Exam (elaborations)
ECON B-251 IU EXAM 2 WITH COMPLETE SOLUTIONS
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ECON B-251 IU EXAM 2 WITH COMPLETE SOLUTIONS
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ECON B-251 IU EXAM 2 WITHCOMPLETE SOLUTIONS
whenBdemandBisBmoreBinelastic,B______________BpayBmoreBofBtheBtaxB-
BcorrectBanswer-consumers
whenBdemandBisBmoreBelastic,B______________BpayBmoreBofBtheBtaxB-
BcorrectBanswer-producers
whenBdemandBisBunitBelastic,BconsumersBandBproducersBpayB_____________BofBtheBt
axB-BcorrectBanswer-theBsameBamount
protectionismB-BcorrectBanswer-
regulationsBthatBburdensBforeignBproducersBbutBnotBdomesticBproducers
tariffB-BcorrectBanswer-taxBonBimports
tradeBquotaB-BcorrectBanswer-
restrictionBonBtheBquantityBofBforeignBgoodsBthatBcanBbeBimported
tariffsBraiseB______________BforB_______________B-BcorrectBanswer-
taxBrevenue,BtheBgovernment
tariffsBincreaseB_____________________BandBdecreaseB_____________________B-
BcorrectBanswer-domesticBproduction,BdomesticBconsumption
aBrestrictionBonBtradeBwastesB__________________BandBcreatesB________________
___BfromBtradeB-BcorrectBanswer-resources,BlostBgains
3BconditionsBwhyBaBfreeBmarketBisBefficientB-BcorrectBanswer-
1)BsupplyBofBgoodsBisBboughtBbyBbuyersBwithBtheBhighestBwillingnessBtoBpay
2)BsupplyBofBgoodsBisBsoldBbyBtheBsellersBwithBtheBlowestBcosts
3)BbetweenBbuyersBandBsellers,BthereBareBnoBunexploitedBgainsBfromBtradeBorBanyBwast
efulBtrades
tariffsBreduceB_________BbecauseBtheBsupplyBofBgoodsBisBnoBlongerBsoldBbyBtheBseller
sBwithBtheB___________________________B-BcorrectBanswer-efficiency,BlowestBcosts
theBmoreB__________BtheBmarket,BtheBmoreBtheyBcanBescapeBtaxesB-BcorrectBanswer-
elastic
, theBmoreB______________BtheBmarket,BtheBmoreBtheyBareBburdenedBbyBtaxesB-
BcorrectBanswer-inelastic
theBoptimalBtariffBbalancesBincreaseBinB______________BwithBincreaseBinB__________
__B-BcorrectBanswer-deadweightBloss,Brevenues
socialBcostB-BcorrectBanswer-privateBcostB+BexternalBcost
externalBcostB-BcorrectBanswer-aBcostBthatBisBpaidBnotBbyBconsumersBorBproducers,Bbut
BbyBbystandersBtoBtheBtransaction
whenBexternalitiesBareBsignificant,B-BcorrectBanswer-marketsBworkBless
socialBsurplusB-BcorrectBanswer-
consumerBsurplusB+BproducerBsurplusB+BeveryoneBelse'sBsurplus
marketsBwithBexternalitiesBDOBNOTB-BcorrectBanswer-maximizeBsocialBsurplus
marketBequilibriumB-BcorrectBanswer-maximizesBconsumerBplusBproducerBsurplus
efficientBequilibriumB-BcorrectBanswer-
theBpriceBandBquantityBthatBmaximizesBsocialBsurplus
whenBexternalBcostsBareBsignificant,B-BcorrectBanswer-outputBisBtooBhigh
QmarketB>BQefficient
aBtaxBsetBequalBtoBtheBlevelBofBexternalBcostsBwould:B-BcorrectBanswer--
shiftBsupplyBupBsoBthatBitBoverlaysBtheBsocialBcostBcurve
-marketBquantityBwouldBfallBfromBqBmarketBtoBqBefficient
-marketBequilibriumBwouldBbeBtheBefficientBequilibrium
aBtaxBonBaBgoodBwithBanBexternalBcostBreducesB___________BandBraisesB__________
__B-BcorrectBanswer-deadweightBloss,Brevenue
externalBbenefitB-BcorrectBanswer-
benefitBtoBpeopleBotherBthanBconsumersBorBproducersBtradingBinBaBmarketB(i.e.Bvaccine
s)
whenBexternalBbenefitsBareBsignificant,B-BcorrectBanswer-marketBoutputBisBtooBlow
aBsubsidyBonBaBgoodBwithBanBexternalBbenefitBwillBreduceB____________,BincreasingB_
____________B-BcorrectBanswer-deadweightBloss,BsocialBsurplus
internalizedBcosts/benefitsB-BcorrectBanswer-
adjustingBincentivesBsoBthatBdecisionBmakersBtakeBintoBaccountBallBtheBbenefitsBandBco
stsBofBtheirBactions,BprivateBandBsocial
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