AAEC Chapter 6, 7, and 8

Refer to Figure 7-18. At the equilibrium price, total surplus is a. $480. b. $640. c. $1,120. d. $1,280.

C

____5. If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

F

Refer to Figure 6-21. The price that buyers pay after the tax is imposed is a. $8.00. b. $9.00. c. $10.50. d. $12.00.

D

Wendy is willing to pay $50 for a concert ticket and Bruce would like to receive $25. If the market price is $40 for this transaction, then the total surplus would be $15.

F

____ 6. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $90.

F

6. Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

T

A tax on golf clubs will cause buyers of golf clubs to pay a higher price, sellers of golf clubs to receive a lower price, and fewer golf clubs to be sold.

T

____3. Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

T

____4. Because taxes distort incentives, they cause markets to allocate resources inefficiently.

T

____7. When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

T

. Producer surplus measures the a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market. c. price that buyers are willing to pay for sellers' output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

A

Refer to Figure 6-21. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money? a. $8.00 b. $9.00 c. $10.50 d. $12.00

A

Refer to Figure 6-22. Sellers pay how much of the tax per unit? a. $0.50. b. $1.50. c. $3.00. d. $5.00.

A

Refer to Figure 6-22. The amount of the tax per unit is a. $2.00. b. $1.50. c. $3.00. d. $0.50.

A

Refer to Figure 6-22. The equilibrium price in the market before the tax is imposed is a. $3.50. b. $5.00. c. $2.00. d. $1.50.

A

Refer to Figure 8-4. The amount of tax revenue received by the government is equal to a. $245. b. $350. c. $490. d. $700.

A

Refer to Figure 8-4. The price that buyers effectively pay after the tax is imposed is a. $12. b. between $8 and $12. c. between $5 and $8. d. $5.

A

When a good is taxed, a. both buyers and sellers of the good are made worse off. b. only buyers are made worse off, because they ultimately bear the burden of the tax. c. only sellers are made worse off, because they ultimately bear the burden of the tax. d. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

A

Which of the following will cause a decrease in producer surplus? a. the imposition of a binding price ceiling in the market b. an increase in the number of buyers of the good c. income increases and buyers consider the good to be normal d. the price of a complement decreases

A

Refer to Figure 6-22. As the figure is drawn, who sends the tax payment to the government? a. The buyers send the tax payment. b. The sellers send the tax payment. c. A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers. d. The question of who sends the tax payment cannot be determined from the graph.

B

Refer to Figure 6-22. Buyers pay how much of the tax per unit? a. $0.50. b. $1.50. c. $3.00. d. $5.00.

B

Refer to Figure 8-4. The equilibrium price before the tax is imposed is a. $12, and the equilibrium quantity is 35. b. $8, and the equilibrium quantity is 50. c. $5, and the equilibrium quantity is 35. d. $5, and the equilibrium quantity is 50

B

Refer to Table 7-1. If the price of the product is $22, then who would be willing to purchase the product? a. Lori b. Lori and Audrey c. Lori, Audrey, and Zach d. Lori, Audrey, Zach, and Calvin

B

. A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market.

C

. Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is a. $35.00. b. $45.25. c. $52.50. d. $105.00

C

Consumer surplus a. is closely related to the supply curve for a product. b. is represented by a rectangle on a supply-demand graph when the demand curve is a straight, downward-sloping line. c. is measured using the demand curve for a product. d. does not reflect economic well-being in most markets.

C

If the government removes a tax on a good, then the price paid by buyers will a. increase, and the price received by sellers will increase. b. increase, and the price received by sellers will decrease. c. decrease, and the price received by sellers will increase. d. decrease, and the price received by sellers will decrease.

C

Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good? a. $210 b. $345 c. $420 d. $480

C

Refer to Figure 8-24. For an economy that is currently at point D on the curve, a decrease in the tax rate would a. decrease consumer surplus. b. decrease producer surplus. c. increase tax revenue. d. increase the deadweight loss of the tax.

C

Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to a. $105. b. $140. c. $170. d. $210.

C

Refer to Table 7-1. If price of the product is $30, then the total consumer surplus is a. $-10. b. $-6. c. $20. d. $30

C

Refer to Table 7-5. If the market price of an orange is $1.20, then consumer surplus amounts to a. $0.70. b. $1.10. c. $1.40. d. $5.00.

C

Refer to Table 7-5. If the market price of an orange is $1.20, then the market quantity of oranges demanded per day is a. 1. b. 2. c. 3. d. 4.

C

The deadweight loss from a $3 tax will be largest in a market with a. inelastic supply and elastic demand. b. inelastic supply and inelastic demand. c. elastic supply and elastic demand. d. elastic supply and inelastic demand.

C

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes tax revenue for the government. c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers.

C

When a binding price floor is imposed on a market to benefit sellers, a. no sellers actually benefit. b. some sellers benefit, but no sellers are harmed. c. some sellers benefit, and some sellers are harmed. d. all sellers benefit.

C

. Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is a. $12. b. between $8 and $12. c. between $5 and $8. d. $5.

D

If a binding price ceiling is imposed on the baby formula market, then a. the quantity of baby formula demanded will increase. b. the quantity of baby formula supplied will decrease. c. a shortage of baby formula will develop. d. All of the above are correct.

D

Market failure is the inability of a. buyers to interact harmoniously with sellers in the market. b. a market to establish an equilibrium price. c. buyers to place a value on the good or service. d. some unregulated markets to allocate resources efficiently.

D

Refer to Figure 6-21. What is the amount of the tax per unit? a. $1 b. $2 c. $3 d. $4

D

Refer to Figure 6-22. The effective price sellers receive after the tax is imposed is a. $2.00. b. $3.50. c. $5.00. d. $3.00.

D

Refer to Figure 8-4. The tax results in a loss of producer surplus that amounts to a. $75.50. b. $90.00. c. $112.50. d. $127.50.

D

8. The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

F

Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.

F

If the government imposes a binding price ceiling in a market, then the producer surplus in that market will increase.

F

Consumer surplus measures the benefit to buyers of participating in a market.

T

Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.

T

Rent control may lead to lower rents for those who find housing, but the quality of the housing may also be lower.

T

The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.

T

The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers.

T

Whether a tax is levied on sellers or buyers, buyers and sellers usually share the burden of taxes.

T

Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.

T

Producer surplus is the cost of production minus the amount a seller is paid.

F

The tax incidence depends on whether the tax is levied on buyers or sellers.

F

____1. Total surplus is always equal to the sum of consumer surplus and producer surplus.

F

If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, then the price ceiling is a binding constraint on the market.

F (...then the price ceiling is ^not^ a binding constraint on the market)

A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied.

F (no, it's not binding)

____ 10. When markets fail, public policy can potentially remedy the problem and increase economic efficiency.

T

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called a. deadweight loss. b. willingness to pay. c. consumer surplus. d. producer surplus.

B

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would a. increase by less than $5. b. increase by exactly $5. c. increase by more than $5. d. decrease by an indeterminate amount.

A

Refer to Figure 7-18. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus due to new producers entering the market would be a. $90. b. $210. c. $360. d. $480.

A

Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the smallest in the market represented by a. S1. b. S2. c. S3. d. S4.

A

On a graph, consumer surplus is represented by the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price.

B

Refer to Figure 7-18. If 40 units of the good are being bought and sold, then a. the marginal cost to sellers is equal to the marginal value to buyers. b. the marginal value to buyers is greater than the marginal cost to sellers. c. the marginal cost to sellers is greater than the marginal value to buyers. d. producer surplus would be greater than consumer surplus.

B

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will a. decrease, and producer surplus in the industry will decrease. b. increase, and producer surplus in the industry will increase. c. decrease, and producer surplus in the industry will increase. d. increase, and producer surplus in the industry will decrease.

B

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result, a. tax revenue necessarily decreases. b. the deadweight loss of the tax necessarily decreases. c. the demand curve for gasoline necessarily becomes steeper. d. the supply curve for gasoline necessarily becomes flatter.

B

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is a. $95. b. $80. c. $75. d. $60.

B

Total surplus is equal to a. value to buyers - profit to sellers. b. value to buyers - cost to sellers. c. consumer surplus x producer surplus. d. (consumer surplus + producer surplus) x equilibrium quantity.

B

Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct? a. After the tax is imposed, the equilibrium quantity of diapers is 900 per month. b. The demand for diapers is more elastic than the supply of diapers. c. The deadweight loss of the tax is $12.50. d. The tax causes a decrease in consumer surplus of $380.

C

The presence of a price control in a market for a good or service usually is an indication that a. an insufficient quantity of the good or service was being produced in that market to meet the public's need. b. the usual forces of supply and demand were not able to establish an equilibrium price in that market. c. policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. d. policymakers correctly believed that price controls would generate no inequities of their own once imposed.

C

Which of the following is not correct? a. Market power can cause markets to be inefficient. b. When the decisions of buyers and sellers affect nonparticipants, markets may be inefficient. c. The tools of welfare economics cannot help economists when markets are inefficient. d. Externalities can cause markets to be inefficient.

C

. Refer to Figure 8-24. Tax revenue would a. decrease if the economy began at point B and then the tax rate was decreased. b. increase if the economy began at point F and then the tax rate was decreased. c. decrease if the economy began at point C and then the tax rate was increased. d. All of the above are correct.

D

____ 7. In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

T

____ 9. In order to conclude that markets are efficient, we assume that they are perfectly competitive.

T

____2. As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

T

Refer to Figure 8-4. The per-unit burden of the tax on buyers is a. $3. b. $4. c. $5. d. $8.

B

A tax on sellers will shift the a. demand curve upward by the amount of the tax. b. demand curve downward by the amount of the tax. c. supply curve upward by the amount of the tax. d. supply curve downward by the amount of the tax.

C

Refer to Figure 6-22. The price paid by buyers after the tax is imposed is a. $3.00. b. $3.50. c. $5.00. d. $6.00.

C

The amount of deadweight loss from a tax depends upon the a. price elasticity of demand. b. price elasticity of supply. c. amount of the tax per unit. d. All of the above are correct.

D

A tax of $1 on sellers shifts the supply curve upward by exactly $1.

T