Econ 101 exam w

Refer to Figure 7-20. Total surplus can be measured as the area

JNL

Supply-side economics is a term associated with the views of

Ronald Reagan and Arthur Laffer

The "invisible hand" is

a concept developed by Adam Smith to describe the virtues of free markets.

Economists generally believe that rent control is

a highly inefficient way to help the poor raise their standard of living.

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 all of the above

Tax incidence

depends on the legislated burden.

Producer surplus directly measures

the well-being of sellers.

Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is

$0.70.

Buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product.

(i) only

A binding price ceiling (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.

(ii) and (iv) only

A nonbinding price ceiling (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.

(iii) only

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

. I+J+K+L+M+Y.

Producer surplus equals

Amount received by sellers - Costs of sellers.

The figure illustrates the market for coffee in Guatemala.

Guatemala has a comparative advantage in producing coffee, relative to the rest of the world.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area

J+K+L+M.

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?

$350

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

The amount of the tax per gallon of gasoline increases.

A surplus results when a

binding price floor is imposed on a market

Deadweight loss is the

decline in total surplus that results from a tax

If the labor supply curve is very elastic, a tax on labor

has a large deadweight loss.

A key lesson from the payroll tax is that the

true burden of a tax cannot be legislated.

Since World War II, GATT has been responsible for reducing the average tariff among member countries from about

40 percent to about 5 percent.

The marginal tax rate on labor income for many workers in the United States is almost

40 percent.

A price ceiling is

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

A quota is

A limit placed on the quantities of a product that can be imported

A seller's opportunity cost measures the

value of everything she must give up to produce a good

In a market, the marginal buyer is the buyer

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

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.

Another way to think of the marginal seller is the seller who

would leave the market first if the price were any lower.

Refer to Figure 7-21. Which area represents consumer surplus when the price is P1?

B

Refer to Figure 7-21. Which area represents producer surplus when the price is P1?

C

All else equal, what happens to consumer surplus if the price of a good decreases?

Consumer surplus increases.

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The deadweight loss due to the tax is measured by the area

I+Y.

Suppose the demand for peaches decreases. What will happen to producer surplus in the market for peaches?

It decreases.

Refer to Figure 9-7. The equilibrium price and the equilibrium quantity of cheese in Wales before trade are

P0 and Q0.

Refer to Figure 7-23. The equilibrium price is

P2

Refer to Figure 7-23. The efficient price-quantity combination is

P2 and Q2.

Which of the following arguments for trade restrictions is often advanced?

Trade restrictions are sometimes necessary for national security.

Economists blame the long lines at gasoline stations in the U.S. in the 1970s on

U.S. government regulations pertaining to the price of gasoline.

A price floor is

a legal minimum on the price at which a good can be sold. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. a source of inefficiency in a market. all of the above

A payroll tax is a

a tax on the wages that firms pay their workers

A seller's willingness to sell is

a. measured by the seller's cost of production. b. related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. c. less than the price received if producer surplus is a positive number. All of the above

The amount of deadweight loss from a tax depends upon the

a. price elasticity of demand. b. price elasticity of supply. c. amount of the tax per unit. All of the above

Taxes cause deadweight losses because taxes

a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. All of the Above

A demand curve reflects each of the following except the

ability of buyers to obtain the quantity they desire.

Laissez-faire is a French expression which literally means

allow them to do.

A binding minimum wage

alters both the quantity demanded and quantity supplied of labor.

According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

an upside-down U.

Consumer surplus in a market can be represented by the

area below the demand curve and above the price.

A tax

b. raises the price buyers pay and lowers the price sellers receive. c. places a wedge between the price buyers pay and the price sellers receive.

Producer surplus is the area

below the price and above the supply curve

A tax affects

buyers, sellers, and the government

The demand for chicken wings is more elastic than the demand for razor blades. Suppose the government levies an equivalent tax on chicken wings and razor blades. The deadweight loss would be larger in the market for

chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades.

Patterns of trade among nations are primarily determined by

comparative advantage.

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.

When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an importer of a particular good,

consumer surplus increases and total surplus increases in the market for that good.

Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

decrease by 1 unit.

If the government wants to reduce smoking, it should impose a tax on

either buyers or sellers of cigarettes.

A decrease in the size of a tax is most likely to increase tax revenue in a market with

elastic demand and elastic supply.

Refer to Figure 9-7. With trade, Wales

exports Q2 - Q1 units of cheese.

If the world price of coffee is higher than Colombia's domestic price of coffee without trade, then Colombia

has a comparative advantage in coffee and should export coffee.

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.

The General Agreement on Tariffs and Trade (GATT) was initiated in response to

high tariffs imposed during the Great Depression of the 1930s.

A country has a comparative advantage in a product if the world price is

higher than that country's domestic price without trade.

A consumer's willingness to pay directly measures

how much a buyer values a good.

Welfare economics is the study of

how the allocation of resources affects economic well-being

Other things equal, the deadweight loss of a tax

increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax

A deadweight loss is a consequence of a tax on a good because the tax

induces buyers to consume less, and sellers to produce less.

Economists say that a market where goods are not consumed by those valuing the goods most highly is

inefficient.

The Social Security tax is a tax on

labor

Most labor economists believe that the supply of labor is

less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.

Market power and externalities are examples of

market failure

Consumer surplus

measures the benefit buyers receive from participating in a market.

The burden of a luxury tax falls

more on the middle class than on the rich.

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect

most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

Inefficiency exists in an economy when a good is

not being consumed by buyers who value it most highly.

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

other countries have a comparative advantage over Mexico and Mexico will import beets.

In a free, competitive market, what is the rationing mechanism?

price

In "Venezuela Versus the Market," the long lines and shortages are caused by

price ceilings that are intended to make food more affordable for the poor.

A tax imposed on the buyers of a good will raise the

price paid by buyers and lower the equilibrium quantity.

Ronald Reagan believed that reducing income tax rates would

raise economic well-being and perhaps even tax revenue.

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 the wealthy.

A tax imposed on the sellers of a good will

raise the price buyers pay and lower the effective price sellers receive.

A tax on a good

raises the price that buyers effectively pay and lowers the price that sellers effectively receive.

As the size of a tax rises, the deadweight loss

rises, and tax revenue first rises, then falls

Externalities are

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

Market failure is the inability of

some unregulated markets to allocate resources efficiently.

Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss from a tax?

supply 1 and demand 1

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

supply-side economics.

A tax on an imported good is called a

tariff

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents

tax revenue.

The benefit that government receives from a tax is measured by

tax revenue.

The minimum wage has its greatest impact on the market for

teenage labor.

Domestic producers of a good become worse off, and domestic consumers of a good become better off, when a country begins allowing international trade in that good and

the country becomes an importer of the good as a result.

Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about

the elasticity of labor supply.

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

the principle of comparative advantage.

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized.

The Laffer curve relates

the tax rate to tax revenue raised by the tax

Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and

the world price exceeds the domestic price of the good that prevailed before international trade was allowed.