Unit 5 Practice Quizzes - Welfare Economics
If Tom sells a pair of jeans for $35 and his producer surplus from the sale is $25, his cost must have been $10. $35. $60. $25.
$10.
In a particular market for bagels, a consumer will purchase a bag of bagels for $5.00, his reservation price. A baker sells a bag of bagels for $1.50, his reservation price. If the government imposes an excise tax of $ 3.75, the deadweight loss is $1.50. $3.75. $3.50. $5.00.
$3.50.
The consumer surplus for the closed domestic market is $5.00. $20.00. none of the above. $40.00.
$40.00.
The producer surplus for the closed domestic market is $40.00. $1.50. $15.00. $10.00.
$40.00.
LESSON 4.4.4
ASSESSING THE EFFECT OF AN EXCISE TAX ON ECONOMIC VALUE
The demand curve represents the willingness of all buyers in the market to buy. All of the above are true. the value each buyer places on a good. the highest price buyers are willing to pay for each quantity
All of the above are true.
Which of the following must be used to determine total economic value of each unit of a good in a market? Both a and b Total cost Marginal benefit Marginal cost
Both a and b
Given the demand curve in the shirt market, if the shirt supply curve formula changes from P = 400 + Qs to P = 600 + 2Qs, how will total economic value be impacted? Both producer and consumer surplus will decrease. Only the producer surplus will decrease. Total economic value will increase. Total economic value will remain unchanged.
Both producer and consumer surplus will decrease.
What effect will an improvement in computing technology have on the distribution of total economic value in the computer market? Both the consumer surplus and producer surplus will decrease. Both the consumer surplus and producer surplus will increase. The producer surplus will increase, and the consumer surplus will decrease. The consumer surplus will increase, and the producer surplus will decrease.
Both the consumer surplus and producer surplus will increase.
If some sellers are blocked from selling by a price control, how does the market allocate the remaining units over the potential buyers? By non-price competition. By raising the price. By trying to persuade another seller to enter the market. By having the other two producers produce another unit.
By non-price competition.
LESSON 4.3.2
CALCULATING TOTAL ECONOMIC VALUE
LESSON 4.2.3
DETERMINING TOTAL SOCIAL COST
LESSON 4.4.3
EVALUATING THE EFFECTS OF AN EXCISE TAX
LESSON 4.5.1
EVALUATING THE GAINS FROM INTERNATIONAL TRADE
A buyer's willingness to pay reflects how much a seller values a good. True False
False
A deadweight loss exists when the government will not create an excise tax. True False
False
Consumer surplus is defined as the sum of the consumer's reservation price and the price at which the consumer actually purchases the good. True False
False
Each point on the supply curve represents the marginal benefit to society for producing an additional unit. True False
False
Economists are concerned about excise taxes because they don't want the government to take money. True False
False
Economists generally support rent controls because they believe that rent controls help the poorest citizens find adequate housing. True False
False
If a consumer refuses to pay a specific price for a certain good or service, his refusal indicates that the his reservation price is higher than the market price. True False
False
If an excise tax raises no revenue, it cannot create a deadweight loss. True False
False
In the free trade market, the area under the demand curve and above the equilibrium price represents total economic value. True False
False
Price controls can't block the bidding mechanism. True False
False
Rent-seeking behavior means that property owners try to raise the monthly rental on rental houses illegally. True False
False
Society's benefit is the sum of all of the benefits from the people who sell a particular good. True False
False
The area above the demand curve represents the total benefit generated by consumption. True False
False
The concept of economic value is a useful tool in the classroom but cannot be used to make normative economic judgements about the desirability of market outcomes. True False
False
To measure the costs of economic activity, economists use the demand curve. True False
False
When an import tariff is imposed, the portion of total economic value captured by the government equals the product of the tariff multiplied by the entire production of the good in the marketplace. True False
False
LESSON 4.1.1
MEASURING THE BENEFITS OF CONSUMPTION
How does positive economics differ from normative economics? Positive economics describes the world objectively while normative economics assesses outcomes. Both approaches are objective. Both approaches assess economic outcomes. Positive economics judges economic outcomes and normative economics objectively describes the world.
Positive economics describes the world objectively while normative economics assesses outcomes.
Which of the following statements about price controls is correct? Price controls usually harm those persons that they are designed to help. Price controls usually help the persons that they are designed to help. Price controls never help those persons that they are designed to help. Price controls are usually effective in redistributing income from the rich to the poor.
Price controls usually harm those persons that they are designed to help.
LESSON 4.2.1
QUANTIFYING BENEFIT
LESSON 4.2.2
QUANTIFYING COST
Given the following formula for a supply curve (P = 40 + 3Qs ), what is your interpretation of the intercept term? The intercept term indicates what the equilibrium quantity will likely be. The intercept term indicates the price that would cause production to cease, i.e., Qs = 0. The intercept term indicates what the equilibrium price will likely be. The intercept term indicates where the supply curve crosses the quantity supplied axis.
The intercept term indicates the price that would cause production to cease, i.e., Qs = 0.
Which of the following would represent some of the external costs of baking bread? The baker's monthly store rental The pollution that results from the outdated oven used by the baker The cost of flour used to bake the bread The wages paid to the baker's helpers
The pollution that results from the outdated oven used by the baker
Graphically, the area identified as the cost of the tax to consumers consists of which of the following two components? Tax revenue captured from consumers and total deadweight loss Total consumer surplus and reservation prices of consumers The portion of tax revenue captured from consumers and a portion of total deadweight loss Total excise tax revenue and total deadweight loss
The portion of tax revenue captured from consumers and a portion of total deadweight loss
What effect will an increase in the costs of inputs have on the total costs to society of producing a good or service? Higher input costs means producers will stop production of the good or service. The total costs to society of producing the good or service will not change. The total costs to society of producing the good or service will decrease. The total costs to society of producing the good or service will increase.
The total costs to society of producing the good or service will increase.
If the price of coffee rises, how will the total social benefits associated with tea, a substitute good, be affected? The total social benefits of both goods will increase. The total social benefits of tea will increase. The total social benefits of both goods will decrease. The total social benefits of tea will not change.
The total social benefits of tea will increase.
A higher producer reservation price will reduce total social benefits. True False
True
A price ceiling is a government regulation setting a maximum price that sellers may sell a product for. True False
True
An excise tax is a tax placed on each unit of a good that is traded. True False
True
Any demand factor that causes the demand curve for a product to shift will affect overall total social benefits. True False
True
At any given point on a demand curve, the price at that quantity represents the next, or marginal, buyer's willingness to pay. True False
True
At any given quantity, the price on a demand curve associated with that quantity represents the marginal consumer's willingness to pay. True False
True
Both producers and consumers benefit when the equilibrium price results in a consumer and producer surplus. True False
True
If a change in demand and / or supply occurs, the economic value generated in the market will change. True False
True
If the supply curve shifts inward (to the left), the social cost increases. True False
True
In a closed economy, total economic value consists of both the consumer's surplus and the producer's surplus. True False
True
In the graph, assume that there are three suppliers (1, 2, and 3) and three buyers (4, 5, and 6). Each point on the demand and supply curves represents reservation prices. If the price ceiling is set at $2, two trades will be blocked. True False
True
Suppose that there is a buyer willing to pay $4.00 for lunch and a seller willing to sell it for $1.00. The potential economic value from this trade is $3.00. Assume now that the government imposes a tax of $1.00 on the lunch. After the tax, the the buyer agrees to pay $3.50. The consumer surplus is now $.50, and the producer surplus is now $1.50. True False
True
The external benefit of you getting a flu shot is the protection from the flu that others have when you are not contagious. True False
True
The maximum price that a consumer would pay to have a particular good is called the reservation price. True False
True
To calculate total economic value, one first solves for equilibrium price and quantity and then find the areas of the triangles representing producer and consumer surplus. True False
True
Total economic benefits are derived by summing the additional benefits gained from consuming the good or service. True False
True
LESSON 4.2.4
UNDERSTANDING ECONOMIC VALUE
LESSON 4.4.5
UNDERSTANDING HOW A TAX CAN CREATE DEADWEIGHT LOSS
LESSON 4.4.2
UNDERSTANDING HOW PRICE CONTROLS DESTROY ECONOMIC VALUE
LESSON 4.3.1
UNDERSTANDING PRODUCER AND CONSUMER SURPLUS
LESSON 4.4.1
UNDERSTANDING THE EFFECTS OF PRICE CONTROLS
LESSON 4.5.2
UNDERSTANDING THE EFFECTS OF TARIFFS ON CONSUMER AND PRODUCER SURPLUS
LESSON 4.1.2
USING THE DEMAND CURVE AS A MEASURE OF BENEFIT
The reservation price of a good is considered to be a good measure of the wealth effects. the measure of the benefits to a producer. a measure of the external benefits. a good measure of the benefits a consumer gets from consuming a good.
a good measure of the benefits a consumer gets from consuming a good.
If the market price for basketballs is $5 each and the government establishes a price ceiling of $3, the market will react with a shortage, where the Qd at $3 is greater than the quantity supplied at Qs. none of the above. nothing. The market would stay in equilibrium. a surplus, where the Qd at $3 is less than the Qs.
a shortage, where the Qd at $3 is greater than the quantity supplied at Qs.
A price ceiling that is set below the market equilibrium price causes a new equilibrium. a surplus. a shortage. an increase in quantity supplied.
a shortage.
A price floor that is set above the market equilibrium price would cause a shortage. a surplus. consumers to pay lower prices. producers to receive lower prices.
a surplus.
A tax wedge makes a difference between what the buyer has to pay and the price the seller gets to keep. separates what the buyer pays from what the seller gets. all of the above. is the value that the government usually gets.
all of the above.
The presence of a tariff in an open economy will increase the domestic quantity supplied. decrease the domestic quantity demanded. all the above. increase the domestic price of the good.
all the above.
As a result of increased international trading, the amount of domestic production would likely increase. total economic value will consist exclusively of the consumer surplus. change in consumer surplus is minimal. change in the consumer surplus can be identified graphically as the area difference between the world price and the domestic equilibrium price.
area difference between the world price and the domestic equilibrium price.
Total economic value is found on a graph under the demand curve. above the supply curve. under the supply curve. between the supply and demand curves.
between the supply and demand curves.
Excise taxes destroy economic value and create deadweight loss by reducing taxpayers' incomes. blocking buyers and sellers from realizing some of the gains from trade. giving tax revenue to unproductive members of society. funding government programs that are less efficient than private spending.
blocking buyers and sellers from realizing some of the gains from trade.
Marginal social cost is equal to the cost of providing an additional unit of a particular good. marginal economic cost. neither a nor b. both a and b.
both a and b.
If the government sets a price ceiling below the seller's reservation price, the producer would not cover his opportunity cost. the trade would be blocked and deadweight loss occurs. both b and c. the consumer would drop out of the market.
both b and c.
When a price control forces competitors to engage in non-price competition, the winner is the one who can play by the rules. can wait long enough. can expend the most resources. buys out of the black market.
can expend the most resources.
Increases in international trading of a good will increase the amount of deadweight loss incurred by society. cause producer surplus to rise when compared to the consumer surplus. cause producer surplus to decrease and consumer surplus to increase. result in a decrease in total economic value.
cause producer surplus to decrease and consumer surplus to increase.
An increase in the number of producers in a market will cause the total costs to society to decrease. reduce the overall quality of the good or service produced. cause the total costs to society to increase. cause the total costs to society to become stable.
cause the total costs to society to decrease.
If the tax revenues received from excise taxes are used to provide additional public goods, most economists are concerned only with the generation of economic value. pleased with this result. displeased with this result. concerned only that the excise taxes were applied equitably.
concerned only with the generation of economic value.
If John, your neighbor, mows and manicures his lawn frequently, John is not subject to wealth effects. producing only private benefits for himself. creating no social benefits by landscaping his yard. creating external benefits for the entire neighborhood.
creating external benefits for the entire neighborhood.
Compared to free market outcomes, an excise tax causes the bidding mechanism to function more efficiently. deadweight loss because of blocked trading. the producer to receive a higher price. the overall market output to increase.
deadweight loss because of blocked trading.
When an import tariff is imposed on a good, total economic value will decrease since deadweight loss is created. not change since no deadweight loss is created. be transferred completely to the government. increase.
decrease since deadweight loss is created.
If the reservation price of a producer increases and the reservation price of a consumer decreases, the resulting total economic value will increase significantly. remain the same. decrease. not be verifiable.
decrease.
If the world price is greater than the domestic price, the value of the consumer surplus will still exceed that of the producer surplus. domestic producers will export some of the product. amount consumed by domestic consumers will increase dramatically. volume of imports will rise sharply.
domestic producers will export some of the product.
Non-price competition is all of the following except standing in lines to get scarce products. trying to get government officials to help you find a product. getting up earlier in the mornings to find scarce products. giving up trying to buy a scarce product.
giving up trying to buy a scarce product.
If the supply curve shifts inward, the total social cost of producing a good or service will be equal to the external costs associated with producing the good or service. increase. not change. decrease.
increase.
Assume that in the market for chocolate candy, competitive equilibrium has been attained. Economic value results in negative social profits, or a social loss. consists exclusively of marginal economic benefits. is no longer being generated. consists exclusively of marginal economic costs.
is no longer being generated.
If a consumer lives in poverty, his / her reservation price for food is a reliable measure of the benefit you will be receiving from producing that good. is not a reliable measure of the benefit you will be receiving from consuming that good. is a reliable measure of the loss you will be receiving from consuming that good. is a reliable measure of the benefit you will be receiving from consuming that good.
is not a reliable measure of the benefit you will be receiving from consuming that good.
When economists study value, they look at the benefit created by the trades that occur in the market. none of the above. compare the loss created by trade with the costs that are created by the trade. look at the loss created by the trades that occur in the market.
look at the benefit created by the trades that occur in the market.
When an import tariff is imposed, the increase in producer surplus can be measured by multiplying the value of the import tariff by the total volume of imports. multiplying the value of the tariff by the total volume of domestic production. subtracting the government's share of total economic value from the remaining consumer surplus. multiplying the equilibrium price by the equilibrium quantity.
multiplying the value of the tariff by the total volume of domestic production.
A supplier's reservation price must include both a and b. external costs. wealth effects. neither a or b.
neither a or b.
The imposition of an import tariff will reduce the world price for the good or service. cause consumer surplus to increase. cause the world price to increase. not affect the level of the world price.
not affect the level of the world price.
All the following are examples of non-price competition except trying to get Congress to pass a law favoring your group. hiring people to stand in line. bribing public officials to get what you want. paying the market price.
paying the market price.
Private benefits differ from external benefits in that private benefits only result from someone else's consumption of a good. private benefits are incurred by third parties and external benefits are not. private benefits are not subject to wealth effects. private benefits are experienced by one individual only while external benefits may be experienced by many.
private benefits are experienced by one individual only while external benefits may be experienced by many.
According to the normative perspective, when the marginal social cost of producing a good exceeds the marginal social benefit, the market is in a state of equilibrium. production of the good should not continue. total economic value is positive. there is excess demand for the good.
production of the good should not continue.
If the number of coffee consumers decreases, total social benefits will increase dramatically. increase. surely decrease. remain unchanged.
surely decrease.
An import tariff is, in effect, a tax on all goods (domestic or foreign). tax on all domestically consumed goods. tax on all foreign-produced goods. tax on all domestically produced goods.
tax on all foreign-produced goods.
A measure of producer surplus in a market is the area above the supply curve. the total cost of the good. the area above the supply curve and below the price. the area below the demand curve and above the price.
the area above the supply curve and below the price.
If the tax increases, the area of the total deadweight loss will increase in size. the total surplus will increase in size. the lost economic value will shrink. the tax wedge will decrease in size.
the area of the total deadweight loss will increase in size.
The demand curve can also tell us the loss society faces when an additional unit of a product is purchased. whether or not a consumer faces any wealth effects or external benefits. the benefit society gains when an additional unit of a product is purchased. none of the above.
the benefit society gains when an additional unit of a product is purchased.
The distance of the supply curve from the horizontal axis at any given quantity is the value to the marginal buyer. the profit margin for a seller. the cost that the seller incurs for providing that unit of the good. the producer surplus of the marginal seller.
the cost that the seller incurs for providing that unit of the good.
Studies on international trade have shown that the costs and benefits of trade barriers are about equal. the benefits of barriers exceed their costs in developing countries. it is impossible to estimate the costs and benefits of trade. the costs of trade barriers exceed their benefits, thereby destroying economic value.
the costs of trade barriers exceed their benefits, thereby destroying economic value.
If coffee is a normal good and a consumer receives additional income, the demand curve will not change. the demand curve for coffee will shift outward and additional social benefits will be produced. the demand curve for coffee will shift inward and total social benefit will decrease. the demand curve for coffee will shift outward, but no additional social benefits will be produced.
the demand curve for coffee will shift outward and additional social benefits will be produced.
When a market is in equilibrium and a price floor is imposed below the equilibrium point, a surplus is created. the Qs will increase. the Qd will increase. the market will stay in equilibrium.
the market will stay in equilibrium.
The reservation price for a baker selling bagels is the minimum price that the baker would accept to produce a bagel. the maximum price that the baker would accept to produce a bagel. the equilibrium price that the baker would accept to produce a bagel. none of the above.
the minimum price that the baker would accept to produce a bagel.
In general, as the tax wedge increases, the precise impact on consumer and producer surplus is difficult to say. the reduction in the producer surplus is greater than the reduction in the consumer surplus. the reduction in the consumer surplus is greater than the reduction in the producer surplus. the reduction in both the consumer surplus and producer surplus is equally divided.
the precise impact on consumer and producer surplus is difficult to say.
The distribution of economic value depends upon the price at which the buyer and seller trade. the equilibrium price. none of the above. A and B.
the price at which the buyer and seller trade.
An excise tax may reduce the consumer surplus because the price the consumer must pay increases. the producer surplus will increase. the government typically targets consumers. the reservation price will decrease by the amount of the excise tax.
the price the consumer must pay increases.
Under a normative interpretation, cost measures the consumer's willingness to buy. consumer surplus. producer surplus. the producer's willingness to sell a product.
the producer's willingness to sell a product.
The total government revenue derived from an excise tax is calculated as the product of the excise tax times the pre-tax equilibrium quantity. the amount of lost economic value. the product of the equilibrium price times the equilibrium quantity. the product of the excise tax times the quantity of the good actually traded.
the product of the excise tax times the quantity of the good actually traded.
If there are no external benefits and no wealth effects, the consumer's reservation price will be less than the net benefit that a good creates for society. the reservation price for a consumer will be equal to the benefit that a good creates for society. the consumer's reservation price will be greater than the benefit that a good creates for society. the consumer's reservation price will have no relation to the benefit that a good creates for society.
the reservation price for a consumer will be equal to the benefit that a good creates for society.
If the government imposes an excise tax that is greater than the potential economic value, the trade takes place at a higher price. the parties may trade but a smaller quantity will be traded. the trade does not take place at all. the government will repeal the tax.
the trade does not take place at all.
If a price ceiling is greater than the buyer's reservation price, the consumer would drop out of the market. trading would be blocked. there would be no effect on the market. the producer would drop out of the market.
there would be no effect on the market.
The usual interpretation of the demand curve is to find the quantity that consumer's in the market are willing and able to buy at a certain price. to study a firm's behavior when in the production process. to find the maximum profit a good will generate in a market. to find the quantity that people in the market are willing and able to sell at a certain price.
to find the quantity that consumer's in the market are willing and able to buy at a certain price.
When the world price is less than the domestic equilibrium price, the domestic producers will cease production. domestic consumers will purchase only the lower priced imported good or service. total amount of trading in the market will occur at the world price. domestic producer surplus will be eliminated.
total amount of trading in the market will occur at the world price.
The sum of sellers' reservation prices is marginal social cost. total social cost. external cost. marginal social benefit.
total social cost.
In normative economics, economists describe the area under the supply curve as total social benefit. wealth effects. total social costs. external benefits.
total social costs.