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intermediate microeconomics

Study Guide For N. Gregory Mankiw's Principles Of Microeconomics 5th Edition David R. Hakes - Solutions

4. A negative externality (that has not been internalized) causes thea. optimal quantity to exceed the equilibrium quantity.b. equilibrium quantity to exceed the optimal quantity.c. equilibrium quantity to equal the optimal quantity.d. equilibrium quantity to be either above or below the optimal
3. A positive externality generatesa. b.c. a social cost curve that is above the supply curve (private cost curve) for a good. a social value curve that is above the demand curve (private value curve) for a good. a social value curve that is below the demand curve (private value curve) for a
2. A negative externality generatesa. b. C. a social cost curve that is above the supply curve (private cost curve) for a good. a social cost curve that is below the supply curve (private cost curve) for a good. a social value curve that is above the demand curve (private value curve) for a good.d.
1. An externality isa. the benefit that accrues to the buyer in a market.b. the cost that accrues to the seller in a market.c. the uncompensated impact of one person's actions on the well-being of a bystander.d. the compensation paid to a firm's external consultants.c. none of the above.
10. What are some types of private solutions to externalities?
9.What are the sources of transaction costs when affected parties try to eliminate an externality?
In question 7 above, how large would the transaction costs need to be in order to ensure that no private solution to the problem can be found? .
What does the Coase theorem suggest will take place?
Suppose an individual enjoys lawn care and gardening a great deal. He uses pesticides to control ~nsects and the harmful residue drifts across the neighborhood. He values the use of the pesticides at $10,000 and the neighborhood values clean air at $15,000.
Why are tradable pollution permits considered superior to corrective taxes at reducing pollutio·n?
Does a corrective tax reduce or increase efficiency?Why?
What are the two types of public policies toward externalities? Describe them. Which one do economists prefer? Why?
To internalize this externality, should the government tax or subsidize apples? Why or why not?
2.EXTERNALITIES Ifthis externality is not internalized, does the market overproduce or underproduce apples? What does it mean to overproduce or underproduce a product? --------..--..----~
1. Is this an example ofa positive or a negative externality? Explain.
3. Suppose there are four firms that each wish to dump one barrel ofwaste chemicals into the river. Firm 1 produces a product that is so valued by society and sells for such a high price that it is willing to pay $8 million to dump a barrel. Firm 2 produces a somewhat less valuable product and is
2. Suppose citizens living around Metropolitan Airport value peace and quiet at a value of$3 billion.a. b.c. d.e. f. If it costs the airlines $4 billion to make their planes quieter (the airlines value noise at $4 billion), is it effi~ient for the government to require that the planes be muffled?
1. The information below provides the prices and quantities in a hypothetical market for automobile antifreeze. al':i
Explain how transaction costs may impede a private solution to an externality
Define the Coase theorem
differ in the presence of an externality
Distinguish between a positive and a negative externality
20. Because producers are better able to organize than consumers are, we would expect there to be political pressure to createa. b.c. d. import resttictions. export restrictions. none ofthe above.
19. Which of the following is nor employed as an argument in support of trade restrictions?a. Free trade destroys domestic jobs.b. Free trade harms the national security if vital products are imported.c. Free trade is harmful to importing countries if foreign countries subsidize their exporting
18. Which of the following statements about import quotas is true?a. Import quotas are preferred to tariffs because they raise more revenue for the imposing government.b. Voluntary quotas established by the exporting country generate no deadweight loss for the importing country. C. For every
17. Which of the following statements about a tariff is true?a. b. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government,
16. When politicians argue that outsourcing or offshoring of technical support to India by Dell Computer Corporation is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade?a. the infant-industry argumentb. the jobs argument C. the national-security
15. The deadweight loss from the tariff is the area 3. B+D+E+Eb. B. C. D+E+Fd. D+Fc. E.
14. If a tariff is placed on this good, producer surplus is the areaa. G.b. c. G+ C. G+C+D+E+Ed. G+C+D+E+F+B.e. G+ C+E.
13. Government revenue from the tariff is the area.a. C+D+E+Eb. D+E+E C. DEd. G.e. E.
12. If a tariff is placed on this good, consumer surplus is the area A+ B.a. A.b. C.d. e. A+B+C. A+B+C+D+E+E A+B+C+D+E+F+G
11. If free trade is allowed, consumer surplus is the areaa. b. C. A. A+ B. A+B+C.d. A+B+C+D+E+Ee. A+B+C+D+E+F+G.
10. When a country allows trade and exports a good,a. domestic consumers are better off, domestic producers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners.b. domestic consumers are better off, domestic producers are worse off, and the
9. The gains from trade correspond to the area 3. A.b. B.c. C.d. D.e. B+ D.
8. If free trade is allowed, producer surplus is the areaa. b.c. C. B+C. B+C+D.d. A+B+C.c. A+B+C+D.
7. If trade is not allowed, producer surplus is the areaa. b. C. C. B+C. B+C+D.d. A+B+C.e. A+B+C+D.
6. If free trade is allowed, consumer surplus is the areaa. b. C.d. e. A. A+ B. A+B+C.. A+ B+ D. A+B+C+D.
5. If trade is not allowed, consumer surplus is the areaa. A.b. A+B. C. A+B+C.d. A + B + D.e. A+B+C+D.
4. If the world price for a good exceeds the before-trade domestic price for a good, then that country must havea. an absolute advantage in the production of the good. an absolute disadvantage in the production of the good.b. c. a comparative advantage in the production of the good.d. a comparative
3. Which of the following statements about free trade between the United States and Canada is true?a. The United States will export pencils but there will be no trade in pens because neither country has a comparative advantage in the production of pens.b. The United States will export pens and
2. Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,a. consumers will gain and producers will lose.b. producers will gain and consumers will lose.c. both producers and consumers will gain.d. both producers and consumers will
1. If free trade is allowed, a country will export a good if the world price is .a. below the before-trade domestic price of the good.b. above the before-trade domestic price of the good.c. equal to the before-trade domestic price of the good.d. none of the above.
11. List other benefits of free trade beyond those suggested by our standard analysis.
10. If tariffs reduce total surplus and, therefore, total economic well-being, why do governments employ them?
9. Present the free-trade response to the argument that imports should be restricted on goods that a country needs for national security.
8. What arguments are made to support trade restrictions?
7. For every tariff there is an import quota that will generate a similar result. What are the shortcomings of using an import quota to restrict trade versus using a tariff?
6. Describe in words the source of the deadweight loss from restricting trade.
5. Describe in words the source of the gains from trade (the additional total surplus) received by an importing country.
4. Describe in words the source of the gains from trade (the additional total surplus) received by an exporting country.
3. If residents of a country are allowed to import a good, who gains and who loses when compared to the before-trade equilibrium, the producers or the consumers? Why?
2. If the world price for a good is above a country's before-trade domestic price, will this country import or export this good? Why?
1. If free trade is allowed, which good will each country export to the other? Why? (Explain in terms of each country's opportunity cost of production.)
3. Use Exhibit 5 to answer the following questions.a. If free trade is allowed, what are the domestic quantity supplied, domestic quantity demanded, and the quantity imported?b. If a $1 tariff is placed on this good, what are the domestic quantity supplied, domestic quantity demanded, and the
2. Use Exhibit 4 to answer the following questions.a. b. If trade is not allowed, what is the equilibrium price and quantity in this market? If trade is allowed, will this country import or export this commodity? Why?c. If trade is allowed, what is the price at which the good is sold, the domestic
1. Use Exhibit 3 to answer the following questions.a. If trade is not allowed, what is the equilibrium price and quantity in this market?b. If trade is allowed, will this country import or export this commodity? Why? C. If trade is allowed, what is the price at which the good is sold, the domestic
Use consumer and producer surplus to show that the gains of the consumer exceed the losses ofthe producer when a country imports a good Show the deadweight loss assoCiated with a tariff Defeat the arguments made in support oftrade restrictions
Determine whether a country imports or exports a good if the world price is greater than the before-trade domestic price Show that the consumer wins and the producer loses when a country imports a good
You are watching the local news report on television with your roommate. The news anchor reports that the state budget has a deficit of $100 million. Because the state currently collects exactly $100 million from its 5 percent sales tax, your roommate says, "I can tell them how to fix their
20. When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax hasa. increased efficiency.b. reduced the price buyers pay.c. generated no tax revenue.d. caused a deadweight loss.
19. The reduction of a taxa. could increase tax revenue if the tax had been extremely high.b. will always reduce tax revenue regardless of the prior size of the tax.c. will have no impact on tax revenue.d. causes a market to become less efficient.
18. If a tax on a good is doubled, the deadweight loss from the taxa. stays the same.b. doubles.c. increases by a factor of four.d. could rise or fall.
17. The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as aa. b. C. deadweight curve. tax revenue curve. Laffer curve.d. Reagan curve.e. None of the above is correct.
16. When a tax on a good starts small and is gradually increased, tax revenue willa. rise.b. fall.c. first rise and then fall.d. first fall and then rise.c. do none of the above.
15. Taxes on labor income tend to encourage 3. workers to work fewer hours.b. second earners to stay home.c. the elderly to retire early.d. e. the unscrupulous to enter the underground economy. all of the above.
14. Suppose the supply of unimproved land is relatively inelastic. A tax on unimproved land would generate aa. large deadweight loss and the burden of the tax would fall on the renter.b. small deadweight loss and the burden of the tax would fall on the renter.c. large deadweight loss and the burden
13. Deadweight loss is greatest whena. both supply and demand are relatively inelastic.b. both supply and demand are relatively elastic.c. supply is elastic and demand is perfectly inelastic.d. demand is elastic and supply is perfectly inelastic.
12. A tax on gasoline is likely toa. b. C. cause a greater deadweight loss in the long run when compared to the short run. cause a greater deadweight loss in the short run when compared to the long run. generate a deadweight loss that is unaffected by the time period over which it is measured.d.
11. Which of the following would likely cause the greatest deadweight loss?a. a tax on cigarettesb. a tax on salt a tax on cruise line ticketsc. d. a tax on gasoline
10. Which of the following is true with regard to the burden of the tax in Exhibit 4?a. The buyers pay a larger portion of the tax because demand is more inelastic than supply.b. The buyers pay a larger portion of the tax because demand is more elastic than C. supply. The sellers pay a larger
9. If a tax is placed on the product in this market, deadweight loss is the areaa. B+C..b. B+C+E+Ec. A+B+C+D.d. E+Ee. A+ D.
8. If a tax is placed on the product in this market, total surplus is the areaa. b.c. A+B+C+D. A+B+C+D+E+E B+C+E+Ed. E+Ee. A+ D.
7. If there is no tax placed on the product in this market, total surplus is the areaa. b. C. A+B+C+D. A+B+C+D+E+E B+C+E+Ed. E+Ec. A+D+E+E
6. If a tax is placed on the product in this market, tax revenue paid by the sellers is the area A.a. b. B. C. C.d. C+Ee. B+C+E+E
5. If a tax is placed on the product in this market, tax revenue paid by the buyers is the areaa. A.b. B. C. C.d. e. B+C. B+C+E+E
4. If a tax is placed on the product in this market, producer surplus is the areaa. A.b. C.d. e. A+B+E. C+D+E D. A+B+C+D.
3. If a tax is placed on the product in this market, consumer surplus is the areaa. A.b. C.d. c. A + B. A+B+E. A+B+C+D. D.
2. If there is no tax placed on the product in this market, producer surplus is the areaa. b. C.d. e. A+B+C+D. C+D+E D. C+E A+B+E.
1. If there is no tax placed on the product in this market, consumer surplus is the areaa. A+B+C.b. D+C+B.c. A+B+E. C+D+Ed. e. A.
15. A deadweight loss results when a tax causes market participants to fail to produce and consume units on which the benefits to the buyers exceed the costs to the sellers.
14. If a tax is doubled, the deadweight loss from the tax more than doubles.
13. A tax collected from buyers generates a smaller deadweight loss than a tax collected from sellers.
If an income tax rate is high enough, a reduction in the tax rate could increase tax revenue.
A larger tax always generates more tax revenue. A larger tax always generates a larger deadweight loss.
A tax causes a deadweight loss because it eliminates some of the potential gains from trade.
A tax will generate a greater deadweight loss if supply and demand are inelastic.
7.. A tax on cigarettes would likely generate a larger deadweight loss than a tax on luxury boats.
6. If a tax is placed on a good in a market where supply is perfectly inelastic, there is no deadweight loss and the sellers bear the entire burden of the tax.
5. If John values having his hair cut at $20 and Mary's cost of providing the haircut is $10, any tax on haircuts larger than $10 will eliminate the gains from trade and cause a $20 loss of total surplus.
4. When a tax is placed on a good, the revenue the government collects is exactly equal to the loss of consumer and producer surplus from the tax.
3. Deadweight loss is the reduction in consumer surplus that results from a tax.
If a tax is placed on a good and it reduces the quantity sold, there must be a deadweight loss from the tax.
- 1. 2. In general, a tax raises the price the buyers pay, lowers the price the sellers receive, and reduces the quantity sold.
10. As a tax on a good increases, what happens to the deadweight loss from the tax? Why?
9. As a tax on a good increases, what happens to tax revenue? Why?
8. Suppose the supply of unimproved land is relatively inelastic. Would a tax on unimproved land generate a large deadweight loss? Why or why not? Who would bear the burden of the tax, the renter or the landlord? Why?
7. Would you expect a tax on gasoline to have a greater deadweight loss in the short run or the long run? Why?
6. Suppose Rachel values having her house painted at $1,000. The cost for Paul to paint her house is $700. What is the value of the total surplus or the gains from trade on this transaction? What is the size of the tax that would eliminate this trade? What is the deadweight loss from this tax? What
5. When a tax is placed on a good, does the government collect revenue equal to the loss in total surplus due to the tax? Why or why not?
4. Under what conditions would a tax fail to produce a deadweight loss?

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