Economics Quiz3

ceiling

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

tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import.

A major difference between tariffs and import quotas is that

increases the domestic quantity supplied.

A tariff on a product

American Revolution

Anger over British taxes played a significant role in bringing about the

increase, and the revenue generated from the tax to decrease.

As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to

tax revenue increases at first, but it eventually peaks and then decreases.

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the

other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee.

Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that

All of the above are correct.

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct? a. The demand for cigars is less elastic than the supply of cigars. b. The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. c. The deadweight loss of the tax is $12.50. Correctd. All of the above are correct.

Chad's willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté.

Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup. He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct?

d. All of the above are correct.

Consumer surplus is a. a concept that helps us make normative statements about the desirability of market outcomes. b. represented on a graph by the area below the demand curve and above the price. c. a good measure of economic welfare if buyers' preferences are the primary concern. d. All of the above are correct.

$150.

Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus is

tax on labor.

Economists generally agree that the most important tax in the U.S. economy is the

a concept developed by Adam Smith to describe the virtues of free markets.

The "invisible hand" is

better off, its producers of fish will become worse off, and on balance the citizens of Denmark will become better off.

The before-trade price of fish in Denmark is $10.00 per pound. The world price of fish is $6.00 per pound. Denmark is a price-taker in the fish market. If Denmark begins to allow trade in fish, its consumers of fish will become

producer surplus.

The benefit to sellers of participating in a market is measured by the

in which demand is inelastic and supply is inelastic.

The deadweight loss from a tax of $x per unit will be smallest in a market

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

The infant-industry argument

reduce their quantity demanded more in the long run than in the short run

When consumers face rising gasoline prices, they typically

All of the above are correct

Taxes are costly to market participants because they A. transfer resources from market participants to the government. B. alter incentives. C. distort market outcomes. D. All of the above are correct.

All of the above are correct.

Taxes cause deadweight losses because taxes a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. Correctd. All of the above are correct.

supply is limited and demand is not limited

The 2005 Boston Globe article discussing ticket scalping points out that the price people will pay for tickets will rise when

All of the above are correct.

The amount of deadweight loss from a tax depends upon the A. price elasticity of supply. B. price elasticity of demand. C. amount of the tax per unit. D. All of the above are correct.

false

The demand for Rice Krispies is more elastic than the demand for cereal in general.

demand for wheat is elastic

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if the

deadweight loss

The loss in total surplus resulting from a tax is called

willingness to pay

The maximum price that a buyer will pay for a good is called

some buyers benefit, and some buyers are harmed

When a binding price ceiling is imposed on a market to benefit buyers

buyer is indifferent between buying the good and not buying it

When a buyer's willingness to pay for a good is equal to the price of the good, the

both buyers and sellers of the good are made worse off.

When a good is taxed,

sellers of the good will bear most of the burden of the tax.

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

buyers of the good will bear most of the burden of the tax.

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

and the effective price received by sellers both decrease

When a tax is placed on the sellers of cell phones, the size of the cell phone market

Total surplus = Value to sellers - Cost to sellers

Which of the following equations is not valid?

Prices ensure an equal distribution of goods and services among consumers

Which of the following is not a function of prices in a market system?

a smaller quantity of the good is bought and sold

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

Honduras has begun to import coffee into the country

​Suppose that Honduras opens its markets to international trade. As a result of this, the domestic price of coffee decreases. We can conclude that

U.S. producers benefit from higher software prices, increasing producer surplus in the market.

​Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,

equilibrium quantity of the good always decreases.

When a tax is imposed on a good, the

regardless of how the tax is levied.

When a tax is levied on a good, the buyers and sellers of the good share the burde

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

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

how much a buyer values a good

A consumer's willingness to pay directly measures

both supply and demand are inelastic

A decrease in supply will cause the largest increase in price when

elastic demand and elastic supply

A decrease in the size of a tax is most likely to increase tax revenue in a market with

Time horizon

A key determinant of the price elasticity of supply is the

sellers of mopeds receive $200 less per moped than they were receiving before the tax.

If the government passes a law requiring sellers of mopeds to send $200 to the government for every moped they sell, then

decrease, and the price received by sellers will increase

If the government removes a tax on a good, then the price paid by buyers will

increase

If the government removes a tax on a good, then the quantity of the good sold will

inelastic

If the price elasticity of supply for wheat is less than 1, then the supply of wheat is

may increase, decrease, or remain the same.

If the size of a tax increases, tax revenue

price adjusts until quantity demanded equals quantity supplied

In a competitive market free of government regulation

price

In a free, competitive market, what is the rationing mechanism?

who would be the first to leave the market if the price were any higher

In a market, the marginal buyer is the buyer

FALSE

In general, demand curves for necessities tend to be price elastic.

how much buyers and sellers respond to changes in market conditions

In general, elasticity is a measure of

tax revenue.

The government's benefit from a tax can be measured by

infant-industry argument.

"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

Total surplus decreases.

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

the number of firms in a market tends to be more variable over long periods of time than over short periods of time

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

value of everything she must give up to produce a good

A seller's opportunity cost measures the

the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased

A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that

sellers' costs

A supply curve can be used to measure producer surplus because it reflects

an imported good and it raises the domestic price of the good above the world price

A tariff is a tax placed on

Both b) and c) are correct.

A tax a. lowers the price buyers pay and raises the price sellers receive. b. raises the price buyers pay and lowers the price sellers receive. c. places a wedge between the price buyers pay and the price sellers receive. Correctd. Both b) and c) are correct.

decreases the size of the coffee mug market

A tax on the sellers of coffee mugs

an upside-down U.

According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

inelastic demand and inelastic supply.

An increase in the size of a tax is most likely to increase tax revenue in a market with

increase, and the revenue generated from the tax to decrease

As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to

height of the triangle that represents the deadweight loss doubles

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, th

The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon.

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

England has a comparative advantage over other countries and England will export wine

Assume, for England, that the domestic price of wine without international trade is lower than the world price of wine. This suggests that, in the production of wine,

other countries have a comparative advantage over Mexico and Mexico will import beets.

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

value the good more than price

At the equilibrium price of a good, the good will be purchased by those buyers who

whose cost is less than price

At the equilibrium price of a good, the good will be sold by those sellers

whose cost is less than price.

At the equilibrium price of a good, the good will be sold by those sellers

$8

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

supply of the product is more elastic than the demand for the product.

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

the gains from trade are based on comparative advantage.

Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Congressman Smith's reasoning is that he ignores the fact that

is the amount a consumer is willing to pay minus the amount the consumer actually pays

Consumer surplus

value to buyers minus the amount paid by buyers

Consumer surplus equals the

area below the demand curve and above the price.

Consumer surplus in a market can be represented by the

amount a consumer is willing to pay minus the amount the consumer actually pays

Consumer surplus is the

foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding.

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that

Total surplus

Economists typically measure efficiency using

confirmation of the virtues of free trade.

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as

true

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

the equilibrium price is below the price ceiling

If a price ceiling is not binding, then

decrease in quantity demanded

If a tax is levied on the sellers of a product, then there will be a(n)

buyers do not respond much to a change in price

If demand is price inelastic, then

decrease by less than $0.25

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

increase by less than $1,000

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

decrease by less than $500

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

can generate inequities of their own

Price controls

amount received by sellers minus the cost to sellers

Producer surplus equals the

benefits to sellers of participating in a market

Producer surplus measures the

a maximum rent that landlords may charge tenants

Rent-control laws dictate

demand for the product is more elastic than the supply of the product.

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

The effective price received by sellers is $0.40 per bottle less than it was before the tax

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?

A decease in the price of unsliced bread, which people consider as a substitute for sliced bread

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?

price no longer serves as a rationing device

When a binding price ceiling is imposed on a market

decreased consumer surplus in the steel market and increased total surplus in the incense market.

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that Aquilonia's new free-trade policy has

higher in the steel market, lower in the rice market, and unchanged in the TV market

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing rice, exporting steel, and neither importing nor exporting TVs. We can conclude that producer surplus in Aquilonia is now

maximizes the combined welfare of buyers and sellers

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it

both the size of the deadweight loss from a tax and the tax incidence.

The price elasticities of supply and demand affect

TRUE

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price

A. quantity demanded responds to a change in price

The price elasticity of demand measures how much

A. the quantity supplied responds to changes in the price of the good

The price elasticity of supply measures how much

sellers are to a change in price

The price elasticity of supply measures how responsive

positively related.

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

elasticities of both supply and demand.

The size of the deadweight loss generated from a tax is affected by the

unilateral approach and the multilateral approach.

The two basic approaches that a country can take as a means to achieve free trade are the

causes quantity demanded to exceed quantity supplied

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

All of the above are correct.

Total surplus A. is the sum of consumer and producer surplus. B. can be used to measure a market's efficiency. C. is the value to buyers minus the cost to sellers. D. All of the above are correct.