Practice Exam

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game?

$10

Refer to 7-15, when the price is P2, producer surplus is

A+B+C

Refer to 7-23, at equilibrium, consumer surplus is represented by the area

A+B+C

Refer to figure 7-24, at equilibrium, consumer surplus is measured by the area

AFB

Consumer surplus is the

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

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 lower than P1.

Between P1 and P2

Refer to 7-20, total surplus can be measured as the area

JNL

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Which of the following will cause an increase in producer surplus?

The price of a substitute increases

The maximum price that a buyer will pay for a good is called

Willingness to pay

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

\ The number of firms selling laptop computers decreases.

Consumer surplus in a market can be represented by the

area below the demand curve and above the price

Refer to figure 7-15, when the price falls from P2 to P1, producer surplus is

decreases by an amount equal to A+B

Refer to figure 6-9, at which price would a price ceiling be nonbinding?

$7

Refer to 7-23, equilibrium producer surplus is represented by the area

D+H+F

Consumer surplus is

All of the above

Refer to 7-23, if the price were P1, producer surplus would be represented by the area

F

Refer to table 7-17, the equilibrium price is

$4

Refer to Figure 6-9. A price ceiling set at

$4 will be binding and will result in a shortage of 16 units.

Refer to Figure 6-9. At which price would a price ceiling be binding?

$5

George produces cupcakes. His production cost is $10 per dozen. He sells the cupcakes for $16 per dozen. His producer surplus per dozen cupcakes is

$6

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers.

Refer to figure 6-9, a. price floor set at

$7 will be binding and will result in a surplus of 8 units.

Refer to figure 7-23, if the price were P3, consumer surplus would be represented by the area

A

At the equilibrium price of a good, the good will be purchased by those buyers who

value the good more than the price

in a market, the marginal buyer is the buyer

who would be the first to leave the market if the price were any higher.

Refer to figure 7-23, the equilibrium price is

P2

On a graph, consumer surplus is represented by the area

below the demand curve and above prices

The welfare of sellers is measured by

producer surplus

In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to

raise revenue from wealthy.

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.

Reder to figure 7-15, when the price is P1, producer surplus is

C

A legal maximum on the price at which a good can be sold is called a price _____

ceiling