Practice Second Exam ECO2030 Name___________________________________ 1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. how the allocation of resources affects economic well-being. d. the effect of income redistribution on work effort. 2. Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. a resistance price. b. willingness to pay. c. consumer surplus. d. producer surplus. 3. Consumer surplus is equal to the a. Value to buyers - Amount paid by buyers. b. Amount paid by buyers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Willingness to pay of buyers. Figure 7-21 Price A H Supply K Demand C P1 B Q1 Quantity 4. Refer to Figure 7-21. Buyers who value this good more than the equilibrium price are represented by which line segment? a. AC. b. CK. c. BC. d. CH. 5. Refer to Figure 7-21. Sellers whose costs are less than the equilibrium price are represented by which line segment? a. AC. b. CK. c. BC. d. CH. Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. Price 24 22 20 18 16 14 12 10 8 6 4 2 A Supply B C D F G H J K L M 3 6 9 12 15 18 21 24 27 30 33 36 39 Demand Quantity 7. Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area a. A. b. B+C. c. A+B+C. d. A+B+C+D+F. 8. Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area a. D+F+G+H+J. b. D+F+G+H. c. D+F+J. d. J. 9. Refer to Figure 8-8. The government collects tax revenue that is the area a. L. b. B+D. c. C+F. d. F+G+L. Figure 9-17 Price Domestic Supply 76 72 68 64 60 56 52 48 44 40 36 32 World price + tariff 28 24 World Price 20 Domestic Demand 16 12 8 4 4 10. 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 Refer to Figure 9-17. Without trade, total surplus is a. $600. b. $1,200. c. $1,800. d. $2,250. 11. Refer to Figure 9-17. With free trade, total surplus is a. $600. b. $1,200. c. $1,800. d. $2,400. 12. Refer to Figure 9-17. With trade and a tariff, total surplus is 80 84 88 92 96 100 Quantity a. $1,224. b. $1,416. c. $1,512. d. $1,704. 13. Refer to Figure 9-17. With free trade, the country imports a. 16 units of the good. b. 24 units of the good. c. 60 units of the good. d. 64 units of the good. 14. 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. 15. Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a. A well-maintained yard conveys a positive externality because it increases the home's market value. b. A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. c. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. d. A well-maintained yard cannot provide any type of externality. 16. Dioxin emission that results from the production of paper is a good example of a negative externality because a. self-interested paper firms are generally unaware of environmental regulations. b. there are fines for producing too much dioxin. c. self-interested paper producers will not consider the full cost of the dioxin pollution they create. d. toxic emissions are the best example of an externality. Figure 10-7 17. Refer to Figure 10-7. Which quantity represents the social optimum for this market? a. Q1. b. Q2. c. Q3. d. Q4. Figure 10-15 18. Refer to Figure 10-15. Which graph illustrates a pollution permit program? a. the left graph b. the right graph c. both graphs d. neither graph 19. Mary and Cathy are roommates. Mary assigns a $19 value to smoking cigarettes. Cathy values smoke-free air at $21. Which of the following scenarios is a successful example of the Coase theorem? a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. b. Mary pays Cathy $19 so that Mary can smoke. c. Mary pays Cathy $14 so that Mary can smoke. d. Cathy offers Mary $22 not to smoke. Mary accepts and does not smoke. 20. A view of a spectacular sunset along a private beach is an example of a a. private good. b. public good. c. nonrival but excludable good. d. rival but nonexcludable good. Table 11-1 Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. Acres Mary Bill Tricia 1 $14 $18 $30 2 10 14 26 3 6 10 22 4 4 6 18 5 2 3 14 6 0 1 10 7 0 0 6 21. Refer to Table 11-1. Suppose the cost to build the park is $16 per acre. How large should the park be to maximize total surplus from the park in Anywhere? a. 2 acres b. 3 acres c. 4 acres d. 5 acres 22. Which of the following statements is not correct? a. Environmental degradation is an example of the Tragedy of the Commons. b. Cost-benefit analysis is an important tool that economists use to evaluate the benefits of providing a public good. c. Some goods, such as lighthouses, may be either private or public goods. d. The free-rider problem prevents governments from supplying public goods. 23. Which of the following is not a typical solution to the \"Tragedy of the Commons?\" a. taxing the use of the common resource b. turning the common resource into a club good c. turning the common resource into a private good d. regulating the use of the common resource 24. Suppose that you want to put on a fireworks display in your hometown of 1,000 people this July. The cost of the display is $6,000, and each person values the display at $5. After a month, you have only sold 50 tickets at $5 each. The result is that a. the local government should put on the display, but you should not. b. you should still put on the display, but the local government should not. c. neither you nor the local government should put on the display. d. either you or the local government should put on the display