economics midterm 2 part 1
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?
$10
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
Amir tutors in his spare time for extra income. Students are willing to pay $54 per hour for as many hours Amir is willing to tutor. On a particular day, he is willing to tutor the first hour for $18, the second hour for $27.0, the third hour for $32.0, and the fourth hour for $54. Assume Amir is rational in deciding how many hours to tutor. His producer surplus is
$85.0
Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to consumer surplus in the market for lemons?
Consumer surplus decreases
What happens to consumer surplus in the cell phone market if cell phones are normal goods and income of the cell phone buyers rises?
Consumer surplus may increase, decrease, or remain unchanged.
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
Dallas's consumer surplus would increase.
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.
Which of the following is true when the price of a good or service falls?
More buyers enter the market.
Which of the following statements regarding a Laffer curve is the most plausible?
Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.
If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as
T × Q.
Which of the following quantities decrease in response to a tax on a good?
The equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
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?
The lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda
Which of the following will cause an increase in producer surplus?
The price of a substitute increases
Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will
be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
On a graph, the area below a demand curve and above the price measures
consumer surplus
Justin builds furniture 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
cost of building furniture.
The decrease in total surplus that results from a market distortion, such as a tax, is called a
deadweight loss
If the cost of producing tables increases causing the price of tables to increase, consumer surplus in the table market will
decrease
A drought in Spain destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes
decreases, and the consumer surplus in the market for red wine decreases.
When a tax is imposed on a good, the
equilibrium quantity of the good always decreases.
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.
A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
maximizes the combined welfare of buyers and sellers.
If the size of a tax increases, tax revenue
may increase, decrease, or remain the same.
Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market
may increase, decrease, or remain unchanged.
Moving production from a high-cost producer to a low-cost producer will
raise total surplus
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.
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left).
When a tax is levied on buyers, the
tax creates a wedge between the price buyers pay and the price sellers receive.
Producer surplus is
the amount a seller is paid minus the cost of production.
Taxes on labor taxes may distort labor markets greatly if
the number of hours many part-time workers want to work is very sensitive to the wage rate.
Concerning the labor market and taxes on labor, economists disagree about
the size of the deadweight loss of the tax on labor.
Producer surplus directly measures
the well-being of sellers.
If a tax shifts the supply curve downward,
we cannot infer anything because the shift described is not consistent with a tax.
