Exam 2

Question 1

The study of how the allocation of resources affects economic well-being.

Answer 1

Welfare Economics

Question 2

The property of distributing economic prosperity uniformly among the members of society.

Answer 2

Equality

Question 3

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Answer 3

Consumer Surplus

Question 4

The inability of an unregulated market to allocate resources efficiently.

Answer 4

Market Failure

Question 5

The amount a seller is paid for a good minus the seller’s cost of providing it.

Answer 5

Producer Surplus

Question 6

The area above the supply curve and below the price.

Answer 6

Producer Surplus

Question 7

Willingness to pay minus willingness to sell.

Answer 7

Total Surplus

Question 8

The sum of consumer and producer surplus.

Answer 8

Total Surplus

Question 9

The area below the demand curve and above the price.

Answer 9

Consumer Surplus

Question 10

The property of a resource allocation of maximizing the total surplus received by all members of society.

Answer 10

Efficiency

Question 11

The ability of an individual agent to influence market prices.

Answer 11

Market Power

Question 12

The value of everything a seller must give up to produce a good.

Answer 12

Cost

Question 13

The maximum amount a buyer will pay for a good.

Answer 13

Willingness to Pay

Question 14

The fall in total surplus that results from a market distortion, such as a tax.

Answer 14

Deadweight Loss

Question 15

The price of a good that prevails in the world market for that good.

Answer 15

World Price

Question 16

A tax on goods produced abroad and sold domestically

Answer 16

Tariff

Question 17

A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality.

Answer 17

Corrective Tax

Question 18

Altering incentives so that people take account of the external effects of their actions.

Answer 18

Internalizing the Externality

Question 19

A subsidy designed to induce private decision makers to take account of the social benefits that arise from a positive externality.

Answer 19

Corrective Subsidy

Question 20

The uncompensated impact of one person’s actions on the well-being of a bystander.

Answer 20

Externality

Question 21

A situation where a market interaction between a buyer and seller transfers a cost to a third party.

Answer 21

Negative Externality

Question 22

A situation where a market interaction between a buyer and seller transfers a benefit to a third party.

Answer 22

Positive Externality

Question 23

The costs that parties incur in the process of agreeing to and following through on a bargain.

Answer 23

Transaction Costs

Question 24

The “true cost” of a product that should be accounted for in an efficient outcome.

Answer 24

Social Cost

Question 25

The "value" of a product that is actually measured by the market.

Answer 25

Private Benefit

Question 26

The "true value" of a product that should be accounted for in an efficient outcome.

Answer 26

Social Benefit

Question 27

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own.

Answer 27

Coase Theorem

Question 28

The "cost" of a product that is actually measured by the market.

Answer 28

Private Cost

Question 29

The difference between the true cost to society and the cost actually measured by the market.

Answer 29

External Cost

Question 30

The difference between the true benefit to society and the benefit actually measured by the market.

Answer 30

External Benefit

Question 31

The notion that common resources tend to be overused and abused.

Answer 31

Tragedy of the Commons

Question 32

A person who receives the benefit of a good but avoids paying for it.

Answer 32

Free Rider

Question 33

Goods that are rival but are non-excludable.

Answer 33

Common Resources

Question 34

Goods that are both excludable and rival.

Answer 34

Private Goods

Question 35

Goods that are non-excludable and non-rival.

Answer 35

Public Goods

Question 36

Goods that are excludable but are non-rival.

Answer 36

Club Goods

Question 37

The property of a good whereby one person's use diminishes other people's use.

Answer 37

Rivalry in Consumption

Question 38

The property of a good whereby a person can be prevented from using it.

Answer 38

Excludability

Question 39

As the size of a tax increases, the tax revenue: Increases Decreases Increases and then Decreases

Answer 39

Increases and then Decreases

Question 40

The graphical representation of the relationship between tax revenue and the size of a tax.

Answer 40

Laffer Curve

Question 41

When demand is more inelastic, deadweight loss tends to be smaller / larger.

Answer 41

Smaller

Question 42

When supply is more elastic, deadweight loss tends to be smaller / larger.

Answer 42

Larger

Question 43

True or False Deadweight loss increases as the size of the tax increases.

Answer 43

True

Question 44

If a country's domestic price is lower than the world price for a good, it will import / export that good because it does / does not have the comparative advantage.

Answer 44

Export | Does Not

Question 45

If a country's domestic price is higher than the world price for a good, it will import / export that good because it does / does not have the comparative advantage.

Answer 45

Import | Does

Question 46

True or False When a country imports a good, the domestic price falls to equal the world price.

Answer 46

True

Question 47

True or False When a country export a good, the domestic price raises to equal the world price.

Answer 47

True

Question 48

True or False A tariff raises the domestic price above the world price by the amount of the tariff.

Answer 48

True

Question 49

True or False When a tariff is put into effect, the domestic quantity supplied decreases.

Answer 49

False

Question 50

True or False A tariff moves the domestic market further away from the equilibrium without trade.

Answer 50

False