Micro economics test 2 ch 6-8

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

*buyer is indifferent between buying the good and not buying it.

A tax imposed on the sellers of a good will

raise the price buyers pay and lower the effective price sellers receive

The vertical distance between points A and C represent a tax in the market. The amount of the deadweight loss as a result of the tax is

*$5,000 The deadweight loss associated with this tax is formed by the right triangles ABD+BDC. The area of triangle ABD is: AREAABD=1/2(800−600)x(40−20) =1/2(200)(20)=2000 AREABDC=1/2(600−300)(40−20) =1/2(300)(20)=3000

Deadweight loss

The fall in total surplus that results from a market distortion such as a tax

The vertical distance between points A and B represents a tax in the market. What happens to consumer surplus when the tax is imposed in this market?

*Consumer surplus falls by $2,700. CSBefore=1/2(PDChoke−P)Q =1/2(22−10)600 =1/2(12)600= $3,600 CSAfter=1/2(PDChoke−P)Q =1/2(22−16)300 =1/2(6)300= $900 As a result of the tax, consumer surplus has changed by $900−$3,600= −$2,700.

Suppose a tax of $5 per unit is imposed on this market. Which of the following is correct

*Sellers will bear more of the burden of the tax than buyers will

Which of the following statements about the effects of rent control is correct?

*The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments.

A tax on a good

*raises the price that buyers effectively pay and lowers the price that sellers effectively receive

Equality

The property of distributing economic prosperity uniformly amoung the members of society

Welfare economics

The study oh how the allocation of resources affects economic well-being

price ceiling

a legal maximum on the price at which a good can be sold.

price floor

a legal minimum on the price at which a good can be sold.

At equilibrium, total surplus is

*$108. CS=1/2(PDChoke−P)Q =1/2(44−32)6 =1/2(12)6= 36. PS=1/2(P−PSChoke)Q =1/2(32−8)6 =1 2(24)6= 72. (2) Hence, total surplus is 72+36=108

As the figure is drawn, who sends the tax payment to the government?

*The buyers send the tax payment

Efficiency

The property of a resource allocation of maximizing the total surplus received by all members of society

Cost

The value of everything a seller must give up yo produce a good

The vertical distance between points A and B represents a tax in the market. The price that buyers effectively pay after the tax is imposed is

*$12. The tax amount is $7 (vertical difference between points A and B) per unit. The consumer will pay $12 after the tax while producers receive $5 per unit transacted. Government receives $7 per unit in taxes.

Refer to the figure below. What is the consumer surplus if the price is $100

*$2,500 CS=1/2(PDChoke−P)Q =1/2(200−100)50 =1/2(100)50 = 2500

Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is Table 2: Market P QDemanded QSupplied $12 0 36 $10 3 33 $8 6 24 $6 9 18 $4 12 12 $2 15 6 $0 18 0

*$24. PS=1/2(4-0)12.

If the price of the good is $6, then consumer surplus is

*$36. In the figure, we see that the consumer of the first unit is willing-to-pay $24 but only pays $6. This is $18 in consumer surplus. The second unit has a willingness-to-pay of $16 while the consumer pays $6. This second unit results in $10 in consumer surplus. The third unit has a willingness-to-pay of $12 with a price of $6 generating $6 in consumer surplus. Finally, the 4th unit has a willingness-to-pay of $8 with a $6 price generating $2 in consumer surplus. Thus, at a price of $6, consumer surplus is $18+$10+$6+$2=$36.

The vertical distance between points A and B represents a tax in the market. The per-unit burden of the tax on buyers

*$4. Before the tax, consumers are paying $8 per unit. After the tax, consumers are paying $12 per unit. Thus, the burden of the tax on consumers is $12−$8=$4.

A binding price floor (i)causes a surplus.(ii)causes a shortage.(iii)is set at a price above the equilibrium price.(iv)is set at a price below the equilibrium price.

*(i) and (iii) only

Sellers will be unwilling to sell more than

*1 unit of the good if its price is below $200 At $450, producers would sell 3 units. At $700, producers would sell 4 units. This implies that options B and C are incorrect. As B and C are incorrect, D must also be incorrect. Option A is correct

At equilibrium, total surplus is represented by the area

*A+B+C+D+H+F. Consumer surplus is the region below the demand curve, above the equilibrium price (P2), and out to the equilibrium quantity (Q2). This is regions A+B+C. Producer surplus is the region above the supply curve, below the equilibrium price (P2), and out to the equilibrium quantity (Q2). This is regions D+H+F. Total surplus is the sum of Consumer Surplus and Producer Surplus.

Refer to the table below. The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. You wish to purchase 10 piano lessons, so you take bids from each of the sellers. The bids are required to be rounded to the nearest dollar. You will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. Your parents have given you $450 to spend on piano lessons. You believe that the sellers with higher opportunity costs offer higher quality lessons. You want the highest quality lessons that you can afford, but you can spend any remaining money on dinner with friends. From whom will you take lessons, and how much money will you spend Table 1: Piano Lesson Providers Provider Opportunity Cost Marcia $200 Jan $250 Cindy $350 Greg $400 Peter $700 Bobby $800

*Greg; $401

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn

*Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax

*The size of the deadweight loss increases, but the tax revenue first increases, then decreases

Suppose that the equilibrium price in the market for widgets is $5. If a law reduced the maximum legal price for widgets to $4

*any possible increase in consumer surplus would be smaller than the loss in producer surplus

If the government imposes a price ceiling at $3, it would be

*binding if market demand is Demand A or Demand B.

When a tax is levied on the buyers of a good, the

*buyers of the good will send tax payments to the government.

Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed

*consumer surplus decreases by $11 The tax amount is P3−P1=10−6=4. Thus, tax revenue is Tax Revenue= $4(4)=$16.. Thus, option A is incorrect. Producer surplus shrinks by (8−6)4+1/2(8−6)3=11. Thus, option B is incorrect. Consumer surplus decreases by (10−8)4+1/2(10−8)(7−4)=11. We like option C. Finally, the deadweight loss is 1/2(8−6)(7−4)+1 2(10−8)(7−4)=6. Option D must also be incorrect

If the horizontal line at $8 per unit on the graph represents a price ceiling, then the price ceiling is

*not binding, and there will be no surplus or shortage of the good.

If the tax on a good is doubled, the deadweight loss of the tax

*quadruples.

Producer surplus

The amount a seller is willing to oay minus the sellers cost if providing it

Willingness to pay

The maximum amount that a buyer is willing to pay for a good

. Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct

This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor. The effective price received by sellers is $0.20 per bottle less than it was before the tax.Eighty percent of the burden of the tax falls on buyers

Ronald Reagan believed that reducing income tax rates would

*raise economic well-being and perhaps even tax revenue.

Consumer surplus

The amoung a buyer is willing to pay for a good minus the amount the buyer actually pays for it

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

tax incidence

the manner in which the burden of a tax is shared among participants in a market

if the minimum wage exceeds the equilibrium wage, the

the quantity demanded of labor will exceed the quantity supplied