Question 1

Consumer surplus is highest when the demand curve is __________; producer surplus is greatest when the supply curve is _________.

Accepted Answer

A)  elastic; elastic 
B)  inelastic; inelastic 
C)  perfectly elastic; perfectly inelastic 
D)  inelastic; elastic 
A)  elastic; elastic 
B)  inelastic; inelastic 
C)  perfectly elastic; perfectly inelastic 
D)  inelastic; elastic B

Question 2

_____ tools refer to the set of tools designed to analyze data and answer questions raised by theoretical analysis.

Accepted Answer

A)  Efficiency 
B)  Empirical 
C)  Theoretical 
D)  Abstract 
A)  Efficiency 
B)  Empirical 
C)  Theoretical 
D)  Abstract B

Question 3

Consider three bundles: Bundle A: 1 shirt and 2 hats
Bundle B: 2 shirts and 2 hats
Bundle C: 3 shirts and 1 hat
Which of the following violates the assumption of nonsatiated preferences?

Accepted Answer

A)  Nancy prefers Bundle B to C. 
B)  Diane prefers Bundle B to A. 
C)  Steve prefers Bundle C to B. 
D)  Ryan prefers Bundle A to B. 
A)  Nancy prefers Bundle B to C. 
B)  Diane prefers Bundle B to A. 
C)  Steve prefers Bundle C to B. 
D)  Ryan prefers Bundle A to B. D

Question 4

Suppose voters choose to increase their state's minimum wage to $6 per hour from $5 per hour.The accompanying figure shows the market for unskilled labor in that state after the change.Area(s)_____ is the total producer surplus after this change.

Accepted Answer

A)  B + D 
B)  B + D + J 
C)  B + C 
D)  D + E + J 
A)  B + D 
B)  B + D + J 
C)  B + C 
D)  D + E + J

Question 5

Suppose Tyrone spends his entire income on books and clothing.If the prices of both books and clothing fall by 10%,which of the following statements is TRUE?

Accepted Answer

A)  Tyrone is not able to move to a new indifference curve. 
B)  The budget constraint shifts outward. 
C)  The budget constraint becomes flatter (the slope is smaller in absolute value). 
D)  The budget constraint becomes steeper (the slope is larger in absolute value). 
A)  Tyrone is not able to move to a new indifference curve. 
B)  The budget constraint shifts outward. 
C)  The budget constraint becomes flatter (the slope is smaller in absolute value). 
D)  The budget constraint becomes steeper (the slope is larger in absolute value).

Question 6

Which of the following is NOT consistent with nonsatiated preferences?

Accepted Answer

A)  Maria prefers four hamburgers to three hamburgers. 
B)  Kevin enjoys the third hamburger more than the fourth hamburger. 
C)  Lisa prefers five hamburgers to six hamburgers. 
D)  Ron likes to take home leftover hamburgers for later use. 
A)  Maria prefers four hamburgers to three hamburgers. 
B)  Kevin enjoys the third hamburger more than the fourth hamburger. 
C)  Lisa prefers five hamburgers to six hamburgers. 
D)  Ron likes to take home leftover hamburgers for later use.

Question 7

Suppose you receive a raise from $10 to $20.Explain how both the income and substitution effects would affect your labor supply at the new and higher wage.What will be the effect overall?

Accepted Answer

Consequently,the substitution

Question 8

Which of the following is TRUE when a consumer is maximizing her utility?

Accepted Answer

A)  She consumes where the budget constraint intersects the midpoint of her indifference curve. 
B)  She consumes halfway between the two intersections of her budget constraint and indifference curve. 
C)  She consumes at the point at which the slope of her indifference curve is zero. 
D)  She consumes at the point at which her budget constraint is tangent to her indifference curve. 
A)  She consumes where the budget constraint intersects the midpoint of her indifference curve. 
B)  She consumes halfway between the two intersections of her budget constraint and indifference curve. 
C)  She consumes at the point at which the slope of her indifference curve is zero. 
D)  She consumes at the point at which her budget constraint is tangent to her indifference curve.

Question 9

Consider three bundles: Bundle A: 2 hamburgers and 1 soda
Bundle B: 2 hamburgers and 2 sodas
Bundle C: 1 hamburger and 1 soda
Which of the following does NOT violate the assumption of nonsatiated preferences?

Accepted Answer

A)  Laura prefers Bundles B and C to Bundle A. 
B)  Mike prefers Bundle B to Bundle A and Bundle C to Bundle B. 
C)  Robin is indifferent between Bundle A and Bundle C. 
D)  Julio prefers Bundles A and B to Bundle C. 
A)  Laura prefers Bundles B and C to Bundle A. 
B)  Mike prefers Bundle B to Bundle A and Bundle C to Bundle B. 
C)  Robin is indifferent between Bundle A and Bundle C. 
D)  Julio prefers Bundles A and B to Bundle C.

Question 10

Suppose under TANF your state provides an income guarantee of $5,000 and a benefit reduction rate of 40%.The typical recipient can work up to 2,000 hours per year at a wage of $10 per hour.If the recipient works 300 hours per year,the effective take-home wage rate is:

Accepted Answer

A)  $0 per hour. 
B)  $4 per hour. 
C)  $6 per hour. 
D)  $10 per hour. 
A)  $0 per hour. 
B)  $4 per hour. 
C)  $6 per hour. 
D)  $10 per hour.

Question 11

Explain what is represented by the slope of the budget line and the slope of the indifference curve.How does an increase in income affect the slopes?

Accepted Answer

The slope of the budget constraint is th

Question 12

Cutting TANF benefits would __________ social efficiency and __________ equity in society.

Accepted Answer

A)  increase; increase 
B)  decrease; decrease 
C)  increase; would not change 
D)  increase; decrease 
A)  increase; increase 
B)  decrease; decrease 
C)  increase; would not change 
D)  increase; decrease

Question 13

Carefully explain the principle of diminishing marginal utility using a relevant example.

Accepted Answer

The principle of diminishing marginal ut

Question 14

Suppose that a 50% increase in the price of a good causes a 25% reduction in the quantity demanded.The elasticity of demand is:

Accepted Answer

A)  -0.5. 
B)  -1. 
C)  -1.33. 
D)  -2. 
A)  -0.5. 
B)  -1. 
C)  -1.33. 
D)  -2.

Question 15

What is the name of the social assistance program that provides cash payments to single parents whose income is below a specified level?

Accepted Answer

A)  Supplemental Nutrition Assistance Program 
B)  Mainstream Vouchers 
C)  Emergency Food Assistance Program 
D)  Temporary Assistance for Needy Families 
A)  Supplemental Nutrition Assistance Program 
B)  Mainstream Vouchers 
C)  Emergency Food Assistance Program 
D)  Temporary Assistance for Needy Families

Question 16

Assume a convex utility function with an interior solution in which a consumer chooses some of each good.Which of the following is NOT represented by the slope of the budget constraint?

Accepted Answer

A)  marginal rate of substitution 
B)  relative price of one good (drawn on horizontal axis)in terms of other good (drawn on vertical axis) 
C)  relative price of one good (drawn on vertical axis)in terms of other good (drawn on horizontal axis) 
D)  ratio of the marginal utilities 
A)  marginal rate of substitution 
B)  relative price of one good (drawn on horizontal axis)in terms of other good (drawn on vertical axis) 
C)  relative price of one good (drawn on vertical axis)in terms of other good (drawn on horizontal axis) 
D)  ratio of the marginal utilities

Question 17

A Rawlsian social welfare function implies which of the following?

Accepted Answer

A)  The well-being of the worst-off member is maximized. 
B)  The sum of individual utilities is maximized. 
C)  The marginal utility of everyone in society is equal. 
D)  No redistribution should occur. 
A)  The well-being of the worst-off member is maximized. 
B)  The sum of individual utilities is maximized. 
C)  The marginal utility of everyone in society is equal. 
D)  No redistribution should occur.

Question 18

In the accompanying figure,consumer surplus is given by area _______,while producer surplus is given by area ______.

Accepted Answer

A)  A; D 
B)  A + B; C + D 
C)  D; A 
D)  B; C 
A)  A; D 
B)  A + B; C + D 
C)  D; A 
D)  B; C

Question 19

Under TANF your state provides an income guarantee of $5,000 and a benefit reduction rate of 40%.The typical recipient can work up to 2,000 hours per year at a wage of $10 per hour.By how much is the benefit reduced if the recipient works 300 hours per year?

Accepted Answer

A)  $3,000 
B)  $1,800 
C)  $1,200 
D)  $600 
A)  $3,000 
B)  $1,800 
C)  $1,200 
D)  $600

Question 20

Suppose voters choose to increase their state's minimum wage to $6 per hour from $3 per hour.The accompanying figure shows the market for unskilled labor in that state after the change.Area(s)_____ is the total consumer surplus after this change,while area(s)_____ is the deadweight loss.

Accepted Answer

A)  A; C + E 
B)  A + B + C; F 
C)  B + C; H 
D)  A + B; C + E 
A)  A; C + E 
B)  A + B + C; F 
C)  B + C; H 
D)  A + B; C + E

Exam 2: Theoretical Tools of Public Finance

Consumer surplus is highest when the demand curve is __________; producer surplus is greatest when the supply curve is _________.

_____ tools refer to the set of tools designed to analyze data and answer questions raised by theoretical analysis.

Consider three bundles: Bundle A: 1 shirt and 2 hats Bundle B: 2 shirts and 2 hats Bundle C: 3 shirts and 1 hat Which of the following violates the assumption of nonsatiated preferences?

Suppose voters choose to increase their state's minimum wage to $6 per hour from $5 per hour.The accompanying figure shows the market for unskilled labor in that state after the change.Area(s)_____ is the total producer surplus after this change.

Suppose Tyrone spends his entire income on books and clothing.If the prices of both books and clothing fall by 10%,which of the following statements is TRUE?

Which of the following is NOT consistent with nonsatiated preferences?

Suppose you receive a raise from $10 to $20.Explain how both the income and substitution effects would affect your labor supply at the new and higher wage.What will be the effect overall?

Which of the following is TRUE when a consumer is maximizing her utility?

Consider three bundles: Bundle A: 2 hamburgers and 1 soda Bundle B: 2 hamburgers and 2 sodas Bundle C: 1 hamburger and 1 soda Which of the following does NOT violate the assumption of nonsatiated preferences?

Suppose under TANF your state provides an income guarantee of $5,000 and a benefit reduction rate of 40%.The typical recipient can work up to 2,000 hours per year at a wage of $10 per hour.If the recipient works 300 hours per year,the effective take-home wage rate is:

Explain what is represented by the slope of the budget line and the slope of the indifference curve.How does an increase in income affect the slopes?

Cutting TANF benefits would __________ social efficiency and __________ equity in society.

Carefully explain the principle of diminishing marginal utility using a relevant example.

Suppose that a 50% increase in the price of a good causes a 25% reduction in the quantity demanded.The elasticity of demand is:

What is the name of the social assistance program that provides cash payments to single parents whose income is below a specified level?

Assume a convex utility function with an interior solution in which a consumer chooses some of each good.Which of the following is NOT represented by the slope of the budget constraint?

A Rawlsian social welfare function implies which of the following?

In the accompanying figure,consumer surplus is given by area _______,while producer surplus is given by area ______.

Under TANF your state provides an income guarantee of $5,000 and a benefit reduction rate of 40%.The typical recipient can work up to 2,000 hours per year at a wage of $10 per hour.By how much is the benefit reduced if the recipient works 300 hours per year?

Suppose voters choose to increase their state's minimum wage to $6 per hour from $3 per hour.The accompanying figure shows the market for unskilled labor in that state after the change.Area(s)_____ is the total consumer surplus after this change,while area(s)_____ is the deadweight loss.

Why Study Public Finance

Empirical Tools of Public Finance

Budget Analysis and Deficit Financing

Externalities- Problems and Solutions

Externalities in Action- Environmental and Health Externalities

Public Goods

Cost-Benefit Analysis

Political Economy

State and Local Government Expenditures

Education

Social Insurance- the New Function of Government

Social Security

Unemployment Insurance, disability Insurance, and Workers Compensation

Health Insurance I- Health Economics and Private Health Insurance

Health Insurance Ii- Medicare, medicaid, and Health Care Reform

Income Distribution and Welfare Programs

Taxation- How It Works and What It Means

The Equity Implications of Taxation- Tax Incidence

Taxes on Labor Supply

Taxes on Savings

Taxes on Risk Taking and Wealth

Taxation of Business Income

Fundamental Tax Reform and Consumption Tax

Filters

Consumer surplus is highest when the demand curve is __; producer surplus is greatest when the supply curve is _.

Cutting TANF benefits would social efficiency and equity in society.

In the accompanying figure,consumer surplus is given by area _,while producer surplus is given by area .

Suppose voters choose to increase their state's minimum wage to $6 per hour from $3 per hour.The accompanying figure shows the market for unskilled labor in that state after the change.Area(s)_ is the total consumer surplus after this change,while area(s)_ is the deadweight loss.