Chapter 4

at equilibrium price, the deadweight loss is...

0

Suppose an excise tax of $1 is imposed on every case of beer sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?

The supply curve for cases of beer would shift to the left by $1.

Suppose that in Canada the government places a $1,500 tax on the buyers of new snowmobiles. After the purchase of a new snowmobile, a buyer must pay the government $1,500. How would the imposition of the tax on buyers be illustrated in a graph?

The tax will shift the demand curve to the left by $1,500.

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

above; below

tax incidence

actual division of the burden of the tax; consumers and firms mostly share the burden of a tax levied on a good or service

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.

additional

marginal benefit

additional benefit to a consumer from consuming one more unit of a good or service; demand curve is a marginal benefit curve

marginal cost

additional cost to a firm of producing one more unit of a good or service; supply curve is also a marginal cost curve.

A tax that imposes a small excess burden relative to the tax revenue that it raises is

an efficient tax.

price ceilings and price floors can lead to a...

black market = buying and selling take place at prices that violate government price regulations

positive analysis

concerned with what is; shows that price ceilings and price floors cause deadweight losses

normative analysis

concerned with what should be; about whether these price ceilings and price floors are desirable or undesirable

taxes result in a loss of...

consumer surplus, producer surplus, and a deadweight loss

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the

demand curve for imported champagne is vertical.

consumer surplus

difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays; total consumer surplus in a market = area below the demand curve and above the market price.

producer surplus

difference between the lowest price a firm is willing to accept for a good or service and the price it actually receives; total producer surplus in a market = area above the supply curve and below the market price.

Companies in the sharing economy have the potential to lower the equilibrium price in their market, and by doing so increase efficiency. This would have a tendency to

increase consumer surplus and decrease deadweight loss.

when the marginal benefit is greater than marginal cost, the output is..

inefficiently high

price ceiling

legally determined maximum price that sellers may charge.

price floor

legally determined minimum price that sellers may receive

The difference between the ________ and the ________ from the sale of a product is called producer surplus.

lowest price a firm would have been willing to accept; price it actually receives

In a competitive market the demand curve shows the ________ received by consumers and the supply curve shows the ________.

marginal benefit; marginal cost

economic surplus

sum of consumer surplus and producer surplus

The actual division of the burden of a tax between buyers and sellers in a market is called

tax incidence.

The total amount of producer surplus in a market is equal to

the area above the market supply curve and below the market price.

Consumer surplus in a market for a product would be equal to ________ if the market price was zero.

the area under the demand curve

In a competitive market equilibrium

the marginal benefit equals the marginal cost of the last unit sold.

Consumers are willing to purchase a product up to the point where

the marginal benefit of consuming a product is equal to its price.

Willingness to pay measures

the maximum price that a buyer is willing to pay for a good.

deadweight loss

the reduction in economic surplus resulting from not being in competitive equilibrium.

A demand curve shows

the willingness of consumers to buy a product at different prices.

economic efficiency

when marginal benefit = marginal cost and when the sum of the consumer surplus and producer surplus is at a maximum