Econ 101, Sections 3 and 4, S11, Schroeter Exam #3, Special code = 0002 Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages. 1. A tariff on a product makes domestic sellers of the product a. worse off and domestic buyers of the product better off. b. worse off and domestic buyers of the product worse off. c. better off and domestic buyers of the product better off. *. better off and domestic buyers of the product worse off. 2. When a country lifts its ban on international trade it becomes an exporter of steel. As a result of the lifting of the trade ban, the domestic steel producer surplus ________ and domestic steel consumer surplus _________. a. increases; increases. b. decreases; decreases. *. increases; decreases. d. decreases; increases. 3. Monrovia is a small country that prohibits international trade in textiles. The equilibrium price in the Monrovian domestic textile market is higher than the price in the world textile market. If Monrovia were to repeal its textile trade ban, the price of textiles in the domestic market would a. increase and Monrovia would become an importer of textiles. *. decrease and Monrovia would become an importer of textiles. c. increase and Monrovia would become an exporter of textiles. d. decrease and Monrovia would become an exporter of textiles. 4. The "unfair-competition" argument for restrictions on imports into the U.S. alleges that *. foreign governments are unfairly subsidizing their export industries. b. U.S. producers are unfairly dumping low quality goods in foreign markets. c. foreign firms are unfairly charging higher prices to U.S. consumers than to their own domestic consumers. d. the U.S. government is unfairly limiting opportunities for U.S. firms to sell their products abroad. 5. In September of 2010, China imposed a tariff on imports of U.S. a. tires. b. steel. c. textiles. *. poultry.2Questions 6, 7, and 8 refer to the following figure. It depicts the domestic demand (Dd) and domestic supply (Sd) of cement, a homogeneous commodity, in Microlandistan, a small country. The world market price of cement is $100/ton. 6. If Microlandistan has a free trade policy, the surplus of domestic cement producers is *. $80,000/week. b. $60,000/week. c. $40,000/week. d. $20,000/week. 7. If Microlandistan has a free trade policy, the surplus of domestic cement consumers is a. $40,000/week. b. $30,000/week. c. $20,000/week. *. $10,000/week. 8. If Microlandistan abandons its free trade policy and imposes a ban on international trade in cement, the country's total (consumer + producer) surplus will a. decrease by $15,000/week. *. decrease by $30,000/week. c. increase by $15,000/week. d. increase by $30,000/week. Sd Dd 140 ($/ton) 100 60 40 20 500 1000 2000 (tons/week)39. Which of the following is an example of a negative externality? a. After drinking way too much at his fraternity's party on Saturday night, Jason was hung-over on Sunday morning. b. Gabrielle's decision to get a flu shot makes it a little less likely that her roommate will get the flu. *. When he smokes in a public place, Ryan inflicts harmful second-hand smoke on others. d. Both a and c. 10. Altering incentives so that people take account of the impact of their actions on bystanders is called "__________ an externality." a. coordinating. b. marginalizing. c. transacting. *. internalizing. 11. If a competitive market is subject to a negative externality then, at the market equilibrium quantity, marginal social cost is a. less than marginal social value. b. equal to marginal social value. *. greater than marginal social value. d. either a or c, depending on whether the externality is on the consumption side or the production side. Questions 12 and 13 are based on the following information. A railroad line passes through a farmer's field. The trains impose an externality on the farmer because sparks from the railroad cars start fires that result in $1500 in damage to the farmer's crop. There is a special soy-based grease that the railroad could use that would eliminate the damaging sparks. The grease costs $1200. 12. Suppose that the farmer has the right to compensation for any damage that is done to his crops. Assume that there are no transaction costs. What outcome will occur in this case? a. The railroad will continue to operate without the special grease and will pay the farmer $1500 in damages. *. The railroad will buy and use the special grease. No payment will be made between the railroad and the farmer. c. The farmer and the railroad will enter into a contract with the following terms: The farmer will pay the railroad some amount between $1200 and $1500 in exchange for the railroad's promise to buy and use the special grease. d. The railroad will continue to operate without the special grease but will pay no compensation to the farmer.413. Suppose that the railroad is not liable for any damage done to the farmer's crops. Assume that there are no transaction costs. What outcome will occur in this case? a. The railroad will continue to operate without the special grease and will pay the farmer $1500 in damages. b. The railroad will buy and use the special grease. No payment will be made between the railroad and the farmer. *. The farmer and the railroad will enter into a contract with the following terms: The farmer will pay the railroad some amount between $1200 and $1500 in exchange for the railroad's promise to buy and use the special grease. d. The railroad will continue to operate without the special grease but will pay no compensation to the farmer. Questions 14 and 15 refer to the following information and table. Three firms (A, B, and C) are currently responsible for 3 units of pollution each (for a total of 9 units of pollution). The following table shows the marginal abatement costs for each of the three firms. For example, it would cost firm A $39 to reduce its pollution by one unit, an additional $50 to reduce its pollution by a second unit, and an additional $72 to eliminate the third unit of pollution. Firm Unit of pollution to be eliminated A B C First unit 39 32 40 Second unit 50 38 46 Third unit 72 47 58 14. Suppose that the government imposes a pollution tax of $55/unit. Firms would then have to pay a tax of $55 for each unit of
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