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EC 130 Final
Terms in this set (140)
The first welfare theorem states that
The competitive equilibrium maximizes social efficiency
is determined by social efficiency and the equitable distribution of resources; maximization often involves an efficiency loss
Social efficiency represents
the size of the economic pie; the net gains to society from all efficient trades
According to the second welfare theorem, by suitably redistributing resources and allowing individual to trade freely, society
can attain an efficient outcome
The more elastic the quantity demanded
the smaller the consumer surplus
The more inelastic the quantity supplied
the larger the social surplus
Someone states that they're willing to share a smaller amount of total resources if the distribution is more equitable. This person is referring to which of the following?
The equity-efficiency tradeoff
According to economists, which of the following is a ground for government to intervene in market economies?
To redistribute income or wealth among individuals; To increase social efficiency
Consider hypothetical Bundles A, B, and C. Suppose you prefer Bundle B to Bundle C and are indifferent between Bundle A and Bundle C. Which of the following is true?
You prefer Bundle B to Bundle A
Suppose Andrew must decide how to spend $100 on DVDs and video games. The rate at which Andrew is willing to trade DVDs for video games is referred to as the
marginal rate of substitution.
Suppose Danielle spends money on apples and oranges, which cost $1/pound and $1.50/pound, respectively. If the marginal utility of consuming the last apple is 3 while the marginal utility of consuming the last orange is 6, how could Danielle be made better off without increasing total spending on apples and oranges?
By consuming fewer apples and more oranges
How does a decrease in income change the budget constraint?
It shifts the budget constraint inward.
Suppose that the price of pizza increases. The ________ effect means that, holding utility constant, you will consume ________ pizza than you did before.
Suppose that your state currently provides an income guarantee under TANF of $4,000/year and a benefit reduction rate of 50%. A typical potential recipient can make $10/hour and can choose to work up to 2,000 hours per year. How many hours must a typical recipient work to no longer receive a benefit from TANF?
Social surplus is defined as
consumer surplus plus producer surplus.
Suppose you hear a politician state that society is only as well off as its worst-off member. Which social welfare function could be best used to model the politician's thoughts?
Rawlsian social welfare function
The purchase of coal by a utility is best described as a
Which of the following is defined as the private marginal benefit to the consumers plus any costs associated with the consumption of the good that are imposed on others but for which those others are not fully compensated?
Social marginal benefit
To maximize social efficiency, which of the following must always be true?
Social marginal benefit equals social marginal cost.
Someone else playing recorded music loudly in a dormitory the night before your economics exam is an example of which of the following?
Negative consumption externality
Part I of the Coase Theorem states that when there are well-defined property rights and costless bargaining, then in a market in which there is an externality which of the following is true?
The socially optimal level of consumption can be achieved through negotiations between the affected parties
Suppose your roommate smokes in your apartment, imposing a cost on you. The Coasian Theorem suggests that one solution would involve
the government establishing that your roommate owns the air in your apartment or the government establishing that you own the air in your apartment.
Suppose you often come home and find that an uninvited dog has left a calling card in your yard. Determining whose dog is responsible is an example of which of the following?
Which of the following suggests that when an investment has a personal cost but a common benefit, individuals will underinvest?
If SUVs produce a negative externality, taxing the buyers of SUVs would do which of the following?
Shift the private demand curve to the left
Complete the following sentence so that it ALWAYS holds true: In the presence of a positive production externality, ________ is produced relative to the optimal level.
When firms in a polluting industry have different costs for the technology to reduce pollution, which of the following is efficient?
Achieving pollution reduction such that each firm reduces pollution up to the point where the marginal cost of reducing pollution is equal to the marginal social benefit of that reduction for each firm
If government knows the private and social benefit and cost curves associated with reducing pollution, which type of instrument for intervention should the government choose?
Quantity interventions; Price (tax) interventions
Currently, _________total CO2 (carbon dioxide) emissions than ______and _______ per capital CO2 emissions than _____.
China has higher ; the USA; lower; the USA
An example of a Pigouvian tax is:
The tax on Chlorofluorocarbons
At the present time in the USA,
There is no Cap and Trade system for Co2 emissions at the federal level; There is a Cap and Trade system in some states for some pollutants
Cable television is which of the following?
excludable but not rival
Which of the following are properties of a certain shirt?
rival in consumption
In general, which of the following is true?
Private markets underprovide public goods.
If individuals care about the outcomes of others as well as themselves, economists refer to them as which of the following?
Which of the following activities is considered altruistic?
donating money to the Red Cross
Which of the following is a barrier faced by government in attempting to solve the free rider problem in the provision of public goods?
crowding-out of private provision; measuring the preferences for public goods
Suppose that in response to government giving grants to local medical research projects, you reduce your annual gift. This is an example of which of the following problems with the public provision of a public good?
crowding-out of private provision
Which of the following refers to the idea that even if individuals are willing to tell government how much they're willing to pay for a public good, they may not have an idea of what that is?
Suppose that the city manager says that everyone lied about how much he or she would value a proposed city project. This is an example of which of the following?
Which of the following provides insurance against job loss?
Suppose you foresee two possibilities for your health: you will either get a brain tumor or will suffer nothing more than a cold.
These two possibilities are considered which of the following?
states of the world
Insurance allows individuals to do which of the following?
have more steady consumption in every period in the future
You enjoy riding bicycles down steep mountains. You estimate that in the next year, there's a 4% probability you'll crash and incur medical bills of $20,000, which is equal to your salary. And there's a 96% chance that you'll not be injured at all when you crash in the next year. Assume your utility depends only on your consumption/income in either possible outcome (you do not know the utility function). Suppose that you instead buy only partial insurance. Which of the following combinations could represent your utility if you're injured or not injured, respectively?
uninjured: 500; injured: 20
You enjoy riding bicycles down steep mountains. You estimate that in the next year, there's a 4% probability you'll crash and incur medical bills of $20,000, which is equal to your salary. And there's a 96% chance that you'll not be injured at all when you crash in the next year. Assume your utility depends only on your consumption/income in either possible outcome (you do not know the utility function). If you buy the full insurance at an actuarially fair premium, which of the following could represent the value of goods consumed if you're injured or not injured, respectively?
uninjured: $19,200; injured: $19,200
Asymmetric information between buyers and sellers results in which of the following?
A market equilibrium in which all types buy full insurance even though it is not fairly priced to all individuals is called a _________ equilibrium and occurs when some consumers are ___________.
Suppose you and your immediate relatives agree to support each other in the event one of you loses your job. This is an example of which of the following?
You lower the deductible on your car insurance and start driving like Michael Schumacher (a Formula One race car driver). This is an example of which of the following?
Suppose you have no health insurance. You will use medical care up to the point where:
your marginal benefit is equal to the marginal cost of the medical care.
Suppose you have complete health insurance. You will use medical care up to the point where:
your marginal benefit is zero.
The Samaritan dilemma relates to:
Social insurance; Moral hazard
A social insurance program is more efficient if:
It is difficult to self insure; The moral hazard cost is low.
Raising taxes to finance a social insurance program
enables to reduce inefficiencies in insurance markets; increases inefficiencies in other markets where the tax is raised.
In 2010, health care spending in the US accounted for approximately _________ of GDP
Approximately how many individuals with private insurance are part of the non-group insurance market in the US?
Which of the following would make selling insurance to employees of a given firm problematic for the insurer in terms of risk pooling?
The firm is relatively small; workers take into account their health status when choosing which firm to work for
The largest sources of wasteful spending in the US healthcare system are:
Unnecessary and inefficiently delivered services, excess administrative costs, high prices
Suppose there is a flat 20% income tax rate, but otherwise US tax law is the same as that in place. You make $40,000 per year. If your employer pays your $4000 per year insurance policy and deducts the expense from your salary, your after-tax, after-insurance take-home pay is ________. If you pay for your $4,000 per year policy directly, your after-tax, after-insurance take-home pay is _______.
Which of the following is true?
Current tax law provides a subsidy to employees for insurance purchased in the employment setting
Suppose that a healthy individual has worked for 10 years in Medicare-covered employment. At what age can this individual start receiving Medicare?
Most recipients of Medicaid are _______. Most of the costs associated with Medicaid are associated with benefits received by ______.
low-income elderly; low-income mothers and children
Which of the following is true regarding uninsured individuals in the United States, on average?
They have lower-than-average incomes
Which of the following is a reason the number of uninsured may be a problem?
Because the uninsured don't pay bills, cost shifting increases the prices paid by the insurance companies covering insured patients
For which of the following events is the consumption-smoothing benefit from first-dollar coverage small?
According to the notion that flat-of-the-curve medicine is practiced in the United States, which of the following best describes the marginal health benefit from the next dollar of medical spending?
It decreases as more is spent on health care
Retrospective reimbursement provides financial incentives for ________ medical care; prospective reimbursement provides financial incentives for ______ medical care.
Which of the following is NOT a provision of the ACA?
Insurance prices to vary by age and health history
Which of the following implies that public insurance programs may not improve health insurance coverage?
Many of those eligible for public insurance already had private insurance; private insurance may be crowded out by public insurance
Medicare is administered by ______, and is financed by ________.
Federal government; a payroll tax
Which of the following provides coverage for prescription drug expenditure for the elderly?
Medicare Part D
What is the effect of adverse selection in a premium support system for Medicare?
It raises the costs to the sickest individuals
Approximately what percentage of total health care spending in the US is spent on long-term care?
When an individual in a nursing home can no longer afford the care, what typically happens?
The individual's nursing home costs are covered under Medicaid
Which of the following has been found to be the primary cause of the rapid rise in health care costs?
Technological change in the delivery of health care
Practicing medicine on the flat of the curve implies that the ______ value of medical treatment is exceeded by the ____ cost of treatment
Which of the following is primarily intended to address the problem of insuring people who don't have health insurance?
Mandates that employers offer insurance or individuals buy insurance; subsidies to the poor; increased pooling of small business employees across states
One fundamental health care system reform establishes new pools of insurance plans, akin to the pools offered by employers, and mandate that all individuals obtain coverage. Which of the following is true of that sort of plan relative to public national health insurance?
The administrative costs associated with providing health care would be larger than under public national health insurance
Which of the following is true with respect to a public national health insurance system?
It would reduce administrative costs associated with the health insurance system; it would require massive new government expenditures
Suppose that I pay into a retirement plan with the expectations that when I retire, I will receive payments collected from people working then. This is an example of which type of retirement plan?
Which of the following refers to the expected present discounted values of a person's future Social Security payments minus the payroll taxes that person pays?
Social Security Wealth
Which of the following are rationales for why the government should be involved in providing retirement income?
Adverse selection can cause annuities markets to fail; paternalism
Which of the following is a reason for the fiscal imbalance of Social Security?
The first group to receive benefits didn't pay into the system; People have fewer children than they used to; Wage growth has slowed
Which of the following was a recommendation or action of the Greenspan Commission in 1983?
Social Security benefits should be cut
The retirement hazard rate refers to which of the following?
the percentage of working people who retire at a certain age
In the US, the Early Entitlement Age for social security is ______and the Full Benefit Age for people born after 1960 is ____.
Which of the following is a reason behind the fiscal imbalance of Social Security?
Birth rates have fallen over the years.
Which person has the highest Social Security Wealth on average?
a woman born in 1920
Which of the following is a moral hazard effect of Social Security?
Workers retire sooner than they would without Social Security.
The social security system has a deficit since ________, and the deficit is covered by ________.
2010; trust fund
Without a reform, the Social Security financing problem is expected to ________ because the _______ ratio will decrease
Worsen; worker to retiree
Way(s) to reduce the expenditure side of Social Security is to:
Change the indexation of benefits; Cut benefits; Increase the tax on benefits
One way to increase the revenue side of Social Security is to:
Raise the cap on social security
Privatization of Social Security is __________reform and increasing the Social Security tax is __________reform.
Which of the following is a tax paid by consumers to vendors at the point of sale?
a sales tax
What is the largest source of tax revenue for the government?
Which of the following is true?
Other OECD countries depend more heavily on consumption taxes than does the United States.
Which of the following is a fixed amount that a taxpayer can deduct from his taxable income?
a standard deduction
A tax system in which the average tax rates fall as income rises is a __________ tax system; the way in which the average tax rate changes as income rises is a measure of ________ equity.
There is a 20% tax on the first $15,000 of income, a 30% tax on income above $15,000 until $30,000, and a 40% tax on all income above $30,000. What is the marginal tax rate for someone making $35,000?
There is a 20% tax on the first $15,000 of income, a 30% tax on income above $15,000 until $30,000, and a 40% tax on all income above $30,000. What is the average tax rate for someone making $35,000?
The idea that ________should be treated in the same way by the tax system is_________ equity.
similar individuals with different economic or lifestyle choices; horizontal
On ___________ equity grounds, tax credits are _______than tax deductions.
vertical; more equitable
Tax expenditures are __________ attributable to exclusions, deductions, or exemptions form gross income, and the largest is __________.
Government revenue losses; exclusion of employer contributions for medical insurance
Suppose that the pre-tax price of cigarettes is $3.00 per pack and the post-tax price of cigarettes is $4.00 per pack. The tax is $1.50 per pack and is paid by the retailers of cigarettes to the government. Six hundred packs were sold prior to the tax increase and 500 packs were sold after the tax. What is the consumer tax burden?
Suppose that the pre-tax price of gasoline is $1 per gallon. A tax of $0.50 is imposed and is paid by consumers to the government. What must the price of gasoline be after the tax so that the consumer tax burden is equal to the producer tax burden?
Which of the following is true regarding a $1 per gallon tax on gasoline?
The producer tax burden is the same regardless of on whom the tax is imposed.
Which of the following is true regarding a $1 per gallon tax on gasoline imposed on
It shifts the demand for gasoline to the left.
Which of the following is true regarding a $1 per pack tax on cigarettes imposed on producers?
It shifts the supply of cigarettes to the left.
All other things equal, consumers bear more of a tax as demand becomes more _________ and supply becomes more ___________.
A tax levied on producers is fully shifted to producers when:
demand is perfectly elastic; supply is perfectly inelastic.
Which of the following is a true statement?
Parties with inelastic supply or demand bear taxes.
In a labor market in which demand is perfectly elastic and supply is neither perfectly elastic nor perfectly inelastic, who bears a tax levied on the firms?
only the workers
What information must you know to determine the tax burdens on firms and workers for a tax on labor?
the elasticity of demand for labor; the size of the tax
Planting flowers in your yard increases the property values in your neighborhood. It is an example of:
Positive consumption externality
When an individual or firm makes a payment to a government that corrects an externality, it is referred to as which of the following
Which of the following is true? Based on the concept of externalities, the government should intervene in the cigarette market if:
some people get sick from second hand smoking
Part 1 of the Coase Theorem states that when there are well-defined property rights and costless bargaining, then in a market in which there is an externality
the socially optimal level of consumption can be achieved through negotiations between the affected parties
To correct the externality generated by smokers, a consumption tax on cigarettes does which of the following?
Shift private demand curve to the left
There is a positive production externality when
SMC < PMC
A negative production externality leads to _____ and a positive production externality to _____.
When firms in a polluting industry face different marginal costs for pollution reduction, which of the following is not efficient?
Mandating the same reductions in pollution for all firms
The objective of government interventions or private market solutions to correct negative pollution externalities is to have polluters _____ the externality, to account for the cost they impose on society, which ____ and ___ production in equilibrium.
internalize; increase their private marginal cost of production; decreases
When tradable permits are used to correct pollution externalities, obsolete firms with high marginal costs of pollution reduction
buy tradable permits to acquire the right to produce
The Regional Greenhouse Gas Initiative is ____ and has ___
The first mandatory market based program in the US to reduce greenhouse gas emissions; significantly contributed to the decline in emissions in New England
Public policies to fight obesity include
fighting "food deserts"; ban on unhealthy foods; restricting the sale of junk food in school; taxing sugary drinks
Contrary to private goods, public goods have two characteristics. They are _____ and _____.
Non-rival in consumption; non-excludable
Education is an example of
an impure public good
The private sector tends to _____ public goods because of the ______.
Underprovide; free-rider problem
The private market is likely to overcome the free-rider problem when
individuals are altruistic; some individual s care more than others; some individuals enjoy the "warm-glow" effect
Often, when the government provides public goods, _____ results in the private sector providing _____ public goods
crowding out, fewer
The approach to primary and secondary education reform since 2001 has focused on
setting educational standards in public schools
Advantages of the voucher system include
allowing individuals to match their educational choices with their tastes; improving education efficiency through competitive pressures
Empirical studies on existing voucher systems indicate
better educational outcomes in some cases, worse educational outcomes in others
The economic rationale for expanding government guaranteed student loans for higher education is ____, and the downside is _____.
Fixing a credit market failure; the risk of creating a new bubble in credit markets
The first welfare theorem states that
the competitive equilibrium maximizes social efficiency
when governments try to maximize social welfare, this generally involves
an efficiency equity tradeoff
Suppose Isabel must decide how to spend $100 on ski lift tickets or theater tickets. The rate at which Isabel is willing to trade ski lift tickets for theater tickets is referred to as the
marginal rate of substitution
How does a decrease in the cost of ski tickets affect Isabel?
The substitution effect makes her purchase more ski lift tickets, fewer theater tickets
Suppose that the Social Welfare function is utilitarian, it means that
all individuals are given the same weight
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