ECON 2302 - Ch 7-13 Review

Chad is willing to pay $5.00 to get his first cup of morning latté. He buys a cup from a vendor selling latté for $3.75 per cup. Chad's consumer surplus is

$1.25.

Which of the following statements is not correct?

All states have state income taxes, but the percentages vary widely.

Producer surplus equals

Amount received by sellers - Costs of sellers.

Refer to Figure 7-15. When the price rises from P1 to P2, which area represents the increase in producer surplus due to new producers entering the market?

B

Which of the following statements is correct?

Sales taxes and property taxes are the two most important revenue sources for state and local governments.

Which of the following goods is rival in consumption and excludable?

a DVD

Which of the following goods is rival and excludable?

a congested toll road

A tax levied on the total amount spent in retail stores is called

a sales tax.

Which of the following is an example of a payroll tax?

a tax on the wages that a firm pays its workers

Producer surplus is the

amount a seller is paid minus the cost of production.

Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that a) Spain imports olive oil. b) the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed. c) consumer surplus in Spain would exceed producer surplus in Spain if trade with other countries were not allowed. d) All of the above are correct.

b) the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed.

Producer surplus measures the

benefits to sellers of participating in a market.

Refer to Figure 7-15. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be

between P1 and P2.

When a tax is levied on the buyers of a good, the

buyers of the good will send tax payments to the government.

A tax affects

buyers, sellers, and the government.

Refer to Figure 9-1. From the figure it is apparent that a) Guatemala will experience a shortage of coffee if trade is not allowed. b) Guatemala will experience a surplus of coffee if trade is not allowed. c) Guatemala has a comparative advantage in producing coffee, relative to the rest of the world. d) foreign countries have a comparative advantage in producing coffee, relative to Guatemala.

c) Guatemala has a comparative advantage in producing coffee, relative to the rest of the world.

Refer to Figure 10-5. Which of the following statements is correct? a) The marginal benefit of the positive externality is measured by P3 - P1. b) The marginal cost of the negative externality is measured by P3 - P2. c) The marginal cost of the negative externality is measured by P3 - P1. d) The marginal cost of the negative externality is measured by P3 - P0.

c) The marginal cost of the negative externality is measured by P3 - P1.

Goods that are not rival in consumption include both

club goods and public goods.

Goods that are rival in consumption include both

common resources and private goods.

Total surplus with a tax is equal to

consumer surplus plus producer surplus plus tax revenue.

Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage in producing pharmaceuticals if we a) know whether Costa Rica imports or exports pharmaceuticals. b) compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail in Costa Rica if trade with the rest of the world were not allowed. c) compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the world were not allowed. d) All of the above are correct.

d) All of the above are correct.

Producer surplus is a) represented on a graph by the area below the demand curve and above the supply curve. b) the amount a seller is paid minus the cost of production. c) also referred to as excess supply. d) All of the above are correct.

d) All of the above are correct.

Taxes cause deadweight losses because they a) lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. b) distort incentives to both buyers and sellers. c) prevent buyers and sellers from realizing some of the gains from trade. d) All of the above are correct.

d) All of the above are correct.

State and local governments generate revenue from all of the following sources except a) sales taxes. b) the federal government. c) corporate income taxes. d) customs duties.

d) customs duties.

A tax levied on the buyers of a good shifts the

demand curve downward (or to the left).

When a country allows trade and becomes an importer of a good,

domestic producers become worse off, and domestic consumers become better off.

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

downward by exactly $2.

The single largest expenditure by state and local governments is on

education.

When a tax is imposed on a good, the

equilibrium quantity of the good always decreases.

Private goods are both

excludable and rival in consumption.

If people can be prevented from using a certain good, then that good is called

excludable.

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

A country has a comparative advantage in a product if the world price is

higher than that country's domestic price without trade.

The largest source of revenue for the federal government is the

individual income tax.

A positive externality

is a benefit to a market bystander.

A positive externality

is a benefit to someone other than the producer and consumer of the good.

A negative externality

is a cost to a bystander.

A negative externality

is an adverse impact on a bystander.

Consumer surplus

is measured using the demand curve for a product.

Consumer surplus

is the amount a consumer is willing to pay minus the amount the consumer actually pays.

Both public goods and common resources are

nonexcludable.

When a state levies a sales tax, the tax

occasionally excludes items that are deemed to be necessities.

Most goods in the economy are

private goods.

A tariff is a

tax on an imported good.

Corporate profits distributed as dividends are

taxed twice.

To enhance the well-being of society, a social planner will encourage firms to increase production when

technology spillovers are associated with production.

Producer surplus is

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

A person's tax liability refers to

the amount of tax a person owes to the government.

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,

the country will be an importer of the good.

As government debt increases,

the government must spend more revenue on interest payments.