Econ inquizite hw ch 5 review

Calculate the producer surplus for a landscaper who is hired to work for $50/hour, but is willing to work for $40/hour.

Prod surplus: sold- willing 50- 40= 10 dollars

what kind of good should gov be taxing? inelastic or elastic

Products with almost perfectly inelastic demand will not experience deadweight loss, because people need to keep purchasing them regardless of price.

what kind of of a good would a consumer bear the whole tax of

- prescription meds ( perfectly inelastic,) Prescription medication is nearly perfectly inelastic, thus consumers would bear the burden of any tax on medication.

what kind of good would a producer bear the whole tax of

- store brand water ( PERF ELASTIC) Producers will bear the burden of the tax because consumers could easily switch to a different brand of water.

How much tax revenue was collected if the government levied a $2 excise tax on air conditioners and 490 units were sold after the tax? Before the tax, 500 air conditioners were sold.

2x490=980 It is likely that this tax was designed to generate revenue, not modify behavior, since $2 is a small tax and people continue to purchase air conditioners after the tax was levied. The number of air conditioners sold before the tax does not factor into this calculation.

Nick wants to buy a box of crackers for $1.75. Cracker producers want to sell their product for $1.25. When Nick gets to the store, he finds that the crackers he wants to buy are marked $1.68. What is the total surplus generated from this transaction?

Answer: 50 cents Nicks wiling to pay: 1. 75 producers willing to sell: 1.25 nicks actual price paid: 1.68 producers actual price : 1.68 nick surplus: 1.75-1.68= 0.7 (willing- actual) prod surplus: 1.68- 1.25 = 0.43( sold - willingness) TOTAL SURP: 0.7+ 0.43= 0.50

What might be true if the government levied a 40% excise tax on gasoline? Select all that couldapply. Gasoline has a highly inelastic demand. The government wants people to drive less. Gasoline has a perfectly elastic demand. The government is trying to increase legal gasoline sales in order to combat the production and sale of illegal "bootleg" gasoline.

Applies: Gasoline has a highly inelastic demand. (The government may realize that people will continue to drive regardless of how much their gasoline is taxed. The government may be trying to generate a large amount of tax revenue.) The government wants people to drive less. (A 40% tax is very high. It might encourage people to modify their behavior and drive less.) NOT APPLICABLE Gasoline has a perfectly elastic demand. ( this would cause ppl to find subs ) The government is trying to increase legal gasoline sales in order to combat the production and sale of illegal "bootleg" gasoline. Taxing gasoline effects the legal market, so a 40% tax would actually make bootleg gasoline more attractive.Taxes have two functions: increasing revenue for the government and forcing people to modify their behavior.

Emily works in the stockroom at a retail store for $10/hour on Saturdays. The store is within near walking distance of her home. She can make $15/hour by babysitting on Saturday, but she must spend $2 on gas to drive to her babysitting job. What costs must Emily consider when determining the minimum price at which she is willing to sell her labor? Select all that apply. - the $4 in direct costs she would spend to drive to and from her babysitting job -the opportunity costs of not working at the store on a Saturday when she babysits - the opportunity costs of not working at the store on a Saturday when she babysits

COSTS TO CONSIDER: - the $4 in direct costs she would spend to drive to and from her babysitting job --> (Emily must pay for gas to drive to and from the babysitting job. She must figure out if spending $4 to work will be worth it) - the opportunity costs of not working at the store on a Saturday when she babysits --> (Emily will need to consider not only the money she can earn by babysitting but also the income she would give up by not working at the store.) NOT INCLUDED the opportunity costs of not working at the store on a Saturday when she babysits (Since Emily will carry her phone and wear similar clothes at either job, these costs can be ignored.)

t/f A market that reaches efficient equilibrium for price and quantity will result in a total surplus that is as large as possible. This large total surplus allows the consumers and producers to share the total surplus in a fair and equitable way.

FALSE -The split of total surplus between consumers and producers often depends on the relative elasticity of each side of the market. The split may or may not be equitable. - The consumer surplus and producer surplus that make up total surplus will often not be the same size.

Identify the two situations with the highest total surplus. Don wanted to buy a scooter for no more than $5, but was only able to find a producer who would sell for $15. Jay buys a house for $40,000 less than he was willing to pay. He bought his home from sellers who received $2,000 more than they were willing to sell for.

HIGHEST total surplus Jay buys a house for $40,000 less than he was willing to pay. He bought his home from sellers who received $2,000 more than they were willing to sell for. (+ 42,000) Kevin wanted to spend $50 on a dishwasher and bought one at $45 from a producer who was hoping to receive $40. ( +10) NOT a high total surplus: Bonnie buys flowers for $2.25 less than she was willing to pay. She bought them from a seller who would have been willing to accept $3 less that what Bonnie paid. Don wanted to buy a scooter for no more than $5, but was only able to find a producer who would sell for $15. - It is likely that this transaction would not take place, because Don cannot find a scooter for a price he is willing to pay. If Don purchased this particular scooter, he would have a voluntary consumer loss of -$10. Since the producer surplus cannot logically be more than the selling price of $15, the total surplus would have been at most $5.

T/F People concerned with efficiency care about preventing the waste of goods and services.

TRUE

t/f When an allocation of resources maximizes total surplus, the result is said to be efficient.

TRUE! In order for a market to be efficient, the allocation of resources must maximizetotal surplus.

T/F if a price is low enough to attract buyers, it will laws encourage producers to sell

false there is an equilibrium price that is HIGH enough that PRODUCERS want to sell and LOW enough that CONSUMERS want to buy

Airbnb, a vacation rental company that is considered a normal good, had record sales prior to the public health crisis of 2020. With the country thrown into a recession, many people had to put their vacations on hold. This drop in consumer income caused the __________curve for Airbnb to shift to the ________, which led to a_ ________ in producer surplus.

demand left decrease

Which of the following are examples of excise taxes? Select all that apply. a $0.50 tax on pizza an 8% tax on a plane ticket a 25% tax on payroll a 15% tax on income a $1.00 tax on stamps a 1% capital gains tax

a $0.50 tax on pizza an 8% tax on a plane ticket a $1.00 tax on stamps not : a 25% tax on payroll( payroll is not a good or service a 15% tax on income( not good or Service)

A television set currently costs $100. A new excise tax law is passed and will impose a $5 tax on the sale of each television set. How much should a consumer expect to pay for the television set once the tax is in place

between 100 and 105: both consumer and producer will pay part of the tax The consumer will bear part of the tax burden and pay somewhat more than the original price of $100. The producer will bear the rest of the tax burden and receive somewhat less than $100.

Steve sells his home to Srivani and ends up with a producer surplus of $100,000. Srivani has a consumer surplus of $1,000 from the sale. What is true about the surplus from the sale?

both parties experiences surplus but there is einequity bc Steve gets majority of benefit larger producer surplus explanation:Both parties benefited from the sale, but Steve benefitted much more than Srivani because his producer surplus is much higher than Srivani's consumer surplus.

Judy purchased a speedboat for $120,000. She was willing to pay $150,000. After a few years, she wanted to sell the boat for $85,000 and ended up selling it to Gary for $90,000. What is true about the surplus generated by the speedboat? Select all that apply. - Judy's producer surplus is $5,000. -Judy's producer surplus is $30,000. - Judy's producer surplus is $270,000. -Gary's consumer surplus is $5,000.

correct: Judy's producer surplus is $5,000. -Judy's producer surplus is $30,000. There is no way to calculate Gary's consumer surplus since we do not know how much he was willing to pay for the boat. Judy will be happy with both her speedboat purchase and the eventual sale because she was able to buy the boat for a lower price than she anticipated and she sold it for more than her minimum selling price.

What might happen if the government raised the excise tax on televisions from $5 to $15?

deadweight loss for tv would increase because producers would sell fewer units at a higher price EXPLANATION: A slight increase in taxes would probably cause demand for televisions to fall a little, which would increase deadweight loss.

Fill in the blanks to explain how consumer and producer surplus affect economic well-being. When the price of a good or service is ______ enough, it will encourage consumers to buy. However, the price also has to be ____enough to encourage producers to sell. In this way, both parties benefit from the sale. In order to calculate producer surplus, sellers must understand their direct costs and their _______costs, whereas consumers must consider their _______price based on the value they place on a particular good or service.

low high opportunjity reservation

Order the products, from least to greatest, by how much of the tax incidence would fall on the consumer if an excise tax were to be levied. luxury yacht frozen veggies car insurance

luxury yacht, fresh veggies, car insurance Luxury yachts have highly elastic demand. Producers would bear the burden of the tax on a product with many substitutes Fresh vegetables have a moderately elastic demand because although there are substitutes, some people will choose to continue buying frozen vegetables over canned. Producers will share the tax burden with the consumer.. Drivers need car insurance in order to drive. If an excise tax were levied on car insurance, consumers would have no choice but to pay it.

why is the tax incidence of a yacht be on producers

luxury yachts have highly elastic demand. producers would bear the tax on products with many substitutes

t/f when woulds an excise tax placed on producers result in the smallest deadweight loss?

perfectly inelastic When demand is perfectly inelastic, the quantity sold is the same before and after the tax. This makes the deadweight loss of the tax zero, because consumers did not change their behavior.

What kind of good would producers and consumers share the tax of

relatively elastic goods TV set / cable subscription Some people would cease buying television sets, but others would pay the tax. Producers and consumers would share the tax burden. Producers and consumers would share the tax burden for cable television subscriptions, since its demand is somewhat elastic. Some consumers will switch to a different product, which will lower demand, but many consumers will pay the increased price.

Why does a tax shift the supply curve up and shift equilibrium to a higher price ?

the producer passes along a portion of the tax to the consumer in the form of a higher price. Car producers are willing to supply fewer cars at any price, because they are paying a portion of that price as the tax. This shifts the supply curve and leads to a new market equilibrium, E2, with fewer cars being sold.

t/f Excise taxes are levied on products or services you can buy. Many goods have excise taxes, but the amount of tax varies from state to state.

tru

t/f Taxes do not always cause deadweight loss.

true if u tax Products with almost perfectly inelastic demand will not experience deadweight loss, because people need to keep purchasing them regardless of price.

T/F : Taxes do not always cause deadweight loss.

true; The elasticity of demand influences the amount of deadweight loss a tax will create. Products with almost perfectly inelastic demand will not experience deadweight loss, because people need to keep purchasing them regardless of price.