Midterm Exam 2 Sample Test PDF

Preview

Summary

NOtes...

Description

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions

Indicate the answer choice that best completes the statement or answers the question. 1. Welfare economics is the study of how a. the allocation of resources affects economic well-being. b. a price ceiling compares to a price floor. c. the government helps poor people. d. a consumer’s optimal choice affects her demand curve. 2. When a tax is levied on a good, the buyers and sellers of the good share the burden, a. provided the tax is levied on the sellers. b. provided the tax is levied on the buyers. c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. d. regardless of how the tax is levied. 3. What is the fundamental basis for trade among nations? a. shortages or surpluses in nations that do not trade b. misguided economic policies c. absolute advantage d. comparative advantage 4. An externality is the impact of a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. one person's actions on the well-being of a bystander. d. society's decisions on the poorest person in the society. 5. Government policy can potentially raise economic well-being a. in all markets for goods and services. b. in economic models, but not in reality. c. when a good does not have a price attached to it. d. never. 6. Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good. 7. Deadweight loss is the a. decline in total surplus that results from a tax. b. decline in government revenue when taxes are reduced in a market. Page 1

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions c. decline in consumer surplus when a tax is placed on buyers. d. loss of profits to business firms when a tax is imposed. 8. A tariff on a product makes a. domestic sellers better off and domestic buyers worse off. b. domestic sellers worse off and domestic buyers worse off. c. domestic sellers better off and domestic buyers better off. d. domestic sellers worse off and domestic buyers better off. 9. Corrective taxes are unlike most other taxes because they a. distort incentives. b. move the allocation of resources away from the social optimum. c. raise revenue for the government. d. move the allocation of resources closer to the social optimum. 10. It would always be a mistake to view a. a streetlight as a common resource. b. a nontoll road as a public good. c. the environment as a common resource. d. a lighthouse as a public good. 11. Which of the following statements is correct? a. Environmental degradation is an example of a free rider problem.. b. The division between public goods and common resources is clear-cut. c. Some goods, such as lighthouses, may be either private or public goods. d. The free-rider problem prevents governments from supplying public goods. 12. The idea of requiring motorists to pay to use the busiest streets in a city a. has been proposed by many public officials, but to date the idea never has been tried in a major city anywhere in the world. b. was tried in New York City in the 1990s, but the result was more — not less — congestion on busy streets, and the experiment was short-lived. c. reflects the fact that a congested road is a public good. d. reflects the fact that a congested road is a common resource. Figure 7-15

Page 2

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions

13. Refer to Figure 7-15. When the price falls from P2 to P1, producer surplus a. decreases by an amount equal to C. b. decreases by an amount equal to A+B. c. decreases by an amount equal to A+C. d. increases by an amount equal to A+B. Figure 8-1

14. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area a. I+Y. b. J+K+L+M. c. I+Y+B. d. I+J+K+L+M+Y. Figure 9-16. The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price.

Page 3

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions

15. Refer to Figure 9-16. Government revenue raised by the tariff is represented by the area a. E. b. B + E. c. D + E + F. d. B + D + E + F. Figure 10-9

Page 4

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions

16. Refer to Figure 10-9. Which graph represents a market with a positive externality? a. Panel (a) b. Panel (b) c. Panel (c) d. Both (b) and (c) are correct. Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.

17. Refer to Figure 10-13. Each unit of plastics that is produced results in an external a. cost of $6. b. cost of $8. c. benefit of $6. Page 5

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions d. benefit of $8. Figure 8-6 The vertical distance between points A and B represents a tax in the market.

18. Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is a. $600. b. $900. c. $1,500. d. $3,000. Figure 9-17

Page 6

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions

19. Refer to Figure 9-17. The amount of revenue collected by the government from the tariff is a. $32. b. $288. c. $368. d. $720. Figure 7-22

Page 7

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions

20. Refer to Figure 7-22. Assume demand increases, which causes the equilibrium price to increase from $50 to $70. The increase in producer surplus due to new producers entering the market would be a. $400. b. $800. c. $1,200. d. $900. 21. Producer surplus is the area a. under the supply curve. b. between the supply and demand curves. c. below the price and above the supply curve. d. under the demand curve and above the price. 22. The deadweight loss from a tax a. does not vary in amount when the price elasticity of demand changes. b. does not vary in amount when the amount of the tax per unit changes. c. is larger, the larger is the amount of the tax per unit. d. is smaller, the larger is the amount of the tax per unit. 23. Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000. 24. A tax on a good Page 8

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions a. gives buyers an incentive to buy less of the good than they otherwise would buy. b. gives sellers an incentive to produce more of the good than they otherwise would produce. c. creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. d. All of the above are correct. 25. A tariff is a a. limit on how much of a good can be exported. b. limit on how much of a good can be imported. c. tax on an exported good. d. tax on an imported good. Figure 9-24 The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $20 per unit.

26. Refer to Figure 9-24. With free trade, the country a. exports 20 units of the good. b. imports 20 units of the good. c. exports 30 units of the good. d. imports 30 units of the good. 27. The Coase theorem states that a. under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present. b. government intervention is always required to reach an efficient outcome when an externality is present. Page 9

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions c. government intervention cannot lead to an efficient outcome when an externality is present. d. only negative externalities can be resolved using government intervention. 28. When a market is characterized by an externality, the government a. can correct the market failure only in the case of positive externalities. b. can correct the market failure only in the case of negative externalities. c. can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. d. cannot correct for externalities due to the existence of patents. 29. When a good is rival in consumption, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. an unlimited number of people can use the good at the same time. d. everyone will be excluded from obtaining the good. 30. A free rider problem arises when a. there are very few beneficiaries and exclusion of any one of them is possible. b. there are many beneficiaries and exclusion of any one of them is possible. c. there are many beneficiaries and exclusion of any one of them is impossible. d. there are very few beneficiaries and they all try to use the good simultaneously.

Page 10

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions Answer Key 1. a 2. d 3. d 4. c 5. c 6. a 7. a 8. a 9. d 10. a 11. c 12. d 13. b 14. b 15. a 16. c 17. b 18. b 19. b 20. a 21. c 22. c 23. d 24. a 25. d Page 11

Name:

Class:

Date:

AECO 110 Midterm Exam 2 Sample Questions 26. b 27. a 28. c 29. a 30. c

Page 12...