Week 4 Assignment – Chapters 8-10

Class, below you will see a total of ten questions. Some questions may have you do the
following – select from a drop-down menu, check a box(es), or require you to type in
your response. If you prefer to write your answer on a different sheet of paper that is
also acceptable.
The course assignment was completed using Microsoft Word. If you do not have
Microsoft Word then write your answers on a separate sheet of paper. For those who
choose to use the document to select your answers you MUST convert to PDF to save
the answers. Assignments which are not saved in PDF will not save properly and no
extensions will be provided.

1.
Indicate whether each of the following statements is true or false.

Fals
Statement True e

The government can raise revenue by taxing the sellers without

creating deadweight loss when the demand for the goods being
taxed is perfectly inelastic.

A tax that raises no revenue for the government cannot have any
deadweight loss.

2.
Suppose that the government imposes a tax on heating oil.

True or False: The deadweight loss from this tax would likely be larger in the fifth year
after it is imposed than in the first year as demand for heating oil becomes more elastic.

True
False

The tax revenue collected from a tax on heating oil is likely to be largerin the first year
after it is imposed than in the fifth year.
3.
After economics class one day, your friend suggests that taxing food would be a good
way to raise revenue because the demand for food is quite inelastic.

True or False: A tax on food leads to relatively little deadweight loss because people are
not very sensitive to the price in this market.

True
False

True or False: Taxing food is a bad way to raise revenue from an equality point of view
because poor people spend a higher proportion of their income on food.

True
False
4.
Daniel Patrick Moynihan, the late senator from New York, once introduced a bill that
would levy a 10,000 percent tax on certain hollow-tipped bullets.

True or False: This tax won't raise much revenue because the high tax rate would likely
cause the equilibrium quantity to be near zero.

True
False

Why might Senator Moynihan have proposed it?

To discourage the use of hollow-tipped bullets

To boost the manufacturing industry of hollow-tipped bullets
To raise revenue to support law enforcement
5.
For each of the following statements, indicate which argument for restricting trade is
being utilized.

The
The The Protection-
National- Infant- The Unfair- as-a-
The Jobs Security Industry Competitio Bargaining
Argumen Argumen Argumen n -Chip
Statements t t t Argument Argument

(A) We should
 The
The The Protection-
National- Infant- The Unfair- as-a-
The Jobs Security Industry Competitio Bargaining
Argumen Argumen Argumen n -Chip
Statements t t t Argument Argument

place a tariff on
the importation
of oil and
instead
produce it
domestically to
avoid
overdependenc
e on foreign
supply.

(B) We should
place a tariff on
Chinese-made
tires to help
prevent
domestic tire
employees
from being laid
off.

(C) We should
subsidize our
computer
industry
because China
subsidizes its
computer
industry.

(D) We should
 The
The The Protection-
National- Infant- The Unfair- as-a-
The Jobs Security Industry Competitio Bargaining
Argumen Argumen Argumen n -Chip
Statements t t t Argument Argument

limit the
importation of
French wine
unless France
lifts its quota on
our agricultural
imports.
6.
For each of the following statements, indicate whether it is true or false for a country
that exports a good abroad.

Fals
Statement True e

The greater the elasticity of supply, the greater the gains from trade.

If supply is perfectly inelastic, the fall in consumer surplus would

exceed the rise in producer surplus.

Producers can still benefit from trade even if supply is perfectly

inelastic.

7.
Consider two ways of commuting in a crowded city: taking public transportation, such as
subway and buses, or driving your own car.

A person who chooses to take public transportation in a crowded city imposes a

positiveexternality on drivers. A policy implication of this result is a subsidy forthose who
take public transportation.
Persons who choose to drive their own cars to get around in a crowded city impose a
negativeexternality on other drivers. A policy implication of this result is a tax onthose
who drive their own cars.
8. Problems and Applications Q4
Many observers believe that the levels of pollution in our society are too high.

True or False: If society wishes to reduce overall pollution by a certain amount, it is

efficient to have firms with highest profit bearing the largest burden of reducing pollution
and firms with lowest profit bearing the least burden.

True
False

Which of the following statements is true about command-and-control approaches to

reducing pollutions? Check all that apply.

Command-and-control approaches are efficient because they ensure each firm

reduces the mandated amount of pollution.
Command-and-control approaches often rely on uniform reductions among firms.
Command-and-control approaches are generally unable to target the firms that
should undertake bigger reductions.

Economists argue that appropriate corrective taxes or tradable pollution rights will result
in efficient pollution reduction.

Which of the following statements support(s) this claim? Check all that apply.

The government does not have to figure out which firms can reduce pollution the
most.
Corrective taxes or tradable pollution rights give firms greater incentives to reduce
pollution.
With corrective taxes or tradable pollution rights, firms spend less in research on
pollution control.
9.
Antonio loves opera and hates rock 'n' roll. Shen loves playing rock 'n' roll music at high
volume. Unfortunately, they are next-door neighbors in an apartment building with
paper-thin walls.
In this case, Shenimposes a negativeexternality on his neighbor in the form of noise
pollution.

Why might a command-and-control policy that forbids music to be played above a

certain decibel level lead to an inefficient outcome?

An efficient outcome can be achieved only if everyone can do what they love.
Shen playing his music loudly does not do any harm if Antonio is not home.
It is unfair because such policy would restrict Shen's activity but not Antonio's.

Suppose the landlord lets the tenants do whatever they want.

True or False: According to the Coase theorem, Shen and Antonio might not be able to
reach an agreement if the transaction costs are high.

True
False
10.
Suppose that the government decides to issue tradable permits for a certain form of
pollution.

True or False: It is more economically efficient in the market for pollution for the
government to distribute the tradable permits than to auction them off.

True
False

True or False: If the government chooses to distribute the tradable permits, the permits
will eventually end up in the hands of the firms who value them most.

True
False