, Monrovia would import a. 3,375 lbs./week. b. 4,500 lbs./week. c. 5,250 lbs./week. *. 7,875 lbs./week. 7. Starting from a free trade situation with a world market price of $2.50/lb., the government of Monrovia imposes a $0.50/lb. tariff on copper imports. The change in domestic producer surplus that results from the imposition of the tariff is an increase of a. $2,250/week. *. $2,625/week. c. $2,875/week. d. $3,000/week. 8. Starting from a free trade situation with a world market price of $2.50/lb., the government of Monrovia imposes a $0.50/lb. tariff on copper imports. The tariff revenue that will be collected as a result is a. $1,875/week. b. $2,250/week. *. $2,625/week. d. none of the above.

3 3 9. Starting from a free trade situation with a world market price of $2.50/lb., the government of Monrovia imposes a $0.50/lb. tariff on copper imports. The deadweight loss that results from the imposition of the tariff is a. $575.50/week. b. $604.75/week. *. $656.25/week. d. none of the above. 10. The impact of one person's actions on the well-being of a bystander is called a. a deadweight loss. *. an externality. c. an uncompensated rebate. d. a subsidy. 11. Which of the following is an example of an externality? a. cigarette smoke that permeates an entire restaurant. b. a flu shot that prevents a student from transmitting the virus to her roommate. c. a homeowner's beautiful flower garden that is enjoyed by passers-by. *. all of the above. 12. Corrective taxes designed to induce a decision maker to take account of the external costs arising from his actions are sometimes called *. Pigovian taxes. b. Ricardian taxes. c. Coasian taxes. d. Smithian taxes. 13. My neighbor has a wood-burning fireplace in his home and the law allows him to use it as often as he likes. However, the smoke from his fireplace drifts onto my property and aggravates my allergies. He places a value of $25/week on the enjoyment that he gets from the use of his fireplace. I would be willing to pay up to $30/week to avoid my allergic reaction to the smoke. Which of the following is a possible outcome of Coasian bargaining over this externality? a. My neighbor pays me $30/week and he continues to use his fireplace. b. My neighbor pays me $5/week and he agrees to stop using his fireplace. c. I pay my neighbor $20/week and he agrees to stop using his fireplace. *. None of the above. 14. The competitive market for gizmos is subject to a negative externality and transaction costs prevent the affected parties from reaching an efficient solution via Coasian bargaining. The market equilibrium quantity of gizmos will be *. greater than the socially optimal quantity. b. less than the socially optimal quantity. c. equal to the socially optimal quantity. d. either a or b, depending on whether the externality is the result of the production or the consumption of gizmos.

4 4 15. Central States Power Company is an electric power utility that operates coal-fired generation plants. Its initial allocation of sulfur allowances from the EPA is 20,000 tons for the year, but Central States decides to purchase and use additional allowances at the current market price of $600/ton. If Central States were to restrict its annual sulfur emissions to 20,000 tons, its marginal abatement cost would be a. $600/ton. *. greater than $600/ton. c. less than $600/ton. d. Impossible to determine without more information. 16. Technology spillover occurs when a. a firm passes the high cost of research on to society in the form of high prices. b. the government imposes a windfall profit tax on high-tech industries. c. patent laws prevent firms from benefiting from the research of other firms. *. a firm's research yields technical knowledge that is used by other firms. 17. In the regulation of pollution, economists usually prefer market-based policies over command-and-control policies because market-based policies a. generate revenue for the government and command-and-control policies do not. *. can achieve any pollution abatement target at the lowest total cost. c. are easier to enforce than command-and-control policies. d. eliminate pollution completely while command-and-control policies merely reduce it. 18. The navigational aid provided by a lighthouse beacon is non-rival because a. there is no way to make the beacon visible for some but invisible to others. b. it is not practical to charge a price for using the beacon's navigational aid. *. when one mariner is aided by the beacon, its potential value to others is undiminished. d. the benefits of the beacon's navigational aid exceed the costs of providing the service. 19. Which of the following is the best example of a common resource? a. national defense. b. a patented invention. *. the Ogallala aquifer. d. a radio broadcast of a baseball game. 20. When a free-rider problem exists in a market for a good, a. the cost of providing the good will always exceed the benefit of the good. *. the market will produce too little of the good (perhaps none at all). c. the tragedy of the commons is a likely outcome. d. the good is excludable. 21. Which of the following is rival and excludable? a. an un-congested toll road. b. an un-congested non-toll (free access) road. *. a congested toll road. d. a congested non-toll (free access) road.

5 5 22. The cost of compliance with tax law is called a. deadweight loss. b. efficiency deficit. c. horizontal equity loss. *. administrative burden. 23. If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of a. the ability-to-pay principle. *. the benefits principle. c. the government services principle. d. the horizontal equity principle. 24. Under which of the following circumstances would a 5% excise tax on wine be progressive? As household income doubles, the household's expenditure on wine a. increases by 50%. b. doubles. *. more than doubles. d. all of the above. 25. Under a proposed flat tax plan, the household's first $20,000 of annual income is tax free. Every dollar of income above $20,000 per year is taxed at the rate of $0.19 on the dollar. For this tax plan, as the household's annual income increases starting from $20,000, the marginal tax rate a. is constant and the average tax rate is constant. b. increases and the average tax rate is constant. *. is constant and the average tax rate increases. d. increases and the average tax rate increases. 26. A state needs to raise a given amount of revenue through the use of a sales tax on all expenditures, or an income tax similar in structure to the federal individual income tax, or a combination of both taxes. The state's tax structure is likely to impose the biggest tax burden on the poor if the state uses *. the sales tax only. b. the income tax only. c. a combination of the sales tax and the income tax. d. None of the above. (As long as total tax revenue is the same, the tax burden on the poor would be independent of how the revenue is raised.)

6 6 27. Abby is in the 20% marginal income tax rate bracket. She makes a $100 taxdeductible, charitable contribution to her church. How much is her disposable income (the income she has left after making the contribution and paying income taxes) reduced as a result of the charitable contribution? a. $0. b. $20. *. $80. d. $100. Questions 28, 29, and 30 refer to Schedule Y-1 from the 2006 Instruction booklet for federal individual income tax form Jacob and Brenda are married. Both are Iowa State University graduates who majored in finance, entered the job market, and rapidly climbed the corporate ladder to big-salary executive positions. Using the "married, filing jointly" tax status, they filed 2006 federal income tax returns reporting taxable income of $550,000 on total income of $875,000. Schedule Y-1. Use if your filing status is married, filing jointly. If your taxable income is over but not over your tax is of the amount over $0 $15, % $0 15,100 61,300 $1, % 15,100 61, ,700 8, % 61, , ,450 24, % 123, , ,550 42, % 188, , , % 336, According to schedule Y-1, Jacob and Brenda's federal income tax for 2006 is a. $91, *. $165, c. $205, d. $279, According to schedule Y-1, Jacob and Brenda's marginal tax rate is a. 25%. b. 28%. c. 33%. *. 35%. 30. According to schedule Y-1, Jacob and Brenda's average tax rate is *. 18.9%. b. 25.4%. c. 30.1%. d. 35.0%.