ECON 202 online- Quiz ?s Exam 2

Arthur buys a new cell phone for $150. He receives consumer surplus of $150 from the purchase. How much does Arthur value his cell phone?

$300

Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?

$325

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

demand

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.

The figure to the right shows the market for tiger shrimp. The market is initially in equilibrium at a price of​ $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to​ $18. At the equilibrium price of​ $15 consumers are willing to buy 80 pounds of tiger shrimp. Is this an economically efficient​ quantity?

​No, the marginal benefit of the 80th unit exceeds the marginal cost of the 80th unit.

Which of the following statements best describes the concept of consumer surplus? -"Safeway was having a sale on Dreyer's ice cream so I bought 3 quarts." -"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket." -"I sold my Blu-ray copy of Ben-Hur for $18 at a garage sale even though I was willing to sell it for $10." -"I paid $130 for a printer last week. This week the same store is selling the same printer for $110."

"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket."

Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda's consumer surplus from the purchase is

$0

The figure to the right shows the market for tiger shrimp. The market is initially in equilibrium at a price of​ $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to​ $18. What is the value of consumer surplus at the equilibrium price of​ $15?

$240

The Waco Kid's Cowboy Hats Marginal Cost (dollars) 1st hat $24 2nd hat 30 3rd hat 38 4th hat 46 Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the market price of cowboy hats is $35, The Waco Kid will produce

2 hats

The Waco Kid's Cowboy Hats Marginal Cost (dollars) 1st hat $24 2nd hat 30 3rd hat 38 4th hat 46 The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the market price of cowboy hats is $50, how many hats will be produced?

4

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied

Consumer Willingness to Pay Anya $24 Basil 20 Celeste 15 Dralon 12 Esther 7 The table above lists the highest prices five consumers are willing to pay for a theater ticket. If the price of one of the tickets is $18

Basil will receive $2 of consumer surplus from buying one ticket.

In recent years the cost of producing organic produce in the U.S. has decreased largely due technological advancement. At the same time, more and more Americans prefer organic produce over conventional produce. Which of the following best explains the effect of these events in the organic produce market?

Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.

What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?

D increases, S no change, P and Q increase

The term "payroll taxes" is often used to refer to

Social Security and Medicare taxes.

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia?

Deadweight loss will increase.

Which of the following is true of a progressive tax system?

High income households pay a higher percentage of their income as taxes

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville?

Meterville

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. At a price of $18 consumers are willing to buy 40 pounds of tiger shrimp. Is this an economically efficient quantity?

No, the marginal benefit of the 40th unit exceeds the marginal cost of that 80th unit.

Price controls distribute resources in many unintended ways. In the following cases below, who will probably spend more time waiting in line to get scarce, price-controlled goods? Choose one from each pair:

Retired people

what happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

The demand for Lincoln letters increases and the supply of Booth letters increases.

consumer surplus is

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays

There is a difference between who is legally required to send a tax payment to the government and who bears the burden of the tax. Which of the following would have the most impact on who bears the burden of an excise tax?

The elasticity of demand for the item that is taxed.

For a given supply curve, how does the elasticity of demand affect the burden of a tax imposed on a product?

The excess burden of the tax will be greater when the demand is more elastic than when it is less elastic.

Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000.

The first household

Which of the following is evidence of a shortage of walnuts? - The quantity demanded of walnuts is greater than the quantity supplied. -Firms lower the price of walnuts. -The price of cashews is lowered in order to make up for the walnut shortage. -The equilibrium price of walnuts falls due to a decrease in demand.

The quantity demanded of walnuts is greater than the quantity supplied.

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.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?

There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.

The following figure illustrates the demand and supply curves for a good. Which of the following is likely to happen if a price control of $40 is imposed?

There will be a shortage of 20 units in the market

A decrease in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices, will result in

a decrease in the equilibrium price of soft drinks; the equilibrium quantity may increase or decrease

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase? -an increase in the price of flour -an increase in the price of rye bread, a substitute for white bread -a decrease in the price of flour -an increase in the price of butter, a complement for white bread

a decrease in the price of flour

Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?

a decrease in the price of orange juice processing

Rent control is an example of

a price ceiling

Which term refers to a legally established minimum price that firms may charge?

a price floor

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50

a shortage of milk will occur in the market

In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see

a shortage of oranges

If the sellers of a good are taxed for each unit sold, ________.

a smaller quantity of the good is sold

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

above;below

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

additional

An externality occurs when ________.

an economic activity affects third parties not engaged in the activity

An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in

an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease.

Suppose the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given?

consumer surplus decreases.

A price floor set above the equilibrium price leads to a(n) ________.

excess supply of goods in the market

A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

false

For a given supply curve, the deadweight loss from the imposition of a tax is smaller if demand is more elastic. true or false

false

Market equilibrium occurs where supply equals demand

false

Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.

false

The person or firm that pays a tax bears the burden of the tax. true or false

false

true/false The total amount of producer surplus in a market is equal to the area below the supply curve.

false

The private cost of a good or service is the cost borne by the producer. true or false

true

Economic surplus

is equal to the sum of consumer surplus and producer surplus.

If there is pollution in producing a product, then the market equilibrium price

is too low and equilibrium quantity is too high

In a city with rent-controlled apartments, all of the following are true except

landlords have an incentive to rent more apartments than they would without rent control.

In a regressive tax system, ________.

low income households pay a higher percentage of their income as taxes

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

marginal benefit; marginal cost

To affect the market outcome, a price ceiling

must be set below the equilibrium price.

The Canadian government has wage controls for medical doctors. To keep things simple, let's assume that they set one wage for all doctors: $100,000 per year. It takes about 6 years to become a general practitioner or a pediatrician, but it takes about 8 or 9 years to become a specialist like a gynecologist, surgeon, or ophthalmologist. What kind of doctor would you want to become under this system?

pediatrician

When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society. true or false

true

The marginal income tax rate is the ________.

percentage of the last dollar earned that a household pays in taxes

The government of Lithasia has decided to set a minimum price for certain agricultural products in order to safeguard the interests of farmers. This is an example of a ________.

price floor

The social cost of producing a good that generates negative externalities is the sum of the ________.

private cost and external costs of production

In the United States, income taxes are ________.

progressive

In New York City, about 1 million apartments are subject to rent control by the local government. Rent control

puts a legal limit on the rent that landlords can charge for an apartment.

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

In a ________ tax system, the marginal tax rate declines with income.

regressive

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?-a decrease in the cost of transporting olive oil to markets -research finds that consumption of olive oil reduces the risk of heart disease -an increase in the price of olive oil presses -an increase in the price of land used to plant olives

research finds that consumption of olive oil reduces the risk of heart disease

When production generates a negative externality, the true cost of production is the

social cost of production.

A ________ curve shows the marginal cost of producing one more unit of a good or service.

supply

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

tax incidence

The actual division of the burden of a tax is called

tax incidence.

The term tax incidence refers to

the actual division of the burden of a tax between buyers and sellers in a market.

Marginal cost is

the additional cost to a firm of producing one more unit of a good or service

consumer surplus in a market for a product would be equal to ___________ if the market price was zero

the area under the demand curve

The demand curve for pizza in Foodieland is vertical. If a tax is imposed on each pizza bought, ________.

the burden of the tax will fall entirely on the buyers

The incidence of a per-unit tax on a good is identical for buyers and sellers of the good if:

the buyers and sellers of the good are equally sensitive to price changes.

The corporate income tax is ultimately paid by all of the following except

the corporation's debtors in the form of lower rates of return on the corporation's bonds.

If a tax is imposed on each unit of a good purchased

the demand curve shifts to the left

A price ceiling does NOT lead to a deadweight loss if

the equilibrium market price lies below the price ceiling

If a tax is imposed on a good,________.

the equilibrium quantity of the good in the market falls

true or false: Producer surplus is the difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product.

true

A negative externality exists if -the marginal social cost of producing a good or service exceeds the private cost. -the marginal private cost of producing a good or service exceeds the social cost. there are price controls in a market. - the marginal social cost of producing a good or service exceeds the private cost. -there are quantity controls in a market.

the marginal social cost of producing a good or service exceeds the private cost.

Willingness to pay measures

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

Suppliers will be willing to supply a product only if

the price received is at least equal to the additional cost of producing the product.

If, in a competitive market, marginal benefit is less than marginal cost

the quantity sold is greater than the equilibrium quantity.

The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $3

the quantity supplied is less than the economically efficient quantity.

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

the social cost of production

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which

the sum of consumer surplus and producer surplus is at a maximum.

A price ceiling refers to ________

the upper limit on the price of a good

With an increase in the demand for a good, if prices are not allowed to increase:

there will be no incentive for firms to increase the quantity supplied of the good.

Which job exists in part because time-sensitive wealthy individuals want to pay someone else to wait in line for them? Fast food employees Construction workers Ticket scalpers Truck drivers

ticket scalpers

The average tax rate faced by an individual is the ________.

total tax paid by her divided by the total income earned

A price ceiling is a legally determined maximum price that sellers may charge: true or false

true

A price ceiling is a legally determined maximum price that sellers may charge: true or false

true

A shortage occurs when the market price is lower than the equilibrium price.

true

A surplus occurs when the actual selling price is above the market equilibrium price.

true

If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demands or supplies. true or false

true

In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached.

true

Rent control is an example of a price ceiling. true or false

true