Economics Test 2

A tariff on a product makes a. domestic sellers better off and domestic buyers worse off. b. domestic sellers worse off and domestic buyers worse off. c. domestic sellers better off and domestic buyers better off. d. domestic sellers worse off and domestic buyers better off.

(A) Domestic Sellers Better Off and Domestic Buyers Worse Off

For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should a. export copper, since that country has a comparative advantage in copper. b. import copper, since that country has a comparative advantage in copper. c. neither export nor import copper, since that country cannot gain from trade. d. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

(A) Export Copper, Since that Country has a Comparative Advantage in Copper

If Martin sells a shirt for $40, and his producer surplus from the sale is $8, his cost must have been a. $48. b. $32. c. $8. d. $40.

(B) $32

Producer surplus equals a. Value to buyers - Amount paid by buyers. b. Amount received by sellers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers.

(B) Amount Received by Sellers - Costs of Sellers

On a graph, consumer surplus is represented by the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price.

(B) Below the Demand Curve and Above Price

When a good is taxed, the burden of the tax a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is more inelastic. c. falls more heavily on the side of the market that is closer to unit elastic. d. is distributed independently of relative elasticities of supply and demand.

(B) Falls More Heavily on the Side of the Market that is More Inelastic

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax a. increases by 20 percent. b. increases by more than 20 percent. c. increases but by less than 20 percent. d. decreases by 20 percent.

(B) Increases by more than 20 Percent

A legal minimum on the price at which a good can be sold is called a a. price subsidy. b. price floor. c. tax. d. price ceiling.

(B) Price Floor

A tax on an imported good is called a a. quota. b. tariff. c. supply tax. d. trade tax.

(B) Tariff

Total surplus is equal to a. value to buyers - profit to sellers. b. value to buyers - cost to sellers. c. consumer surplus x producer surplus. d. (consumer surplus + producer surplus) x equilibrium quantity.

(B) Value to Buyers - Cost to Sellers

Bob purchases a book, and his consumer surplus is $3. If Bob is willing to pay $8 for the book, then the price of the book must be a. $3. b. $8. c. $5. d. $11.

(C) $5

A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price. a. (i) only b. (iii) only c. (i) and (iii) only d. (ii) and (iv) only

(C) (i) and (iii) only

The decrease in total surplus that results from a market distortion, such as a tax, is called a a. wedge loss. b. revenue loss. c. deadweight loss. d. consumer surplus loss.

(C) Deadweight Loss

A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's preferences. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.

(C) How Much a Buyer Values a Good

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would a. increase by more than $1,000. b. increase by exactly $1,000. c. increase by less than $1,000. d. decrease by an indeterminate amount.

(C) Increase By Less Than $1,000.

A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market.

(C) Sellers' Costs

The term tax incidence refers to a. whether buyers or sellers of a good are required to send tax payments to the government. b. whether the demand curve or the supply curve shifts when the tax is imposed. c. the distribution of the tax burden between buyers and sellers. d. widespread view that taxes (and death) are the only certainties in life.

(C) The Distribution of the Tax Burden Between Buyers and Sellers

We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.

(C) Total Surplus is Maximized

Total surplus a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the value to buyers minus the cost to sellers. d. All of the above are correct.

(D) All of the Above are Correct

Total surplus is represented by the area a. under the demand curve and above the price. b. above the supply curve and up to the price. c. under the supply curve and up to the price. d. between the demand and supply curves up to the point of equilibrium.

(D) Between the Demand and Supply Curves up to the Point of Equilibrium

When a tax is placed on the sellers of energy drinks, the a. sellers bear the entire burden of the tax. b. buyers bear the entire burden of the tax. c. burden of the tax will be always be equally divided between the buyers and the sellers. d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

(D) Burden of the Tax will be Shared by the Buyers and the Sellers, but the Division of the Burden is Not Always Equal

A legal maximum on the price at which a good can be sold is called a price a. floor. b. subsidy. c. support. d. ceiling.

(D) Ceiling

The price of a good that prevails in a world market is called the a. absolute price. b. relative price. c. comparative price. d. world price.

(D) World Price