Econ - Exam 3

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

$250

Bill created a new software program he is willing to sell for $300. He sells his first copy and enjoys a producer surplus of $250. What is the price paid for the software?

$550

Suppose a tax of $3 is imposed on each new garden hose that is sold, resulting in a deadweight loss of $22,500. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. Before the tax was imposed, the equilibrium quantity of garden hoses was 100,000. We can conclude that the equilibrium quantity of garden hoses after the tax is imposed is

$85,000

In 2008, the Los Ángeles Times asked members of the American public whether free international trade has helped or hurt the economy. Of those surveyed,

26 percent said free international trade helped the economy

Market power refers to the

Ability of market participants to influence price

Consumer Surplus is the

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

To fully understand how taxes affect economic well-being, we must

Compare the reduced welfare of buyers and sellers to the amount of revenue the government raises

Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Compared to the original tax, the larger tax will decrease tax revenue

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?

Consumer and producer surplus

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

Consumer does not purchase the good

Total surplus in a market is equal to

Consumer surplus + Producer surplus

Which of the following is not equal to total surplus

Consumer surplus - producer surplus

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?

Consumer surplus decreases

Which of the following statements is not correct about a market in equilibrium?

Consumer surplus will be equal to producer surplus

Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650. Denise

Does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $0.

When a country allows trade and becomes an exporter of bicycles,

Domestic producers of bicycles are better off, domestic consumers of bicycles are worse off, and the economic well-being of the country rises

Which of the following is correct?

Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced

The equilibrium allocation of resources is

Efficient because total surplus is maximized at the equilibrium

Which of the following statements is true?

Free trade benefits a country both when it exports and when it imports.

If the Korean steel industry subsidizes the steel that is sells to the United States, the

Harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel

If the Korean steel industry subsidizes the steel that it sells to the United States, the

Harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel

If the labor supply curve is nearly vertical, a tax on labor

Has little impact on the amount of work that workers are willing to do

An example of positive analysis is studying

How market forces produce equilibrium

The problem with protection-as-a-bargaining-chip argument for trade restrictions is

If it fails the country faces a choice between two bad options

Suppose the government increase the size of a tax by 20 percent. The deadweight loss from that tax

Increases by more than 20 percent

Which of the Ten Principles of Economics does welfare economics explain more fully?

Markets are usually a good way to organize economic activity

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus

May increase, decrease, or remain unchanged

At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes

Neither consumer nor producer surplus

Inefficiency exits in an economy when a good is

Not being consumed by buyers who value it most highly

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

Other countries have a comparative advantage over Vietnam and Vietnam will import textiles

When a country that imports a particular good imposes a tariff on that good,

Producer surplus increases and total surplus decreases in the market for that good.

Suppose Iceland goes from being an isolated country to being an exporter of coats. As a result,

Producer surplus increases for producers of coats in Iceland

Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?

Producers of steel and consumers of incense

A tax on a good

Raises the price that buyers effectively pay and lowers the price that sellers effectively receive

The North American Free Trade Agreement

Reduced trade restrictions among Canada, Mexico, and the United States

Import quotas and tariffs produce some common results. Which of the following is not one of those common results?

Revenue is raised for the domestic government

Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Roland and Karla still engage in a mutually-agreeable trade.

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases

Externalities are

Side effects passed on to a party other than the buyers and sellers in the market

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Smaller than the area that represents the loss of consumer surplus and producer surplus caused by tax

Which of the following is true when the price of a good or service rises?

Some buyers exit the market

Spain is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Spain imposes a $5 tariff on chips. As a result,

Spanish consumers of chips lose and Spanish producers of chips gain

Welfare economics is the study of how

The allocation of resources affects economic well-being

Producer surplus is

The amount a seller is paid minus the cost of production

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

The gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.

The amount of deadweight loss that results from a tax of a given size is determined by

The price elasticities of demand and supply

A logical starting point from which the study of international trade begins is

The principle of comparative advantage

In which of the following instances would the deadweight loss of the tax on cartons of cigarettes increase by a factor of 9?

The tax on cartons of cigarettes increases from $10 to $30

Which of the following is not true when the price of a good or service falls?

The total value of purchases before and after the price change is the same

Total surplus is

The total value of the good to buyers minus the cost to sellers providing the good

Japan imposes a $300 per ton tariff on imported steel, raising the price charged in Japan to $1,000. Using only this information, which of the following statements is correct?

The world price for steel is $700

Economists typically measure efficiency using

Total surplus

Assume, for Vietnam, that the domestic price of textiles without international trade is lower than the world price of textiles. This suggests that, in the production of textiles,

Vietnam has a comparative advantage over other countries and Vietnam will export textiles