Practice Exam 2 Principles of Microeconomics ECO 203 Autumn 2021 1 The term tax incidence refers to government a whether buyers or sellers of a good are required to send tax payments to the b whether the demand curve or the supply curve shifts when the tax is imposed c the distribution of the tax burden between buyers and sellers d widespread view that taxes and death are the only certainties in life 2 When a tax is placed on the sellers of energy drinks the a sellers bear the entire burden of the tax b buyers bear the entire burden of the tax c burden of the tax will be always be equally divided between the buyers and the sellers d burden of the tax will be shared by the buyers and the sellers but the division of the burden is not always equal 3 Refer to the figure above The vertical distance between points A and B represents the tax in the market The price that buyers pay after the tax is imposed is a 8 b 10 c 16 d 24 4 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 consumer s preferences b the cost of a good to the buyer c how much a buyer values a good d consumer surplus 5 A consumer s willingness to pay directly measures a the extent to which advertising and other external forces have influenced the 6 Refer to the figure above If the price of the good is 250 then consumer surplus amounts to a 50 b 100 c 150 d 200 7 Refer to the above figure If the equilibrium price is 60 what is the producer surplus a 600 b 1 200 c 2 400 d 4 800 8 We can say that the allocation of resources is efficient if a producer surplus is maximized b consumer surplus is maximized c total surplus is maximized d sellers costs are minimized 9 Which of the following statements is not correct a An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus b Market power can cause markets to be inefficient c Externalities can cause markets to be inefficient d The invisible hand can remedy all types of market failures 10 When a tax is placed on a product the price paid by buyers a rises and the price received by sellers rises b rises and the price received by sellers falls c falls and the price received by sellers rises d falls and the price received by sellers falls 11 Suppose a tax of 1 per unit is imposed on a good The more elastic the supply of the good other things equal the a smaller is the response of quantity supplied to the tax b larger is the tax burden on sellers relative to the tax burden on buyers c larger is the deadweight loss of the tax d All of the above are correct 12 Refer to the figures above On the vertical axis of each graph DWL is deadweight loss Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax a Panel a b Panel b c Panel c d Panel d 13 If the size of a tax increases tax revenue a increases b decreases c remains the same d may increase decrease or remain the same 14 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 15 Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil This situation suggests a Russia has a comparative advantage over Brazil in producing coffee and Ireland has a comparative advantage over Russia in producing sunflower seeds b Russia has a comparative advantage over Ireland in producing sunflower seeds and Brazil has a comparative advantage over Russia in producing coffee c Russia has an absolute advantage over Ireland in producing sunflower seeds and Brazil has an absolute advantage over Russia in producing coffee d Russia has an absolute advantage over Brazil in producing coffee and Ireland has an absolute advantage over Russia in producing sunflower seeds 16 Trade raises the economic well being of a nation in the sense that a the gains of the winners exceed the losses of the losers b everyone in an economy gains from trade c since countries can choose what products to trade they will pick those products that are most beneficial to society d the nation joins the international community when it begins to engage in trade 17 Suppose a country abandons a no trade policy in favor of a free trade policy If as a result the domestic price of pistachios decreases to equal the world price of pistachios then a that country becomes an exporter of pistachios b that country has a comparative advantage in producing pistachios c at the world price the quantity of pistachios demanded in that country exceeds the quantity of pistachios supplied in that country d All of the above are correct 18 Several arguments for restricting trade have been advanced Those arguments do not include a the jobs argument b the protection as a bargaining chip argument c the no deadweight loss argument d the infant industry argument 19 The term market failure refers to a a market that fails to allocate resources efficiently b an unsuccessful advertising campaign which reduces demand c ruthless competition among firms d a firm that is forced out of business because of losses 20 In what sense do externalities cause the invisible hand of the marketplace to fail a Externalities lead to government intervention in markets which exacerbates the problems associated with externalities b Externalities result in prices that are too high for many consumers to pay c Markets fail to produce the maximum total benefit to society when positive or negative externalities are present d Markets produce too little of a good when positive or negative externalities are present the effect effect 21 A positive externality arises when a person engages in an activity that has a an adverse effect on a bystander who is not compensated by the person who causes b an adverse effect on a bystander who is compensated by the person who causes the c a beneficial effect on a bystander who pays the person who causes the effect effect cents elastic d a beneficial effect on a bystander who does not pay the person who causes the 22 Suppose the government imposes