Question 1

Producer surplus can be defined as the difference between:

Accepted Answer

A)  the demand curve and the price of the good. 
B)  the supply curve and the price of the good. 
C)  the supply curve and the demand curve. 
D)  the price charged by sellers and the price paid by buyers. 
A)  the demand curve and the price of the good. 
B)  the supply curve and the price of the good. 
C)  the supply curve and the demand curve. 
D)  the price charged by sellers and the price paid by buyers.

Question 2

The First Fundamental Theorem of Welfare Economics states that:

Accepted Answer

A)  the competitive equilibrium,where supply equals demand,can always be achieved through government intervention. 
B)  social efficiency can be achieved if and only if government intervenes in the economy. 
C)  the competitive equilibrium,where supply equals demand,maximizes social efficiency. 
D)  social efficiency cannot be achieved in any competitive equilibrium. 
A)  the competitive equilibrium,where supply equals demand,can always be achieved through government intervention. 
B)  social efficiency can be achieved if and only if government intervenes in the economy. 
C)  the competitive equilibrium,where supply equals demand,maximizes social efficiency. 
D)  social efficiency cannot be achieved in any competitive equilibrium.

Question 3

Suppose that you buy a lot of music and that the prices of CDs go up.The income effect means that you buy __________ CDs because ___________.

Accepted Answer

A)  fewer; your nominal income has been reduced 
B)  fewer; your real income has been reduced 
C)  fewer; you now enjoy music less 
D)  fewer; CDs are less expensive relative to other goods 
A)  fewer; your nominal income has been reduced 
B)  fewer; your real income has been reduced 
C)  fewer; you now enjoy music less 
D)  fewer; CDs are less expensive relative to other goods

Question 4

Suppose Tim spends his entire income on hot dogs and hamburgers and consumes at least some of both.Now suppose that the price of hot dogs increases while the price of hamburgers remains the same.If Tim is compensated so that his utility is held constant,which of the following must be TRUE?

Accepted Answer

A)  Tim is better off than he was. 
B)  Tim's utility remains the same. 
C)  Tim consumes more hamburgers and fewer hot dogs. 
D)  Tim consumes more hot dogs and fewer hamburgers. 
A)  Tim is better off than he was. 
B)  Tim's utility remains the same. 
C)  Tim consumes more hamburgers and fewer hot dogs. 
D)  Tim consumes more hot dogs and fewer hamburgers.

Question 5

Which of the following best explains the view that nothing matters except that individuals have met a basic level of need for goods,such as housing or medical care,and that once they have met this basic level,income distribution is irrelevant?

Accepted Answer

A)  First Fundamental Theorem of Welfare Economics 
B)  utilitarian social welfare function 
C)  Rawlsian social welfare function 
D)  commodity egalitarianism 
A)  First Fundamental Theorem of Welfare Economics 
B)  utilitarian social welfare function 
C)  Rawlsian social welfare function 
D)  commodity egalitarianism

Question 6

_____ tools refer to the set of tools designed to understand the mechanics behind economic decision making.

Accepted Answer

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

Question 7

This figure shows a consumer's budget constraint for apples (vertical axis)and oranges (horizontal axis).If the price of oranges increases,how is the budget constraint affected?

Accepted Answer

A)  The budget constraint shifts inward. 
B)  The budget constraint does not change. 
C)  The vertical intercept E decreases and the horizontal intercept F remains the same,making the budget constraint flatter. 
D)  The vertical intercept E is unchanged and the horizontal intercept F decreases,making the budget constraint steeper. 
A)  The budget constraint shifts inward. 
B)  The budget constraint does not change. 
C)  The vertical intercept E decreases and the horizontal intercept F remains the same,making the budget constraint flatter. 
D)  The vertical intercept E is unchanged and the horizontal intercept F decreases,making the budget constraint steeper.

Question 8

A utilitarian social welfare function implies that:

Accepted Answer

A)  the well-being of the worst-off member is maximized. 
B)  income redistribution reduces social welfare. 
C)  everyone in society has the same marginal utility. 
D)  no redistribution should occur. 
A)  the well-being of the worst-off member is maximized. 
B)  income redistribution reduces social welfare. 
C)  everyone in society has the same marginal utility. 
D)  no redistribution should occur.

Question 9

Suppose that you buy a lot of music and that the prices of CDs go up.The substitution effect means that you buy __________ CDs because ___________.

Accepted Answer

A)  fewer; your nominal income has been reduced 
B)  fewer; your real income has been reduced 
C)  fewer; you now enjoy music less 
D)  fewer; CDs are more expensive relative to other goods 
A)  fewer; your nominal income has been reduced 
B)  fewer; your real income has been reduced 
C)  fewer; you now enjoy music less 
D)  fewer; CDs are more expensive relative to other goods

Question 10

Suppose that a 5% rise in the price of apples does not cause the quantity demanded to change.The elasticity of demand for apples would then be:

Accepted Answer

A) 0) 
B)  -1. 
C)  -2. 
D)  infinitely large. 
A) 0) 
B)  -1. 
C)  -2. 
D)  infinitely large.

Question 11

When production is said to be characterized by diminishing marginal productivity:

Accepted Answer

A)  unskilled workers are less productive than skilled workers. 
B)  output must increase with each additional unit of the input used in production. 
C)  increasing the amount of one input used means more of another input must be used. 
D)  adding additional inputs may still cause output to increase. 
A)  unskilled workers are less productive than skilled workers. 
B)  output must increase with each additional unit of the input used in production. 
C)  increasing the amount of one input used means more of another input must be used. 
D)  adding additional inputs may still cause output to increase.

Question 12

Graphically,the budget constraint can be described as:

Accepted Answer

A)  the slope being the difference between the prices of the goods. 
B)  the slope being the sum of the prices of the goods. 
C)  a downward sloping line. 
D)  the slope being the product of the prices of the goods. 
A)  the slope being the difference between the prices of the goods. 
B)  the slope being the sum of the prices of the goods. 
C)  a downward sloping line. 
D)  the slope being the product of the prices of the goods.

Question 13

Assume that both air travel and travel by car are normal goods and you spend a fixed amount of income on both goods.Suppose that when the price of crude oil goes up by 30%,the price per mile of air travel goes up by 10% and the price per mile traveled by car goes up by 20%.Explain how the increase in the price of crude oil affects air travel and travel by car in terms of the income effect,the substitution effect,and the overall (net)effect.

Accepted Answer

If the price of oil goes up,your real in

Question 14

Suppose that Gustavo spends all of his income on DVDs and (legally)downloaded songs.At the optimum,which of the following must be TRUE?

Accepted Answer

A)  Gustavo spends all of his income on songs and none on DVDs if songs are cheaper. 
B)  Gustavo spends all of his income on DVDs and none on songs if DVDs are cheaper. 
C)  The marginal utility of the last song downloaded equals the marginal utility of the last DVD purchased. 
D)  The ratio of the marginal utility of the last song downloaded to the price of the song is equal to the ratio of the marginal utility of the last DVD to the price of the DVD. 
A)  Gustavo spends all of his income on songs and none on DVDs if songs are cheaper. 
B)  Gustavo spends all of his income on DVDs and none on songs if DVDs are cheaper. 
C)  The marginal utility of the last song downloaded equals the marginal utility of the last DVD purchased. 
D)  The ratio of the marginal utility of the last song downloaded to the price of the song is equal to the ratio of the marginal utility of the last DVD to the price of the DVD.

Question 15

Consumer surplus is greater than producer surplus when the demand curve is __________; producer surplus is greater than consumer surplus when the demand 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

Question 16

Consider three bundles: Bundle A: 2 DVDs and 3 CDs
Bundle B: 3 DVDs and 1 CD
Bundle C: 1 DVD and 3 CDs
Which of the following violates the assumption of nonsatiated preferences?

Accepted Answer

A)  Bart prefers Bundle C to B and Bundle A to C. 
B)  Mona prefers Bundle C to B and is indifferent between Bundles A and B. 
C)  Don prefers Bundle A to C and is indifferent between Bundles B and C. 
D)  Patty prefers Bundle A to C and Bundle B to C 
A)  Bart prefers Bundle C to B and Bundle A to C. 
B)  Mona prefers Bundle C to B and is indifferent between Bundles A and B. 
C)  Don prefers Bundle A to C and is indifferent between Bundles B and C. 
D)  Patty prefers Bundle A to C and Bundle B to C

Question 17

Suppose Jon likes to eat both pizza and hamburgers.As John consumes less pizza and holds steady his consumption of hamburgers,the marginal utility of a piece of pizza _________ and the marginal utility of a hamburger __________.

Accepted Answer

A)  increases; is unchanged 
B)  increases; increases 
C)  decreases; decreases 
D)  decreases; is unchanged 
A)  increases; is unchanged 
B)  increases; increases 
C)  decreases; decreases 
D)  decreases; is unchanged

Question 18

If pasta is an inferior good and if the price of pasta increases,the income effect _________ the quantity demanded,and the substitution effect __________ the quantity demanded.

Accepted Answer

A)  reduces; decreases 
B)  increases; increases 
C)  reduces; increases 
D)  increases; decreases 
A)  reduces; decreases 
B)  increases; increases 
C)  reduces; increases 
D)  increases; decreases

Question 19

Consumer surplus can be defined as the difference between:

Accepted Answer

A)  the demand curve and the price of the good. 
B)  the supply curve and the price of the good. 
C)  the supply curve and the demand curve. 
D)  the price charged by sellers and the price paid by buyers. 
A)  the demand curve and the price of the good. 
B)  the supply curve and the price of the good. 
C)  the supply curve and the demand curve. 
D)  the price charged by sellers and the price paid by buyers.

Exam 2: Theoretical Tools of Public Finance

Producer surplus can be defined as the difference between:

The First Fundamental Theorem of Welfare Economics states that:

Suppose that you buy a lot of music and that the prices of CDs go up.The income effect means that you buy __________ CDs because ___________.

Suppose Tim spends his entire income on hot dogs and hamburgers and consumes at least some of both.Now suppose that the price of hot dogs increases while the price of hamburgers remains the same.If Tim is compensated so that his utility is held constant,which of the following must be TRUE?

Which of the following best explains the view that nothing matters except that individuals have met a basic level of need for goods,such as housing or medical care,and that once they have met this basic level,income distribution is irrelevant?

_____ tools refer to the set of tools designed to understand the mechanics behind economic decision making.

This figure shows a consumer's budget constraint for apples (vertical axis)and oranges (horizontal axis).If the price of oranges increases,how is the budget constraint affected?

A utilitarian social welfare function implies that:

Suppose that you buy a lot of music and that the prices of CDs go up.The substitution effect means that you buy __________ CDs because ___________.

Suppose that a 5% rise in the price of apples does not cause the quantity demanded to change.The elasticity of demand for apples would then be:

When production is said to be characterized by diminishing marginal productivity:

Graphically,the budget constraint can be described as:

Suppose that Gustavo spends all of his income on DVDs and (legally)downloaded songs.At the optimum,which of the following must be TRUE?

Consumer surplus is greater than producer surplus when the demand curve is __________; producer surplus is greater than consumer surplus when the demand curve is _________.

Consider three bundles: Bundle A: 2 DVDs and 3 CDs Bundle B: 3 DVDs and 1 CD Bundle C: 1 DVD and 3 CDs Which of the following violates the assumption of nonsatiated preferences?

Suppose Jon likes to eat both pizza and hamburgers.As John consumes less pizza and holds steady his consumption of hamburgers,the marginal utility of a piece of pizza _________ and the marginal utility of a hamburger __________.

If pasta is an inferior good and if the price of pasta increases,the income effect _________ the quantity demanded,and the substitution effect __________ the quantity demanded.

Consumer surplus can be defined as the difference between:

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

Suppose that you buy a lot of music and that the prices of CDs go up.The income effect means that you buy CDs because _.

Suppose that you buy a lot of music and that the prices of CDs go up.The substitution effect means that you buy CDs because _.

Consumer surplus is greater than producer surplus when the demand curve is __; producer surplus is greater than consumer surplus when the demand curve is _.

Suppose Jon likes to eat both pizza and hamburgers.As John consumes less pizza and holds steady his consumption of hamburgers,the marginal utility of a piece of pizza _ and the marginal utility of a hamburger __.

If pasta is an inferior good and if the price of pasta increases,the income effect _ the quantity demanded,and the substitution effect __ the quantity demanded.