Question 1

Sammy has a drone that he values at $1,500. Frank values the same drone at $1,000. The government offers a subsidy of $800 to the buyers of drones, and Sammy and Frank agree on a price of $1,600. The cooperative surplus for Sammy and Dean will be

Accepted Answer

The cooperative surplus is calculated as the difference between the buyer's valuation and the seller's valuation, after accounting for any subsidies. Here, Frank values the drone at $1,000, but with the subsidy of $800, his effective valuation becomes $1,800. Sammy values the drone at $1,500. They agree on a price of $1,600. Thus, the cooperative surplus is $1,800 (Frank's effective valuation) - $1,500 (Sammy's valuation) = $300.

Question 2

Sammy has a drone that he values at $1,500. Frank values the same drone at $1,000. The government offers a subsidy of $800 to the buyers of drones, and Sammy and Frank agree on a price of $1,600. The subsidy creates a deadweight loss of

Accepted Answer

The answer of Sammy has a drone that he values...

Question 3

Taxes can adversely affect free exchange.

Accepted Answer

Taxes can increase the cost of goods and services, potentially reducing the quantity traded and distorting the allocation of resources, thus adversely affecting free exchange.

Question 4

A deadweight loss occurs when the market is functioning efficiently.

Accepted Answer

A deadweight loss occurs when the market is not functioning efficiently, typically due to market distortions like taxes, subsidies, price floors, or ceilings that prevent supply and demand from reaching equilibrium.

Question 5

Rent seeking refers to the asking prices for goods and services being sold on the black market.

Accepted Answer

Rent seeking refers to the practice of individuals or firms using their resources to obtain economic gain from others without reciprocating any benefits back to society through wealth creation. It often involves exploiting the political environment to secure government grants, subsidies, or market regulation that benefits specific interests without contributing to productivity or innovation.

Question 6

Black market transactions generally increase the deadweight losses created by restrictive government policies.

Accepted Answer

The answer of Black market transactions generally increase the deadweight...

Question 7

A subsidy is a negative tax.

Accepted Answer

A subsidy is considered a negative tax because, unlike a tax that takes money away from individuals or businesses, a subsidy provides financial support to them, effectively reducing their costs or increasing their income.

Question 8

Sanjay has an ATV that he values at $3,000. Marilu is looking for a similar ATV but will only pay up to $2,400. Will trade between these two occur? Is there a policy government could implement that would encourage a trade to occur between Sanjay and Marilu? If so, what is that policy and will the policy make society richer?

Accepted Answer

The answer of Sanjay has an ATV that he values...

Question 9

Explain which of the following government policies would tend to make more sense in terms of consumer protection: The licensure of interior designers or the licensure of pharmacists.

Accepted Answer

The answer of Explain which of the following government policies...

Question 10

In 2014, tire industry lobbyists pressured the United States government to consider imposing an additional tariff of up to 86% on top of the current 4% tariff on imported Chinese-made tires. This type of behavior where industry lobbyists attempt to influence law for their own economic advantage is called

Accepted Answer

Rent seeking is the activity of lobbying or influencing a government to gain economic advantage without reciprocating any benefits to society. In this case, tire industry lobbyists are engaging in rent seeking by attempting to influence the government to impose additional tariffs on imported tires, thereby potentially increasing their own profits or market share without providing any additional benefits to society.

Question 11

In 2014, tire industry lobbyists pressured the United States government to consider imposing an additional tariff of up to 86% on top of the current 4% tariff on imported Chinese-made tires. The loss that is associated with fewer transactions occurring because of the tariff is called

Accepted Answer

The loss associated with fewer transactions due to a tariff is known as deadweight loss. This occurs because the tariff raises the price of goods, reducing the quantity of goods bought and sold, leading to inefficiencies in the market.

Question 12

When a government imposes a tariff on imported beer, cooperative surplus ________ and society gets ________.

Accepted Answer

When a government imposes a tariff on imported beer, the cooperative surplus decreases because tariffs create a deadweight loss by reducing the quantity of imports. This makes society poorer overall, as consumers face higher prices and have less access to goods, while the economy suffers from inefficiencies in production and consumption.

Question 13

Surplus value that is lost due to taxes imposed on imported goods which are keeping the market from functioning as well as it can is called

Accepted Answer

The deadweight loss of a tariff refers to the economic inefficiency that occurs when a tariff (a tax on imports) is imposed, leading to a decrease in the quantity of imports, an increase in the price of goods for consumers, and a loss in consumer and producer surplus that is not offset by the revenue generated from the tariff. This results in a net loss to society, known as deadweight loss.

Question 14

An American farmer sells produce to an individual living in Bermuda. To Americans, the produce is a(n)

Accepted Answer

When an American farmer sells produce to someone in Bermuda, the produce is considered an export from the perspective of the United States because it is being sold to another country.

Question 15

An American farmer buys an irrigation system from a Norwegian irrigation company based in Oslo. To Americans, the irrigation system is a(n)

Accepted Answer

When an American farmer buys an irrigation system from a Norwegian company, the system is considered an import to the United States because it is brought into the country from abroad.

Question 16

Ultimately, tariffs ________ prices for imported goods and ________ prices for domestic goods.

Accepted Answer

Tariffs are taxes imposed on imported goods, which generally increase the cost of these goods. This can lead to higher prices for imported goods for consumers. Additionally, by making imported goods more expensive, tariffs can reduce competition for domestic producers, potentially allowing them to raise their prices as well.

Question 17

Ultimately, tariffs ________ the ability of foreign countries to buy the domestic country's exports and therefore ________ wealth.

Accepted Answer

Tariffs reduce the ability of foreign countries to buy the domestic country's exports because they make those exports more expensive. This, in turn, can destroy wealth by reducing trade and economic efficiency.

Question 18

To assist pineapple growers in Hawaii, the U.S. government decides to limit the number of pineapples allowed into the country that are grown in Central American countries. Such a restriction is called a(n)

Accepted Answer

A quota is a government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a particular time period. In this case, limiting the number of pineapples allowed into the country is an example of an import quota.

Question 19

To assist pineapple growers in Hawaii, the U.S. government decides to limit the number of pineapples allowed into the country that are grown in Central American countries. Such a restriction prevents many transactions from occurring, and results in opportunity loss which is called a(n)

Accepted Answer

The correct term for the opportunity loss resulting from restrictions like quotas, which prevent transactions that would otherwise occur, is "deadweight loss of a quota." This loss represents the inefficiency caused by limiting the supply, which can lead to higher prices and reduced consumer surplus.

Question 20

Ultimately, quotas ________ prices for imported goods and ________ prices for domestic goods.

Accepted Answer

Quotas limit the quantity of goods that can be imported, which reduces the supply of imported goods relative to demand, leading to higher prices for these goods. This reduced competition from imports can allow domestic producers to charge higher prices, thus raising prices for domestic goods as well.

Quiz 5: Free Exchange: Individual and International Trade