Econ chapter 7-9

When the price falls from $45 to $35, the increase in the benefit that buyers receive from the good, as the buyers themselves perceive it, is $50. $100. $300. $350.

$300. The benefit that buyers receive from the good, as the buyers themselves perceive it, is consumer surplus. When the price falls from $45 to $35, consumer surplus increases for two reasons. Additional consumer surplus to initial consumers is ($45−$35) × 30 units = $300. Consumer surplus from new buyers enter the market is (1/2 × (40 − 30) × ($45 − $35) =) $50.The total increase in consumer surplus is $350.

Candida teaches piano lessons to Ed once a week for $40. Ed values this service at $50 per week, while the opportunity cost of Candida's time is $25 per week. The government places a tax of $30 per week on piano teachers. After the tax, what is the total surplus? A) $15 B) $50 C) $0 D) $5

C) $0 After the tax, Candida would be willing to teach piano Ed is only willing to pay $50 so Ed and Candida, but will not find a mutually agreeable price and there will be no total surplus.

Some economists would argue that while free trade may destroy jobs in some industries, it creates jobs in other industries. True False

True

NAFTA is an example of a multilateral approach to achieving free trade. True False

True One example of a multilateral approach to free trade is the North American Free Trade Agreement (NAFTA), which in 1993 lowered trade barriers among the United States, Mexico and Canada.

True or False: If a country purchases corn that is subsidized and produced in a foreign country, the benefit to domestic corn consumers is greater than the harm done to domestic corn producers.

True QUESTION 1

True or False: If a country purchases corn that is subsidized and produced in a foreign country, the benefit to domestic corn consumers is greater than the harm done to domestic corn producers. True False

True While domestic producers of corn would suffer, as they must now compete with foreign corn producers, domestic consumers would benefit from the lower price of corn. As with all other free trade scenarios, the domestic consumers gain exceeds the domestic producer's losses, and total surplus in the domestic corn market rises.

a tariff has an impact only if the country is an (exporter/importer)

importer

ABC corp: $9800 XYZ inc: $11,00 ACME productions: $12500 Elite Establishment: $15000 Refer to the Table. If the sellers bid against each other for the right to sell the good to a consumer, then the producer surplus will be a) $1,200 or slightly less. b) $5,200 or slightly more. c) $0 or slightly more. d) $2,700 or slightly less.

a) $1,200 or slightly less. The sellers will bid up to their cost. XYZ Inc. is only willing to bid $11,000, while ABC Corp. is willing to sell for less. When XYZ Inc. stops bidding, ABC Corp. will not have to bid lower to win the right to sell the good, so the good will sell for $11,000 or slightly less. ABC Corp will have producer surplus of $11,000 - $9,800 = $1,200 or slightly less.

Luke: $18 Claire: $22 Hailey: $25 Alex: $28 Phil: $31 Jay: $34 You wish to purchase a haircut, so you take bids from each of the sellers. You will not accept a bid below a seller's cost because you are concerned that the seller will not provide the haircut. What bid will you accept? a) $21 b) $35 c) $19 d) $23

a) $21 The sellers will bid up to their cost. Claire is only willing to bid $22, while Luke is willing to sell for less. When Claire stops bidding, Luke will not have to bid lower to win the right to sell the good, so you will accept the bid for $21

Which of the following statements is not correct regarding the imposition of a tax on cigarettes? a) The incidence of the tax depends upon the price elasticities of demand and supply. b) The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. c) Because many cigarette smokers consider cigarettes to be a necessity, the sellers are likely to bear a smaller share of the tax burden than the buyers. d) Because there are few close substitutes for cigarettes, the buyers are likely to bear a greater share of the tax burden than the sellers.

a) The incidence of the tax depends upon the price elasticities of demand and supply. Tax incidence is determined by the relative elasticities of demand and supply. Imposing the tax on the buyers or the sellers has no effect on the tax incidence.

Suppose the country of Ubait enacts a policy that allows free trade of strawberries. Regardless of whether Ubait becomes an exporter or importer of strawberries, which of the following results does economic analysis predict to occur? a) The total surplus in the domestic market for strawberries will increase. b) deadweight loss must occur. c) The quantity of strawberries demanded by consumers in Ubait decreases. d) strawberry producers in Ubait receive a lower price for strawberries.

a) The total surplus in the domestic market for strawberries will increase. if the price falls, and Ubait becomes an importer of strawberries, consumers in Ubait gain surplus and producers in Ubait lose surplus. If the price rises, and Ubait becomes an exporter of strawberries, consumers in Ubait lose surplus and producers in Ubait gain surplus. In both cases, the gains in surplus will outweigh the loss and total surplus will rise regardless of whether Ubait exports or imports strawberries after the policy.

The infant-industry argument is difficult to implement in practice. a) True b) False

a) True Protections and trade restrictions based on the infant-industry argument are difficult to implement in practice, because this would require the government to decide which industries would eventually be profitable and which will not. Further, government officials would then have to decide whether the benefits of protections outweigh the costs to consumers via reduced consumer surplus.

Which of the following scenarios would most likely cause the country of Oial to invoke the unfair-competition argument? Assume Zole and Oial are the only countries on the planet. a) Zole subsidzies beer production in Zole and Oial offers no subsidy to Oialian beer producers. b) Zole and Oial have completely both open trade. c) Zole and Oial do not trade with each other. d) Zole subsidzies beer production in Zole and Oial subsidizes beer production in Oial

a) Zole subsidzies beer production in Zole and Oial offers no subsidy to Oialian beer producers.

Suppose that the government imposes a tax on corn used in the production of ethanol. The deadweight loss from this tax will likely be greater if a) buyers and sellers have two years to adjust to the tax than if buyers and sellers have two months to adjust to the tax, because demand and supply will be more elastic. b) buyers and sellers have two months to adjust to the tax than if buyers and sellers have two years to adjust to the tax, because demand and supply will be more elastic. c) corn is a necessity rather than a luxury, because demand and supply will be more inelastic. d) corn has few close substitutes rather than many close substitutes, because demand and supply will be more elastic.

a) buyers and sellers have two years to adjust to the tax than if buyers and sellers have two months to adjust to the tax, because demand and supply will be more elastic.

If the tax on a good is increased from $2.50 per unit to $7.50 per unit, the deadweight loss from the tax a) increases by a factor of 9. b) increases by a factor of 16. c) remains constant. d) increases by a factor of 4.

a) increases by a factor of 9. The deadweight loss is an area of a triangle and the area of a triangle depends on the square of its size. In this case, the size of the tax triples, so the base and height of the deadweight loss triangle triple and the deadweight loss rises by a factor of 9.

Suppose a tax is imposed on the sellers of cigarettes. Due to the tax, consumers buy fewer cigarettes and producers sell fewer cigarettes resulting in a a) loss of total surplus called a deadweight loss. b) loss of consumer surplus and a gain in producer surplus called tax revenue. c) gain in tax revenue called a deadweight loss. d) loss of producer surplus and a gain in consumer surplus called tax revenue.

a) loss of total surplus called a deadweight loss. When consumers buy less and producers sell less, there is a reduction in both consumer surplus and producer surplus. Deadweight loss is the decrease in total surplus that results from a market distortion, such as a tax. With a tax, consumers who continue to buy and sellers who continue to sell also have less surplus than they had before the tax. This reduction is the tax revenue that the government receives from the tax.

Suppose Zusau opens its borders to international trade and becomes an exporter of shirts. As a result, a) producer surplus increases for producers of shirts in Zusau. b) consumer surplus remains the same for consumers of shirts in Zusau. c) total surplus remains the same in the coat market in Zusau d) total surplus decreases in the coat market in Zusau

a) producer surplus increases for producers of shirts in Zusau. if someone exports, the world price is higher than the domestic equilibrium price

Assume the price elasticity of supply is the same between Good A and Good B and the demand for Good A is relatively elastic while the demand for Good B is relatively inelastic. If a $2.00 per unit tax is imposed on both markets, a) the deadweight loss in the market for Good A will be larger than the deadweight loss in the market for Good B. b) the deadweight loss in the market for Good B will be larger than the deadweight loss in the market for Good A. c) the burden of the tax will fall more heavily on the buyers in the market for Good A than the market for Good B. d) the tax burden and deadweight loss will depend on whether the tax is collected from the buyers or the sellers in each market.

a) the deadweight loss in the market for Good A will be larger than the deadweight loss in the market for Good B. INELASTIC = LESS DEADWEIGHT LOSS

A $1.25 tax per pack of cigarettes placed on the sellers of cigarettes will shift the supply curve a) to the left by exactly $1.25. b) to the left by less than $1.25. c) to the right by exactly $1.25. d) to the right by less than $1.25.

a) to the left by exactly $1.25.

Suppose the fictional country of Meria removes trade restrictions on its own. Meria has decided to use what type of approach to free trade? a) unilateral approach. b) multilateral approach. c) isolateral approach. d) bilateral approach.

a) unilateral approach.

Industries in which a country has a comparative advantage a) will have jobs available for workers displaced by free trade. b) will be destroyed if free trade is enacted. c) will have fewer jobs for workers displaced by free trade. d) will no longer exist with free trade, since no country will have a comparative advantage.

a) will have jobs available for workers displaced by free trade. Free trade creates jobs at the same time it destroys them. When a country trades apples, a good in which it has a comparative advantage for, bananas, a good in which it does not have a comparative advantage, domestic banana picking jobs are destroyed. However, as apples are demanded by foreign countries, apple picking jobs will become available for former banana pickers.

Suppose a tax of $20 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $18,000 and decreases producer surplus by $18,000. The deadweight loss of the tax is $4,000. The tax decreased the equilibrium quantity of the good from a) 1,800 to 1,400. b) 2,000 to 1,600. c) 4,000 to 2,000. d) 3,200 to 1,600.

b) 2,000 to 1,600. When a $20 tax leads to a deadweight loss of $4,000, the tax decreased the quantity from 2,000 to 1,600. The base of the deadweight loss triangle is the decrease in quantity, so substituting the known values, $4,000 = ½ x base x $20. Thus, the decrease in quantity is 400 units. Computing the total loss of welfare and subtracting deadweight loss, $18,000 + $18,000 -$4,000 = $32,000, and dividing by the tax per unit, $32,000 / $20 = 1,600, gives the quantity after the tax.

Suppose England allows the international trade of tea. Without trade, the domestic price of one case of tea in England is 1 ounce of gold. The world price of tea is 2 ounces of gold. Then a) England will import tea. b) England will export tea. c) England will ban the international trade of tea. d) England will not export tea or import tea.

b) England will export tea.

Suppose Germany imports laptops from Spain and exports cars to Australia. This situation suggests a) Germany has a comparative advantage relative to Australia in producing cars, and Spain has a comparative advantage relative to Australia in producing laptops. b) Germany has a comparative advantage relative to Australia in producing cars, and Spain has a comparative advantage relative to Germany in producing laptops. c) Australia has a comparative advantage relative to Germany in producing cars, and Germany has a comparative advantage relative to Spain in producing laptops. d) Germany has an absolute advantage relative to Australia in producing cars, and Spain has an absolute advantage relative to Germany in producing laptops.

b) Germany has a comparative advantage relative to Australia in producing cars, and Spain has a comparative advantage relative to Germany in producing laptops.

Which of the following answer choices lists 4 benefits of international trade? a) Increased variety of goods; lower costs through economies of scale; increased competition; and the jobs argument. b) Increased variety of goods; lower costs through economies of scale; increased competition; and enhanced flow of ideas. c) Increased variety of goods; higher costs through economies of scale; increased competition; and enhanced flow of ideas. d) Increased variety of goods; lower costs through economies of scale; decreased competition; and enhanced flow of ideas.

b) Increased variety of goods; lower costs through economies of scale; increased competition; and enhanced flow of ideas.

When the nation of Tayebar allows trade and becomes an exporter of coconuts, a) The price received by domestic producers of the good decreases and domestic producers are worse off. b) The price paid by domestic consumers of the good increases and domestic consumers are worse off. c) The losses of domestic consumers of the good exceed the gains of domestic producers of the good. d) The price paid by domestic consumers of the good decreases and domestic consumers are better off.

b) The price paid by domestic consumers of the good increases and domestic consumers are worse off. EXPORTS= ABOVE DOMESTIC PRICE

A deadweight loss is a consequence of a tax on a good because the tax a) decreases sellers' cost of production, but buyers are not willing to buy more. b) increases buyers' willingness to pay, but sellers are not willing to supply more. c) causes a shortage in the market. d) induces buyers to consume less, and sellers to produce less.

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

Suppose the country of Evana enacts a free-trade policy. As a result, the domestic price of vodka decreases to equal the world price of vodka, then a) consumers in Evana decrease their consumption of vodka, while vodka producers in Evana increase their quantity of vodka supplied. Therefore Evana begins to import vodka. b) consumers in Evana increase their consumption of vodka, while vodka producers in Evana decrease their quantity of vodka supplied. Therefore Evana begins to import vodka. c) consumers in Evana decrease their consumption of vodka, while vodka producers in Evana increase their quantity of vodka supplied. Therefore Evana begins to export vodka. d) consumers in Evana increase their consumption of vodka, while vodka producers in Evana decrease their quantity of vodka supplied. Therefore Evana begins to export vodka.

b) consumers in Evana increase their consumption of vodka, while vodka producers in Evana decrease their quantity of vodka supplied. Therefore Evana begins to import vodka.

The size of the deadweight loss that results from a tax on cola is smaller, the a) more time cola sellers have to adjust to the tax. b) less time cola sellers have to adjust to the tax. c) more substitutes there are for cola. d) less of a necessity cola drinkers consider cola to be.

b) less time cola sellers have to adjust to the tax. The less time cola sellers have to adjust to the tax, the more inelastic their supply will be. The smaller the elasticities of supply and demand, the smaller the deadweight loss of the tax. INELASTIC = LESS DEADWEIGHT

If the fictional country of Olar reduces its trade restrictions in conjunction with other countries who also reduce trade restrictions, than Olar has taken what type of approach to free trade? a) unilateral approach. b) multilateral approach. c) isolateral approach. d) bilateral approach.

b) multilateral approach. A country can take one of two approaches to achieving free trade. It can take a unilateral approach, and remove its trade restrictions on its own. Alternatively, a country can take a multilateral approach in which it reduces its trade restrictions while other countries do the same.

Suppose the country of Ublary imposes a tariff on the import of energy drinks, a good that Ublary currently imports from abroad. What will happen to surplus in the Ublarian market for energy drinks? a) producer surplus increases and total surplus increases in the market for energy drinks. b) producer surplus increases and total surplus decreases in the market for energy drinks. c) consumer surplus decreases and total surplus increases in the market for energy drinks. d) consumer surplus increases and total surplus increases in the market for energy drinks.

b) producer surplus increases and total surplus decreases in the market for energy drinks. A tariff raises the domestic price of energy drinks closer to the no-trade equilibrium. This increases producer surplus in Ublary as they can now sell their energy drinks at a higher price. Like most taxes, however, tariffs cause deadweight loss because the decreases in consumer surplus more than offset the increase in producer surplus. Therefore total surplus in the market for energy drinks in Ublary decreases.

One key difference between tariffs and quotas is that a) tariffs put a legal limit on how much of a good can be imported, while a quota is a tax on imported goods. b) tariffs raise revenue for the government, while quotas do not. c) quotas raise revenue for the government, while tariffs do not. d) tariffs cause deadweight loss, while quotas do not cause deadweight loss.

b) tariffs raise revenue for the government, while quotas do not.

President Johnson represents a country in which several firms manufacture cars. She wants to lift all tariffs on all imported cars from abroad to open free trade in cars. Which of the following is the least likely consequence of such tariffs? a) Increased competition from foreign car producers. b) Domestic car buyers will have larger variety of cars available. c) Domestic car producers will gain surplus. d) Domestic furniture car will have a higher rate of technological advance.

c) Domestic car producers will gain surplus. Free trade will increase if President Johnson removes the tariffs on imported cars. Free trade typically brings the following benefits: increased variety of goods, lower costs through economies of scale, increased competition, and a better flow of technology and ideas. If the tariff is removed and cars are imported, domestic car producers will lose surplus as they must now compete with the lower price of imported cars.

The fictional country of Xaca is considering threatening the fictional country of Bugro with tariffs on imported Bugroian donuts in an attempt to get Bugro to remove tariffs on imported Xaca beef. Why might Xaca think twice before making this threat? a) There are no downsides to making this threat. b) If Xaca makes the threat, Bugro will immediately remove the tariffs on Xaca beef. c) If the threat does not work, Xaca must either enact the tariff, and reduce surplus in its own donut market, or risk damaging the Xaca international reputation. d) If Xaca makes this threat, then Xaca will have to impose tariffs on Bugroian donuts which will increase total surplus in the Xaca donut market.

c) If the threat does not work, Xaca must either enact the tariff, and reduce surplus in its own donut market, or risk damaging the Xaca international reputation.

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $1.5 million to $6 million? a) The tax on motor oil increases from $1.00 per liter to $4.00 per liter. b) The change in the deadweight loss cannot be determined with the information provided. c) The tax on motor oil increases from $1.00 per liter to $2.00 per liter. d) The tax on motor oil increases from $1.00 per liter to $1.50 per liter.

c) The tax on motor oil increases from $1.00 per liter to $2.00 per liter. The deadweight loss is an area of a triangle and the area of a triangle depends on the square of its size. In this case, the size of the deadweight loss rises by a factor of four, so the size of the tax must double, from $1.00 to $2.00.

Which of the following arguments for trade restrictions is used too frequently by representatives of private industry who are looking to gain an edge over foreign competition? a) Trade restrictions increase the variety of goods available to consumers. b) Trade restrictions create increased competition. c) Trade restrictions are necessary for national security. d) Trade restrictions are necessary for improved flow of ideas.

c) Trade restrictions are necessary for national security.

If Yonia is assumed to be a small country, this is the same as assuming that a) Yonia's choice of which goods to export and which goods to import is not based on the principle of comparative advantage. b) Yonia can only export goods; it cannot import goods. c) Yonia is a price taker. d) Yonia trade policy can affect the world price of many goods.

c) Yonia is a price taker.

Suppose the country of Olar imports beer. The government of Olar has decided to place a tariff on the import of beer. We know from supply and demand analysis that a) domestic producer surplus will decrease, however a deadweight loss will result in the Olarian market for beer. b) domestic producer surplus will remain the same, however a deadweight loss will result in the Olarian market for beer. c) domestic producer surplus will increase, however a deadweight loss will result in the Olarian market for beer. d) domestic producer surplus will increase, and total surplus will increase in the Olarian market for beer.

c) domestic producer surplus will increase, however a deadweight loss will result in the Olarian market for beer. Because the tariff raises the domestic price of beer in Olar, domestic beer producers are better off-their producer surplus increases. However, because the tariff is a type of tax, supply and demand analysis predicts deadweight loss-a decrease in total surplus-as a result of the tariff.

Senator Gordon argues that the gains from trade are based on comparative advantage, and as such, free trade will not cause a net job loss because workers can find new jobs in the industry in which the United States has a comparative advantage. Which aspect of the job argument is Senator Gordon refuting? a) there will be no gains from trade. b) unemployment of labor is not a serious problem relative to other economic problems. c) everything can be produced at lower cost in other countries, so free trade cannot create jobs domestically. d) there is no evidence that any worker ever lost his or her job because of free trade.

c) everything can be produced at lower cost in other countries, so free trade cannot create jobs domestically.

Which of the following is not a common argument in favor of restricting trade? a) efforts should be made to protect new industries until they mature. b) trade restrictions can be effective when bargaining with trade partners. c) free trade increases total surplus in the domestic market for the traded good. d) all countries should play by the same rules.

c) free trade increases total surplus in the domestic market for the traded good.

The world price of a pound of beef is $5.50. Before Argentina allowed trade in beef, the domestic price of a pound of beef was $7.00. Once Argentina began allowing trade in beef with other countries, Argentina will begin a) importing beef and the price per pound in Argentina will remain at $7.00. b) exporting beef and the price per pound in Argentina will remain at $5.50. c) importing beef and the price per pound in Argentina decrease to $5.50. d) exporting beef and the price per pound in Argentina will remain at $7.00.

c) importing beef and the price per pound in Argentina decrease to $5.50.

Suppose consumer income decreases. If carnations are an inferior good, the equilibrium price of carnations will a) decrease, and producer surplus in the industry will increase. b) increase, and producer surplus in the industry will decrease. c) increase, and producer surplus in the industry will increase. d) decrease, and producer surplus in the industry will decrease.

c) increase, and producer surplus in the industry will increase. When consumer income decreases, demand for inferior goods increases. When demand increases, price increases leading to greater producer surplus.

Suppose the country of Yobar enacts a policy of free-trade and Yobar begins importing chicken. Then a) Yobar has an absolute advantage relative to the rest of the world in the production of chicken. b) Yobar has a comparative advantage relative to the rest of the world in the production of chicken. c) the domestic price of chicken will decrease to equal the world price of chicken. d) at the world price, the total quantity of chicken supplied by chicken producers in Yobar exceeds the quantity of chicken demanded by domestic consumers in Yobar.

c) the domestic price of chicken will decrease to equal the world price of chicken. imports are caused by the world price being less than the domestic price

Suppose the country of Yobar enacts a policy of free-trade and Yobar begins importing chicken. Then a) Yobar has an absolute advantage relative to the rest of the world in the production of chicken. b) Yobar has a comparative advantage relative to the rest of the world in the production of chicken. c) the domestic price of chicken will decrease to equal the world price of chicken. d) at the world price, the total quantity of chicken supplied by chicken producers in Yobar exceeds the quantity of chicken demanded by domestic consumers in Yobar.

c) the domestic price of chicken will decrease to equal the world price of chicken. imports= world price below domestic

Suppose the country of Fiauce enacts a policy of free-trade and Fiauce begins exporting rice. Then a) the rest of the world has an absolute advantage relative to Fiauce in the production of rice. b) the rest of the world has a comparative advantage relative to Fiauce in the production of rice. c) the domestic price of rice will increase to equal the world price of rice. d) at the world price, the total quantity of rice supplied by rice producers in Fiauce falls short of the quantity of rice demanded by domestic consumers in Fiauce.

c) the domestic price of rice will increase to equal the world price of rice.

Which of the following is a common argument in favor of restricting international trade? a) trade restrictions decrease total surplus in the domestic market for the traded good. b) international trade creates domestic jobs. c) trade restrictions can be useful when one country bargains with its trading partners. d) international trade is desirable only when countries abide by different rules when trading with one another.

c) trade restrictions can be useful when one country bargains with its trading partners.

If Germany threatens to impose a tariff on Danish cookies if Denmark does not remove automotive subsidies, then Germany will be left a) worse off if Denmark removes the subsidies in response to the threat. b) worse off, whether Denmark complies or not. c) worse off if Demark refuses to remove the subsidies despite the threat. d) better off, whether Denmark complies or not.

c) worse off if Demark refuses to remove the subsidies despite the threat.

For automotive oil, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $1.50 per liter is imposed on automotive oil. The tax reduces the equilibrium quantity in the market by 500 units. The deadweight loss from the tax is a) $650. b) $750. c) $333. d) $375.

d) $375. The deadweight loss is the triangle between the demand and supply curves up to the quantity sold after the tax. The base of the triangle is the reduction in the equilibrium quantity due to the tax and the height of the triangle is the amount of the tax per unit. The deadweight loss is ½ x 500 x $1.50 = $375.

In the market for ink cartridges for printers, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for ink cartridges is 5,000 per month when there is no tax. Then a tax of $2.50 per cartridge is imposed. As a result, the government is able to raise $11,750 per month in tax revenue. We can conclude that the after-tax quantity of cartridges is a) 5,000 per month. b) 12,500 per month. c) 2,000 per month. d) 4,700 per month.

d) 4,700 per month. Tax revenue is tax per unit multiplied by the after-tax quantity of cartridges. Because tax revenue is $11,750 and the tax per unit is $2.50, the after tax quantity of cartridges is $11,750 / $2.50 = 4,700 cartridges per month.

If the production technology for smart televisions improves, what happens to consumer surplus in the market for smart televisions? a) Consumer surplus decreases. b) Consumer surplus depends on what event led to the improvement in production technology. c) Consumer surplus will not change; only producer surplus changes. d) Consumer surplus increases.

d) Consumer surplus increases.

Suppose the demand for tea increases. What will happen to producer surplus in the market for tea? a) It decreases. b) It may increase, decrease, or remain unchanged. c) It remains unchanged. d) It increases.

d) It increases.

Canada is an importer of hats, taking the world price of $10 per hat as given. Suppose Canada imposes a $5 tariff on hats. Which of the following outcomes is possible? a) The price of hats in Canada increases to $5; the quantity of Canadian-produced hats increases; and the quantity of hats imported by Canada decreases. b) The price of hats in Canada remains at $10; the quantity of Canadian-produced hats increases; and the quantity of hats imported by Canada decreases. c) The price of hats in Chile decreases to $5; the quantity of Canadian-produced hats increases; and the quantity of hats imported by Canada does not change. d) The price of hats in Canada increases to $15; the quantity of Canadian-produced hats increases; and the quantity of hats imported by Canada decreases.

d) The price of hats in Canada increases to $15; the quantity of Canadian-produced hats increases; and the quantity of hats imported by Canada decreases. A tariff raises the price of imported hats above the world price by the amount of the tariff. Therefore the price of hats in Canada will increase by $5 to $15. Domestic suppliers of hats, who compete with suppliers of imported hats, can now sell their hats for the world price plus the amount of the tariff. This change in price reduces the domestic quantity demanded, and thus reduces the quantity of hats needed to be imported from abroad. This change in price also increases the domestic supply of hats in Canada, further decreasing the need for imported hats.

When the nation of Ledor allows trade and becomes an importer of widgets, a) The price received by domestic producers of the good decreases and domestic producers are better off. b) The price paid by domestic consumers of the good increases and domestic consumers are worse off. c) The losses of domestic consumers of the good exceed the gains of domestic producers of the good. d) The price paid by domestic consumers of the good decreases and domestic consumers are better off.

d) The price paid by domestic consumers of the good decreases and domestic consumers are better off.

Suppose the country of Evana enacts a free-trade policy. As a result, the domestic price of vodka decreases to equal the world price of vodka, then a) consumers in Evana decrease their consumption of vodka, while vodka producers in Evana increase their quantity of vodka supplied. Therefore Evana begins to export vodka. b) consumers in Evana decrease their consumption of vodka, while vodka producers in Evana increase their quantity of vodka supplied. Therefore Evana begins to import vodka. c) consumers in Evana increase their consumption of vodka, while vodka producers in Evana decrease their quantity of vodka supplied. Therefore Evana begins to export vodka. d) consumers in Evana increase their consumption of vodka, while vodka producers in Evana decrease their quantity of vodka supplied. Therefore Evana begins to import vodka.

d) consumers in Evana increase their consumption of vodka, while vodka producers in Evana decrease their quantity of vodka supplied. Therefore Evana begins to import vodka.

Suppose the country of Olar imports beer. The government of Olar has decided to place a tariff on the import of beer. We know from supply and demand analysis that a) domestic producer surplus will remain the same, however a deadweight loss will result in the Olarian market for beer. b) domestic producer surplus will increase, and total surplus will increase in the Olarian market for beer. c) domestic producer surplus will decrease, however a deadweight loss will result in the Olarian market for beer. d) domestic producer surplus will increase, however a deadweight loss will result in the Olarian market for beer.

d) domestic producer surplus will increase, however a deadweight loss will result in the Olarian market for beer. Because the tariff raises the domestic price of beer in Olar, domestic beer producers are better off-their producer surplus increases. However, because the tariff is a type of tax, supply and demand analysis predicts deadweight loss-a decrease in total surplus-as a result of the tariff.

As more people become elderly, which allows them to choose when to retire, we would expect the deadweight loss from the federal income tax to a) decrease, and the revenue generated from the tax to increase. b) decrease, and the revenue generated from the tax to decrease. c) increase, and the revenue generated from the tax to increase. d) increase, and the revenue generated from the tax to decrease.

d) increase, and the revenue generated from the tax to decrease. With a more elastic supply of labor, the deadweight loss from the federal income tax will increase and the revenue generated from the tax will decrease.

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax a) increases but by less than 20 percent. b) decreases by 20 percent. c) increases by 20 percent. d) increases by more than 20 percent.

d) increases by more than 20 percent. The deadweight loss of a tax increases more rapidly than the size of the tax because the deadweight loss is an area of a triangle and the area of a triangle depends on the square of its size.

A major university study finds that drinking green tea has many health benefits. As a result, the equilibrium price of green tea a) decreases, and producer surplus increases. b) decreases, and producer surplus decreases. c) increases, and producer surplus decreases. d) increases, and producer surplus increases.

d) increases, and producer surplus increases. A study finding health benefits of drinking green tea leads to an increase in demand and an increase in the price of green tea. When the price increases, producer surplus increases.

At a quantity that exceeds the equilibrium quantity, the marginal cost to sellers is (greater/lesser) than the marginal value to buyers.

greater

Quotas and tariffs are similar in that they both decrease the quantity of imports and raise the domestic price of the good. True False

true tariffs and quotas are similar in many respects. Both reduce the quantity of imports, raise the domestic price of the good, decrease the surplus of domestic consumers, increase the surplus of domestic producers, and cause deadweight loss. Tariffs and quotas become even more similar if the government charges a fee for import licenses in regards to quotas.