Exam No. 2 Date: 4 April Instructor: Brian B. Young

Transcription

1 Economics 212 Microeconomic Principles Exam No. 2 Date: 4 April 2012 Name The value of this exam is 100 points Instructor: Brian B. Young Please show your work where appropriate! #1 Multiple Choice 2 points each A price ceiling in the market for fuel oil that is below the equilibrium price will a. lead to the quantity supplied of fuel oil exceeding the quantity demanded. b. lead to the quantity demanded of fuel oil exceeding the quantity supplied. c. decrease the demand for fuel oil. d. increase the supply of fuel oil. #2 The efficient quantity of a public good is the quantity at which marginal cost is a. greater than marginal benefit. b. less than marginal benefit. c. equal to marginal benefit. d. zero #3 Suppose the equilibrium wage rate for microeconomics instructors is $2.35 per hour in Arizona and at that wage rate the equilibrium quantity of microeconomics instructors is 125. If the minimum wage is set at $7.25 per hour, then the a. quantity of microeconomics instructors employed increases. b. quantity of microeconomics instructors employed decreases. c. quantity of microeconomics instructors employed does not change. d. wage rate for microeconomics instructors increases. #4 If a good has an external cost, then the marginal private cost curve a. lies below then the marginal social cost curve. b. lies above the marginal social cost curve. c. is negative. d. is the same as the marginal external cost curve. Page 1 of 8

2 #5 The figure above shows the labor market in a region. For a minimum wage to change the wage rate and amount of employment, it must be a. left to the forces of supply and demand. b. set above $6 an hour. c. set equal to $6 an hour. d. set below $6 an hour. #6 The Food Stamp Program (now called SNAP) was originated in the 1930s with the aim of increasing the depressed prices received by farmers and ranchers. This is a type of subsidy designed to #7 a. shift the supply curve for food to the right. b. increase the price of food by establishing a price floor. c. shift the demand curve for food to the right. d. increase the price of food and decrease the quantity demanded. Which of the following shows the domestic opportunity cost of producing a good or service? a. the domestic demand curve for the good or service b. the domestic supply curve of the good or service c. the world price line d. the domestic tariff line Page 2 of 8

3 #8 If the United States imposes a tariff on foreign chocolate, how are U.S. producers of chocolate affected? a. The quantity of chocolate they sell decreases because U.S. consumption of chocolate decreases. b. The quantity of chocolate they supply increases. c. The price at which they sell their chocolate falls. d. None of the above answers is correct. #9 International trade is often restricted because the a. total gain to all producers is larger than the total loss to all consumers. b. total gain to all producers is smaller than the total loss to all consumers. c. gain per producer is larger than the loss per consumer. d. gain per producer is less than the loss per consumer. #10 Neither the demand nor the supply of sugar is perfectly elastic or inelastic. If the government imposes a 5 percent tax on sugar, the a. price of sugar falls by 5 percent. b. price of sugar increases by less than 5 percent. c. price of sugar does not change. d. quantity of sugar increases. #11 Suppose the elasticity of supply of land is 0 and elasticity of demand is 2. If the government imposes a 10 percent tax on land, then a. buyers and sellers each pay 5 percent of the tax. b. buyers pay all of the tax. c. sellers pay all of the tax. d. sellers pay a smaller share of the tax than do buyers but both buyers and sellers pay some of the tax. #12 Suppose the supply of apartments in Phoenix is perfectly elastic. The effect of a $100 per month tax on all apartments is that the a. landlords pay none of the tax and there is a surplus of apartments. b. landlords pay all of the tax and suffer all of the deadweight loss. c. landlords pay all of the tax and no changes take place in the quantity of apartments supplied. d. renters pay all of the tax. Page 3 of 8

4 #13 The deadweight loss of a tax on labor income is a. larger for high-wage workers than low-wage workers. b. not part of the total burden of a tax. c. not a burden because no one is paying that tax. d. zero because the supply of labor is perfectly inelastic. #14 The phrase tax incidence refers to a. how easy it is to evade the tax. b. how taxes redistribute income. c. the degree of progressivity or regressivity of the tax. d. who actually bears the economic burden of paying the tax. #15 If Mr. and Mrs. Kvetch wanted to keep a major airline from flying over their house and disturbing their sleep, according to the Coase theorem, they would be able to accomplish this goal if a. the airline has a property right over the air above their house. b. they or the airline have a property right to the air above their house and transactions costs are low. c. they or the airline have a property right to the air above their house and transactions costs are high. d. no one has a property right to the air above their house. #16 One often hears conservative politicians stating something equivalent to It doesn t matter how much we tax corporations; they will just pass the tax along to consumers. When is this statement true? a. When demand is perfectly inelastic. b. When supply is perfectly elastic. c. Both a. and b. d. This statement is never true. Page 4 of 8

5 #17 Number of cows Milk (gallons per day) The table above gives the number of cows and the milk they can produce on a common pasture. The marginal private cost of allowing a cow to graze is $0 per cow. With no government intervention, the equilibrium number of cows equals a. 40. b. 50. c. 90. d. More information is needed. #18 Suppose the equilibrium price of a gallon of milk is $3. If the government imposes a price floor of $4 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. #19 A country will have a comparative advantage in the production of a good if the domestic quantity a. supplied is positive at the world price. b. demanded is positive at the world price. c. supplied is greater than the domestic quantity demanded at the world price. d. supplied is less than the domestic quantity demanded at the world price. #20 For a given elasticity of demand, the more inelastic the supply, the a. larger the deadweight loss from a tax. b. larger the share of a tax paid by the sellers. c. greater the burden on the government from a tax. d. greater is the excess burden from a tax. Page 5 of 8

6 Short Answer #1 10 points each We should try to keep jobs in the United States by restricting the number of items that can be imported from low-wage countries like Cambodia and Vietnam. Does this statement make sense? Why or why not? Who would be most likely to present this type of argument? #2 Price (dollars per desktop computer) Quantity supplied (millions of units per year) Quantity demanded (millions of units per year) , , The United States imports desktop computers from Taiwan. The table above contains the U.S. demand and U.S. supply schedules for desktop computers. The world price of a desktop computer is $600 per unit. a. With no trade, what is the domestic price and quantity of desktop computers? b. At the world price, how many units are demanded in the United States? c. At the world price, how many units are produced in the United States? d. At the world price, how many units are imported into the United States? e. How do your answers change if the United States assesses a $400 tariff on each desktop computer imported? #3 The Taylor Grazing Act of 1934 (43 USC 315), signed by President Roosevelt, was intended to "stop injury to the public grazing lands by preventing overgrazing and soil deterioration; to provide for their orderly use, improvement, and development; [and] to stabilize the livestock industry dependent upon the public range" (USDI 1988). The Taylor Grazing Act requires cattlemen to purchase permits from the U.S. government if they wish to graze cattle on public lands which were formerly available at zero cost to them. Explain why the Taylor Grazing Act was necessary. What do economists call the problem addressed the Taylor Grazing Act? Page 6 of 8

7 #4 The figure above shows the market for gasoline. The government has imposed a tax on gasoline. a. What is the amount of the tax per gallon of gasoline? b. How much tax revenue will government collect from this tax? c. How much of the tax is paid by consumers? How much is paid by producers? Which is more elastic, the supply or demand for gasoline? Page 7 of 8

8 #5 The figure above shows the market for tickets to the Super Bowl the day of the game. Suppose the government imposes an entertainment tax of $100 per ticket. a. What is the equilibrium price of a Super Bowl ticket before the tax? What is the price paid by buyers after the tax? What is the price received by sellers after the tax? b. What is the equilibrium quantity of tickets before the tax? What is the equilibrium quantity after the tax? c. Do buyers or sellers bear the largest burden of the tax? #6 If the production of fertilizer causes pollution (an external cost, i.e., a negative production externality) is the unregulated competitive market equilibrium for fertilizer efficient? Explain why or why not using what you know about the marginal private cost curve, the marginal external cost, and the marginal social cost curve. Page 8 of 8