Micro Economics – Flashcards with Answers

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Rent- control laws dictate
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a maximum rent that landlords may charge tenants
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Minimum-wage laws dictate
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a minimum wage that firms may pay workers
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Policymakers use taxes
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both to raise revenue for public purposes AND to influence market outcomes
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Price controls are usually enacted
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when policymakers believe that the market price of a good or service is unfair to buyers or sellers
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In a competitive market free of government regulation,
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price adjusts until quantity demanded equals quantity supplied
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In a free, competitive market, what is the rationing mechanism?
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price
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A price ceiling is
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a legal maximum on the price at which a good can be sold.
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Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk
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Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.
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Which of the following statements is correct
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Buyers always want to pay less and sellers always want to be paid more.
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Welfare economics is the study of how
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the allocation of resources affects economic well-being
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Which of the TEN PRINCIPLES OF ECONOMICS does welfare economics explain more fully?
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Markets are usually a good way to organize economics activity
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One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of
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welfare economics
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A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
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maximizes the combined welfare of buyers and sellers
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The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
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maximizes the combined welfare of buyers and sellers
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Who once said that taxes are the price we pay for a civilized society?
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Oliver Wendell Holmes, JR.
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To fully understand how taxes affect economic well-being we must
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compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
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To fully understand how taxes affect economic well-being, we must compare the
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price paid by buyers to the price received by sellers
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When tax is levied on a good, the buyers and sellers of the good share the burden,
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regardless of how the tax is levied
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A tax on a good
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raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
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when a tax is placed on a product, the price paid by buyers
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rises, and the price received by sellers falls.
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The government’s benefit from a tax can be measured by
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tax revenue
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what happens to the total surplus in a market when the government imposes a tax?
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Total surplus decreases
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when a good is taxed,
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both buyers and sellers of the good are made worse off.
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To measure the gains and losses from a tax on a good, economists use the tools of
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welfare economics
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When a tax is imposed on a good,
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the supply curve for the good always shifts
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A tax levied on the sellers of a good shifts the
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supply curve upward (or to the left)
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A tax levied on the buyers of a good shits the
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demand curve downward (or to the left)
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An important factor in the decline of the U.S. textile industry over the past 100 or so years is
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foreign competitors that can produce quality textile goods at low cost
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With which of the TEN PRINCIPLES OF ECONOMICS is the study of international trade most closely connected?
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Trade can make everyone better off.
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A logical starting point from which the study of international trade begins is
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the principle of comparative advantage.
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What is the fundamental basis for trade among nations?
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comparative advantage
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Patterns of trade among nations are primarily determined by
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comparative advantage
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A tariff is a
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tax on an imported good.
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The price of a good that prevails in a world market is called the
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world price.
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The price of sugar that prevails in international markets is called the
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world price of sugar.
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If a country allows trade and , for a certain good, the domestic price without trade is higher than the world price,
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the country will be an importer of the good.
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In a market economy, government intervention
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may improve market outcomes in the presence of externalities
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in the absence of externalities, the invisible hand leads a market to maximize
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total benefit to society from that market
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The term market failure refers to
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a market that fails to allocate resources efficiently.
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Market failure can be caused by
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externalities
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The provision of a public good generates a
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positive externality and the use of a common resource generates a negative externality.
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The provision of public goods gives rise to
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negative externalities
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The provision of public goods gives rise to
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positive externalities, whereas the common resources gives rise to negative externalities.

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