Econ Ch. 5-9 Cengage ?'s

An increase in the price of a good along a stationary supply curve

a. increases producer surplus.

The "unfair-competition" argument might be cited by an American who believes that

a. the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products.

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell?

b. 50

Which of the following is likely to have the most price elastic demand?

b. Tommy Hilfiger jeans

Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market?

b. Two vases will be sold, and consumer surplus is $5.

A surplus results when a

b. binding price floor is imposed on a market.

When a country that imports a particular good imposes an import quota on that good,

b. consumer surplus decreases and total surplus decreases in the market for that good.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that

b. if Wheatland were to allow trade, it would import corn.

Because producers are better able to organize than consumers are, we would expect there to be political pressure to create

b. import restrictions.

Within the supply-and-demand model, a tax collected from the sellers of a good shifts the

b. supply curve upward by the size of the tax per unit.

An increase in a good's price reduces the total amount consumers spend on the good if the ________ elasticity of demand is ________ than one.

c. price, greater

Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct?

c. This tax causes the demand curve for fountain drinks to shift downward by $0.50 at each quantity.

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his

c. cost of building fences.

When a tax on a good starts small and is gradually increased, tax revenue will

c. first rise and then fall.

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus

c. may increase, decrease, or remain unchanged.

If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ________ elasticities of demand and ________ elasticities of supply.

c. small, small

When a good is taxed, the burden of the tax falls mainly on consumers if

c. supply is elastic and demand is inelastic.

Which of the following is an example of a price floor?

c. the minimum wage

Which of the following increases quantity supplied, increases quantity demanded, and decreases the price that consumers pay?

d. the repeal of a tax on a good

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1 . If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

d. $10.

Suppose that the price of a new bicycle is $300. Sue values a new bicycle at $400. It costs $200 for the seller to produce the new bicycle. What is the value of total surplus if Sue buys a new bike?

d. $200

Concerning the labor market and taxes on labor, economists disagree about

b. the size of the deadweight loss of the tax on labor.

If a supply curve for a good is price elastic, then

a. the quantity supplied is sensitive to changes in the price of that good.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

a. zero.

For which of the following goods is the income elasticity of demand likely highest?

c. Diamonds

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television in Small Town?

a. 1.4

The imposition of a binding price ceiling on a market causes

a. quantity demanded to be greater than quantity supplied.

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15 percent, then the quantity supplied of cheese will increase by

b. 9 percent in the short run and 21 percent in the long run.

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that

b. Moldova is a price taker.

Suppose Yolanda needs a dog sitter so that she can travel to her sister's wedding. Yolanda values dog sitting for the weekend at $200. Rebecca is willing to dog sit for Yolanda so long as she receives at least $175. Yolanda and Rebecca agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

b. The lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda

What happens to the total surplus in a market when the government imposes a tax?

b. Total surplus decreases.

If supply is price inelastic, the value of the price elasticity of supply must be

b. less than 1.

Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade?

b. starting to allow trade when the world price is greater than the domestic price

Donna runs an inn and charges $300 a night for a room, which equals her cost. Sam, Harry, and Bill are three potential customers willing to pay $500, $325, and $250, respectively. When the government levies a tax on innkeepers of $50 per night of occupancy, Donna raises her price to $350. The deadweight loss of the tax is

c. $25

Which of the following is true when the price of a good or service rises?

d. Some buyers exit the market.

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?

a. $10

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. At which of the following prices does Small Town Cablevision earn the greatest total revenue?

a. $30 per month

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. Refer to Scenario 5-2. The change in equilibrium quantity will be

a. greater in the bread market than in the aged cheddar cheese market.

When a tax is placed on the sellers of a product, buyers pay

a. more, and sellers receive less than they did before the tax.

A demand curve reflects each of the following except the

a. quantity that each buyer will ultimately purchase .

The citizens of Lilliput spend a higher fraction of their income on food than do the citizens of Brobdingnag. The reason could be that

b. Lilliput has lower income, and the income elasticity of demand is 0.5.

The ability of firms to enter and exit a market over time means that, in the long run,

b. the supply curve is more elastic.

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

b. Dallas's consumer surplus would increase.

Lilliput imports rope from Brobdingnag, where rope producers are subsidized by the government because of their great political clout. The most efficient policy from the standpoint of Lilliput is to

b. continue trading at the subsidized price.

In a market with a binding price ceiling, increasing the ceiling price will

b. decrease the shortage.

The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began

b. exporting almonds and the price per pound in Uruguay increased to $4.50.

If the Korean steel industry subsidizes the steel that it sells to the United States, the

b. harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel.

Adam Smith's "invisible hand" concept suggests that a competitive market outcome

b. maximizes total surplus.

A tax of $1.00 per gallon on gasoline

b. places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive.

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

b. price floor.

If a price floor is not binding, then

b. the equilibrium price is above the price floor.

In competitive markets, farmers adopt new technologies that will eventually reduce their revenue because

c. each farmer is a price taker.

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

c. $2,250.

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

c. 40 percent.

The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a

c. Laffer curve.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

c. One year after the price increase

For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q D = 200 − 2P , where Q D represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is Q S = -60 + 3P , where Q S represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard.

c. benefits Boxlandian consumers by $721 and harms Boxlandian producers by $598.50.

Gavin has been working full-time as a gardener for $300 a week. When the market price of gardeners rises to $400, Hector becomes a gardener as well. How much does producer surplus rise as a result of this price increase?

c. between $100 and $200

A tax on the buyers of cameras encourages

c. buyers to demand a smaller quantity at every price.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. Refer to Scenario 5-2. The equilibrium price will

c. decrease in both the aged cheddar cheese and bread markets.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

c. inelastic.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

c. maximizes the combined welfare of buyers and sellers .

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

d. $250.

The decrease in total surplus that results from a market distortion, such as a tax, is called a

d. deadweight loss.

For which of the following products would the burden of a tax likely fall more heavily on the sellers?

d. entertainment

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

d. has a large deadweight loss.

If the demand for donuts is elastic, then a decrease in the price of donuts will

d. increase total revenue of donut sellers.

The infant-industry argument

d. is based on the belief that protecting industries when they are young will pay off later.

To say that a price ceiling is nonbinding is to say that the price ceiling

d. is set above the equilibrium price.

In the economy of Agricola, tenant farmers rent the land they use from landowners. If the supply of land is perfectly inelastic, then a tax on land would have ________ deadweight losses, and the burden of the tax would fall entirely on the ________ .

d. no, landowners

When the nation of Duxembourg allows trade and becomes an importer of software,

d. residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.

Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls?

e. The quality of apartments will improve.