Econ study guide 2 (Ch. 6-9)

Refer to Figure 9-4 . Producer surplus in this market before trade is

C

Refer to Figure 6-5. Which of the following statements is not correct?

When the price is $6, there is a surplus of 8 units.

Refer to Figure 8-4. Suppose the government imposes a $10 per unit tax on a good. The tax causes consumer surplus to decrease by the area

B+C

The distinction between efficiency and equality can be described as follows:

Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

Refer to Figure 7-8. Total surplus can be measured as the area

JNL

Refer to Figure 8-2. The per-unit burden of the tax on buyers is

$3

Refer to Figure 9-2 . Without trade, producer surplus amounts to

$3,240

Refer to Figure 8-2. Producer surplus without the tax is

$4, and producer surplus with the tax is $1.

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is

$500

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?

$8

Refer to Figure 7-5. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus?

$2,500

Consider the market for gasoline. Buyers

would lobby for a price ceiling, whereas sellers would lobby for a price floor.

Refer to Figure 9-4 . Total surplus in this market after trade is

A+B+C+D

Which of the following is not a result of rent control?

Higher quality housing

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

Some buyers exit the market.

What is the difference between a tariff and an import quota?

The amount of an item that may be imported from another nation is limited by quotas. Tariffs are a fee assessed on the value of products brought into the country from another. The difference is that a quota is the amount of goods imported while a tariff is a charge imposed on the goods.

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

other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

The presence of a price control in a market for a good or service usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

Refer to Figure 9-2 . With trade, consumer surplus is

$6,760.

Refer to Figure 7-9. If the price were P 3, consumer surplus would be represented by the area

A

We can say that the allocation of resources is efficient if

total surplus is maximized.

Refer to Figure 7-1 . When the price is P 1 , consumer surplus is

A+B+C

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.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

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

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

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

increase tax revenue and decrease the deadweight loss.

The infant-industry argument

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

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

quantity demanded of physicals increases, and the quantity supplied of physicals decreases.

If the government wants to reduce the burning of fossil fuels, it should impose a tax on

either buyers or sellers of gasoline.

A country has a comparative advantage in a product if the world price is lower than that country's domestic price without trade

false

Domestic consumers gain and domestic producers lose when the government imposes a tariff on imports.

false

Refer to Figure 9-3 . Before the tariff is imposed, this country

imports 400 roses

When a tax is levied on buyers, the

tax creates a wedge between the price buyers pay and the price sellers receive.

Refer to Figure 8-3 . As a result of the tax,

the market experiences a deadweight loss of $80.

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

Total surplus decreases.

Refer to Figure 7-9. At equilibrium, consumer surplus is represented by the area

A+B+C

Refer to Figure 9-5 . Producer surplus plus consumer surplus in this market after trade is

A+B+C+D

Refer to Figure 7-9. At equilibrium, total surplus is represented by the area

A+B+C+D+H+F.

Refer to Figure 9-1. From the figure it is apparent that

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

Refer to Figure 6-3. A government-imposed price of $24 in this market is an example of a

binding price floor that creates a surplus.

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,

both Janine and Henry experience an increase in consumer surplus.

When a tax is placed on the buyers of lemonade, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

The size of a tax and the deadweight loss that results from the tax are

positively related.

Refer to Figure 9-3 . With trade and without a tariff,

the domestic price is equal to the world price.

The nation of Spritzland used to prohibit international trade, but now trade is allowed, and Spritzland is exporting wristwatches. Relative to the previous no-trade situation, total surplus in the market for wristwatches in Spritzland has increased

true

When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off and sellers of shoes in that country become better off.

true

When markets open up to international trade, we know that total surplus will rise.

true

Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil

will import almonds.

Refer to Figure 9-3 . The amount of revenue collected by the government from the tariff is

$200

Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the

buyers will bear a greater burden of the tax than the sellers.

Refer to Figure 9-1. When trade in coffee is allowed, consumer surplus in Guatemala

decreases by the area B + D.

Refer to Figure 6-7. If the government imposes a price ceiling at $6, it would be

nonbinding if market demand is Demand A and binding if market demand is Demand B.

Refer to Figure 7-4 . Which area represents producer surplus when the price is P 1 ?

BCG

Refer to Figure 7-9. At equilibrium, producer surplus is represented by the area

D+H+F

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

producer surplus after the tax.