ECON 210 TEST 2
A decrease in the size of a tax is most likely to increase tax revenue in a market with
elastic demand and elastic supply
The size of the deadweight loss generated from a tax is affected by the
elasticities of both supply and demand
When a tax is imposed on a good, the
equilibrium quantity of the good always decreases
A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied
false
All else equal, an increase in demand will always increase consumer surplus
false
Consumer surplus can be measured as the area between the demand curve and the supply curve
false
Taxes affect market participants by increasing the price paid by the buyer and received by the seller
false
The lower the price, the lower the consumer surplus, all else equal
false
Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue
false
Total surplus is always equal to the sum of consumer surplus and producer surplus
false
A consumer's willingness to pay directly measures
how much a buyer values a good
Elasticity is a measure of
how much buyers and sellers respond to changes in market conditions
Allocation of resources
how much of each good is produced which producers produce it which consumers consume it
If the government removes a tax on a good, then the quantity of the good sold will
increase
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would
increase by less than $1,000.
If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
inelastic
In general, demand curves for necessities tend to be
inelastic
An increase in the size of a tax is most likely to increase tax revenue in a market with
inelastic demand and inelastic supply
A supply curve can be used to measure producer surplus because it reflects
sellers' costs
When a binding price ceiling is imposed on a market to benefit buyers,
some buyers benefit, and some buyers are harmed
Welfare economics
studies how the allocation of resources affects economic well-being
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the
supply of the product is more elastic than the demand for the product
The government's benefit from a tax can be measured by
tax revenue
When a tax is placed on the sellers of cell phones, the size of the cell phone market
and the effective price received by sellers both decrease
When a tax on a good is enacted,
buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers
If demand is price inelastic, then
buyers do not respond much to a change in price
When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic
buyers of the good will bear most of the burden of the tax
Rationing mechanisms
(1) Long lines (2) Discrimination according to sellers' biases
Laissez faire
(French for "allow them to do"): the notion that govt should not interfere with the market.
Suppose the government has imposed a price ceiling on sliced sandwich bread. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?
A decease in the price of unsliced bread, which people consider as a substitute for sliced bread
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
Efficiency means:
The goods are consumed by the buyers who value them most highly. The goods are produced by the producers with the lowest costs. Raising or lowering the quantity of a good would not increase total surplus.
A key determinant of the price elasticity of supply is the time period under consideration
The number of firms in a market tends to be more variable over long periods of time than over short periods of time
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases
Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,
a smaller quantity of the good is bought and sold
The amount of deadweight loss from a tax depends upon the
amount of the tax per unit price elasticity of supply price elasticity of demand
Producer surplus equals the
amount received by sellers minus the cost to sellers
A price ceiling will be binding only if it is set
below the equilibrium price
Producer surplus measures the
benefits to sellers of participating in a market
When a good is taxed
both buyers and sellers of the good are made worse off
A decrease in supply will cause the largest increase in price when
both supply and demand are inelastic
The price elasticities of supply and demand affect
both the size of the deadweight loss from a tax and the tax incidence
When a buyer's willingness to pay for a good is equal to the price of the good, the
buyer is indifferent between buying the good and not buying it
Total surplus
can be used to measure a market's efficiency is the sum of consumer and producer surplus is the value to buyers minus the cost to sellers
Price controls
can generate inequities of their own
To say that a price ceiling is binding is to say that the price ceiling
causes quantity demanded to exceed quantity supplied
A legal maximum on the price at which a good can be sold is called a price?
ceiling
On a graph, the area below a demand curve and above the price measures
consumer surplus
If the government levies a $0.25 tax per MP3 music file downloaded on buyers of MP3 music files, then the price received by sellers of MP3 music files would
decrease by less than $0.25
If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would
decrease by less than $500.
If a tax is levied on the sellers of a product, then there will be a(n)
decrease in quantity demanded
If the government removes a tax on a good, then the price paid by buyers will
decrease, and the price received by sellers will increase.
A tax on the sellers of coffee mugs
decreases the size of the coffee mug market
Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the
demand for the product is more elastic than the supply of the product
Taxes are costly to market participants because they
distort market outcomes. transfer resources from market participants to the government. alter incentives.
The demand for soap is more or less elastic than the demand for Dove soap
less
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
maximizes the combined welfare of buyers and sellers
Rent-control laws dictate
maximum rent that landlords may charge tenants
If the size of a tax increases, tax revenue
may increase, decrease, or remain the same
A binding price ceiling causes quantity demanded to be more or less than quantity supplied
more
Goods with close substitutes tend to have more or less elastic demands than do goods without close substitutes?
more
The demand for Rice Krispies is more or less elastic than the demand for cereal in general
more
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax
In a free, competitive market, what is the rationing mechanism?
price
In a competitive market free of government regulation
price adjusts until quantity demanded equals quantity supplied
When a binding price ceiling is imposed on a market,
price no longer serves as a rationing device
A tax imposed on the sellers of a good will raise the
price paid by buyers and lower the equilibrium quantity
A tax on a good
raises the price that buyers effectively pay and lowers the price that sellers effectively receive
When consumers face rising gasoline prices, they typically
reduce their quantity demanded more in the long run than in the short run
When a tax is levied on a good, the buyers and sellers of the good share the burden
regardless of how the tax is levied
Price elasticity of supply measures how responsive
sellers are to a change in price
When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic
sellers of the good will bear most of the burden of the tax
consumer surplus
the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price)
If a price ceiling is not binding, then
the equilibrium price is below the price ceiling
when prices are not controlled, the rationing mechanism is efficient and impersonal
the goods go to the buyers that value them most highly
Rationing mechanisms are often unfair, and inefficient
the goods do not necessarily go to the buyers who value them most highly
Price elasticity of demand is defined as
the percentage change in quantity demanded divided by the percentage change in price
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes
Price Elasticity of Demand measures
the quantity demanded responds to a change in price
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good
A key determinant of the price elasticity of supply is the
time horizon
Economists typically measure efficiency using
total surplus
An allocation of resources is efficient if it maximizes total surplus
true
If the government imposes a binding price floor in a market, then the consumer surplus in that market will decrease
true
When a tax is imposed on sellers, consumer surplus and producer surplus both decrease
true
A seller's opportunity cost measures the
value of everything she must give up to produce a good
At the equilibrium price of a good, the good will be purchased by those buyers who
value the good more than price
Consumer surplus equals the
value to buyers minus the amount paid by buyers
In a market, the marginal buyer is the buyer
who would be the first to leave the market if the price were any higher
At the equilibrium price of a good, the good will be sold by those sellers
whose cost is less than price
The maximum price that a buyer will pay for a good is called
willingness to pay