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32 terms

Exam 2

Policymakers use taxes
to raise revenue for public purposes, but not to influence market outcomes
When a tax is levied on buyers of tea,
buyers of tea and sellers of tea both are made worse off
If the government removes a tax on buyers of a good and imposes the same tax on sellers of the good, then the price paid by buyers will
not change and the price received by sellers will not change
Frank drinks purple cola. he can buy as many cans of purple cola as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Frank is rational in deciding how many cans to buy. His consumer surplus is
The burden of the luxury tax falls
more on the middle class than on the rich
which of the following will cause an increase in producer surplus?
the price of a substitute increases
Total surplus in a market is equal to
value to buyers-cost of sellers
We can say that the allocation of resources is efficient if
total surplus is maximized
the uncompensated impact of one person's actions on the well-being of a bystander
if it is illegal for a biochemical manufacturer to release its waste into a nearby stream, then this is an example of
command-and-control policy
when a good is rival in consumption
one person's use of the good diminishes another person's ability to use it
An AM radio transmission of a baseball game is
not excludable and not rival in consumption
When there is a technological advance in the ice cream industry, consumer surplus in that market will
If a binding price ceiling is imposed on the computer market, then
a shortage of computers will develop
in a free, competitive market, what is the rationing mechanism?
consumer surplus in a market can be represented by the
area below the demand curve and above the price
In the housing market, the implementation of a binding rent control policy would cause
quantity supplied to fall and quantity demanded to rise
a legal minimum on the price at which a good can be sold is called a price
a tax burden falls more heavily on the side of the market that
is more elastic
producer surplus
the amount a seller is paid minus the cost of production
a tax on a good
raises the price that buyers pay and lowers the price that sellers receive
if the size of the tax increases, tax revenue
may increase, decrease or remain the same
Arthur Laffer curve
an upside down U
The laffer curve relates
the tax rate to tax revenue raised by the tax
government intervention
may improve market outcome in the presence of externalities
externalities tend to cause the market to be
if education causes a positive externalities, we would expect
the government to subsidize education
two types of private solutions to the problem of externalities are
charities and the golden rule
coase theorem
in the absence of transaction costs, private parties can solve the problem of externalities on their own
if a road is congested, the road would be
a common resource
rent control laws dictate
a maximum rent that a landlord may charge
a legal maximum on the price at which a good can be sold is called a price