Homework Assignment and Study Guide for Principles of Microeconomics

Multiple Choice Identify the choice that best completes the statement or answers the question. Show appropriate work where necessary. Ch. 9—International Trade B 1. A tax on an imported good is called a a. quota. b. tariff. c. supply tax. d. trade tax. D 2. The price of a good that prevails in a world market is called the a. absolute price. b. relative price. c. comparative price. d. world price. D 3. The price of cotton that prevails in international markets is called the a. export price of cotton. b. import price of cotton. c. comparative-advantage price of cotton. d. world price of cotton. B 4. If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, a. the country will be an exporter of the good. b. the country will be an importer of the good. c. the country will be neither an exporter nor an importer of the good. d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. A 5. If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, a. the country will be an exporter of the good. b. the country will be an importer of the good. c. the country will be neither an exporter nor an importer of the good. d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. C 6. Trade among nations is ultimately based on a. absolute advantage. b. strategic advantage. c. comparative advantage. d. technical advantage. Figure 9-1 B 7. Refer to Figure 9-1. Without trade, consumer surplus is a. $210. c. $455. b. $245. d. $490. A 8. Refer to Figure 9-1. Without trade, producer surplus is a. $210. c. $455. b. $245. d. $490. D 9. Refer to Figure 9-1. With free trade, this country will a. import 40 baskets. b. import 70 baskets. c. export 35 baskets. d. export 65 baskets. A 10. Refer to Figure 9-1. If this country chooses to trade, the price of baskets in this country will be a. $10 and 40 baskets will be sold domestically. b. $10 and 105 baskets will be domestically. c. $7 and 70 baskets will be sold domestically. d. $7 and 40 baskets will be sold domestically. B 11. Refer to Figure 9-1. With free trade, consumer surplus is a. $45. b. $80. c. $210. d. $245. D 12. Refer to Figure 9-1. With free trade, producer surplus is a. $80.00. b. $210.00. c. $245.50. d. $472.50. B D A B 13. Refer to Figure 9-1. As a result of trade, total surplus increases by a. $80. b. $97.50. c. $162.50. d. $495.50. 14. Refer to Figure 9-1. This country a. has a comparative advantage in baskets. b. should export baskets. c. is a price taker in the world economy. d. All of the above are correct. 15. Refer to Figure 9-1. The world price for baskets represents a. the demand for baskets from the rest of the world. b. the supply of baskets from the rest of the world. c. the level of inefficiency in the domestic market caused by trade. d. the gap between domestic quantity demanded and domestic quantity supplied and the resulting shortage. 16. Refer to Figure 9-1. At the world price and with free trade, a. the domestic quantity of baskets demanded is greater than the domestic quantity of baskets supplied. b. the basket market is in equilibrium. c. the domestic demand for baskets is perfectly inelastic. d. both domestic producers of baskets and domestic consumers of baskets are better off than they were without free trade. Ch. 10—Externalities B 17. Market failure can be caused by a. too much competition. b. externalities. c. low consumer demand. d. scarcity. C 18. 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. C 19. 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. C 20. 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. D 21. 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 beautiful flower garden outside of the local post office d. All of the above are correct. D 22. If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention. B 23. The difference between social cost and private cost is a measure of the a. loss in profit to the seller as the result of a negative externality. b. cost of an externality. c. cost reduction when the negative externality is eliminated. d. cost incurred by the government when it intervenes in the market. Figure 10-1 B 24. Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market. C 25. Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. B 26. Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. D 27. Refer to Figure 10-1. This graph represents the tobacco industry. If the government uses a pollution tax, how much of a tax must be imposed on each unit of production? a. $1.90 b. $1.80 c. $1.60 d. $0.30 B 28. Refer to Figure 10-1. This graph represents the tobacco industry. If the government uses a pollution tax, how much tax revenue will the government receive? a. $7.00 b. $10.50 c. $63.00 d. $67.20 B 29. The Coase theorem suggests that private markets may not be able to solve the problem of externalities a. if the government does not become involved in the process. b. when the number of interested parties is large and bargaining costs are high. c. if the firm in the market is a monopoly. d. if some people benefit from the externality. B 30. Mike and Bob are both in the same enclosed hotel room. Mike assigns a $20 value to smoking his cigar. Bob values smoke-free air at $10. Which of the following scenarios is a successful example of the Coase theorem? a. Bob offers Mike $15 not to smoke his cigar. Mike accepts and does not smoke. b. Mike pays Bob $11 so that Mike can smoke his cigar. c. Mike pays Bob $9 so that Mike can smoke his cigar. d. Bob offers Mike $10 not to smoke his cigar. Mike accepts and does not smoke. A 31. Suppose that smoking creates a negative externality. What can the government do to equate the equilibrium quantity of cigarettes and the socially optimal quantity of cigarettes smoked? a. impose a tax on cigarettes that is equal to the per-unit externality b. offer a subsidy on cigarettes that is equal to the per-unit externality c. impose a regulation limiting the number of cigarettes that each consumer can purchase d. Nothing B 32. Which of the following is not a characteristic of pollution permits? a. Prices are set by supply and demand. b. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. c. Real-world markets for pollution permits include sulfur dioxide and carbon. d. Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.