Micro Test # 3

A price ceiling that is set below the equilibrium price will cause:

producer surplus to fall

A price floor will create the largest surplus (quantity supplied greater than quantity demanded) when:

both supply and demand are elastic.

In a competitive market, subsidies are most likely to:

reduce total economic surplus.

suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,

buyers bear the entire burden of the tax.

Producer surplus:

is the difference between the minimum prices producers are willing to accept for a product and the equilibrium price.

Deadweight loss:

is the difference between the total surplus occurring in a market and the maximum total surplus achievable.

A consumer's willingness to pay:

is the maximum price that a buyer would be willing to pay for a good or service.

In general, price controls have a:

larger effect in the long run because demand and supply become more elastic over time.

In a competitive market, the demand curve shows the ________ received by buyers and the supply curve shows the ________faced by sellers.

marginal benefit; marginal cost

The figure above illustrates the market for hot dogs on Big Foot Island. The producer surplus is ________.

$60 an hour

Refer to the graph shown below. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, it will collect tax revenue in the amount of:

$60.

According to the graph shown: (Chapter 5)

consumer surplus is equal to producer surplus.

If the demand curve is less elastic than the supply curve, then:

the buyers will bear a greater tax incidence.

Economic efficiency in a competitive market is achieved when

the marginal benefit equals the marginal cost from the last unit sold.

Refer to Figure 4-5. What is the area that represents consumer surplus after the imposition of the ceiling?

Areas A + B+ D

Refer to the diagram above in which S is the before-tax supply curve and St is the supply curve after a tax is imposed. The total amount of the tax paid by consumers is shown by_______:

Areas A + B.

Assume the supply curve for product X is perfectly elastic and that government imposes a $1-per-unit tax. We can conclude that the resulting:

decrease in quantity traded will be greater the more elastic the demand curve.

A subsidy to buyers has been placed on the market in the graph shown above. What is the amount of the subsidy per unit of this good?

$16

When this market is in equilibrium, the total economic surplus is ______ per day.

$160

Refer to Figure 4-3. Suppose that this market is in equilibrium. Consider the 40th pound of halibut. Consumers are willing to pay ______ for the 40th pound, and they get ______ of consumer surplus from the 40th pound. Producers are willing to accept_______ for the 40th pound, and they get ________ of producer surplus from the 40th pound.

$18 ; $3 ; $13 ; $2

The graph shown above portrays a subsidy to buyers. The amount of money spent on this subsidy by the government is:

$2,400.

If a price ceiling were imposed at $4, consumer surplus would be:

$20.

The graph shown above portrays a subsidy to buyers. Once the subsidy is in place, the buyers pay ________ and the sellers receive ________; the difference is ________.

$24; $40; the amount of the subsidy

The graph shown portrays a subsidy to buyers. Once the subsidy is in place, the buyers pay ________ and the sellers receive ________; the difference is ________.

$24; $40; the amount of the subsidy

If a price ceiling were imposed at $4, the total economic surplus would be ______, which is ______ less than when the market is an unregulated market.

$24; $8

Michelle can purchase each milkshake for $2. For the first milkshake purchased Michelle is willing to pay $4, for the second milkshake $3, for the third milkshake $2and for the fourth milkshake $1. What is the value of Michelle's total consumer surplus for the milkshakes she buys? Assume she's rational and gets to choose how many milkshakes she wants to buy.

$3

Refer to the graph shown below. An effective price floor at $8 imposes a deadweight loss of:

$45.

Refer to Figure 6.2. How much of the tax is paid by buyers?

$5

According to the graph shown, if the market is in equilibrium, total surplus is:

$50

Sarah goes to Sportsmart to buy a new tennis racquet. She is willing to pay $200 for a new racquet but buys one on sale for $125. Sarah's consumer surplus from the purchase is _.

$75

Suppose a tax on sellers has been imposed in the graph shown above. The amount of deadweight loss generated by this tax is:

$80

Initially, kidney exchanges are regulated to donations only. This means kidneys can only be exchanged at a price of zero. What is the deadweight loss from this restriction?

$825,000 (new price - old price) x (original quantity - new quantity)/2 then add the total of producers and consumer surplus

Prior to the imposition of the minimum wage, employer surplus is ______ per day, and after the imposition of the minimum wage, employer surplus is ______ per day.

$9,000; $1,000

If the elasticity of demand is 1 and the elasticity of supply is 0, what percentage of a 10 percent tax will be borne by consumers?

0 percent.

The figure below shows the supply and demand curves for oranges in Smallville. At the price of $4 per pound, sellers offer ______ pounds of oranges per day, and buyers want to purchase ______ pounds of oranges a day.

10;30

Refer to the graph shown below. In equilibrium, total surplus is equal to:

2,000

The market for low-skilled labor is illustrated in the figure above. The market is initially in equilibrium, and then a minimum wage of $5 per hour is imposed. Employment will fall by ________ million hours per year, and unemployment will rise by _______ million hours per year.

20 ; 30

Refer to Figure 4-2. What area represents producer surplus at a price of P2?

A + B + C

Given a tax of t on sellers, revenue collected is:

A and B. Sellers pay B. Consumers pay A.

Refer to Figure 6.1 What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?

B

Refer to Figure 6.1. What area represents the deadweight loss after the imposition of the price floor?

C+D

Given the same price elasticity of supply, sellers would be able to pass along the largest portion of a 10 percent tax on which item?

Fish with a price elasticity of demand of 0.12

Taxes:

create a wedge between the price consumers pay and the price sellers receive.

In order for a price ceiling to "bind," it:

must be set below the equilibrium price, and will likely cause a shortage.

Refer to the graphs shown below. The burden of the tax is borne entirely by sellers in graphs:

A and D.

What consumer surplus is received by someone whose willingness to pay is $35 below the market price of a good?

$0

The figure above shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18.What is the value of the deadweight loss at a price of $18?

$100

According to the graph shown above, consumer surplus is:

$36

If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7, then his or her consumer surplus from the purchase of that unit would be:

$4

What is the marginal cost of producing the tenth pound of oranges?

$4

Figure 6.2 shows the market for beer. The government plans to impose a unit tax in this market. 6)Refer to Figure 6.2. What is the size of the unit tax?

$7

Figure 4-3 shows the market for granola. If this market is in equilibrium, then the total economic surplus is ___________.

A+B+C+D+E

If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______.

GAEF

The government is deciding where to put a $1 tax-either in a market with elastic supply and demand curves, or a market with inelastic supply and demand curves. If their aim is to raise the most revenue with the smallest deadweight loss, where should the tax be placed?

In the market with inelastic supply and demand curves

What is market failure?

It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

Would you expect a tax on cigarettes to be more effective at discouraging consumption over the long run or the short run?

Long run because demand becomes more elastic over time

The graph shown above demonstrates a tax on buyers. Who bears the greater tax incidence?

The seller

Assume a market that has an equilibrium price of $4. If the market price is set at $8, which of the following is true?

Some surplus is transferred from consumers to producers, but total surplus falls.

Henry buys a piece of jewelry for $33 for which he was willing to pay $42. The minimum acceptable price to the seller, Cassidy, was $30. Henry experiences:

a consumer surplus of $9 and Cassidy experiences a producer surplus of $3.

Refer to the above diagram. If actual production and consumption occur in Q3:

a deadweight loss of e + f occurs.

The figure above shows the demand and supply curves for housing. What would be the effects of a rent ceiling equal to $500 per month?

a shortage equal to 3,000 apartments

A price ceiling that is set below the equilibrium price will result in:

a shortage of the good.

If the government wants to encourage the consumption of a particular good, they should enact:

a subsidy on either buyers or sellers, since they will both have the same effect on the market.

The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called:

a tax wedge.

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

above; below

Refer to the above diagram. Assuming equilibrium price P1, consumer surplus is represented by:

areas a + b.

Refer to the graph shown below. An effective price floor at Pf causes producer surplus to: Chapter 6

change from areas C + D + F to areas B + C + D.

If price is increased by law from a market equilibrium value of $5 to a higher value of $6:

consumer surplus will decrease and there will be some lost surplus.

According to the graph shown, if the market goes from equilibrium to having its price set at $10 then:

consumer surplus will decrease by (B + C).

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:

consumer surplus.

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

consumer surplus.

If elasticity of demand is -0.7, elasticity of supply is 0.7, and a 5 percent sales tax is levied on the good:

consumers pay 50 percent of the tax.

Refer to the graph shown below. If the government imposed a price ceiling of $4, the quantity purchased by consumers in this market would:

decline from 4 to 2.

Suppose that government imposes a tax on tablets of $2 per tablet and that the price elasticity of the supply of tablets is unit elastic. If the tax incidence is such that the producers of tablets pay $1.90 of the tax and the consumers pay $0.10, we can conclude that the:

demand for tablets is highly elastic.

A $4 tax is levied on sellers (represented by S0 without the tax). From the graph and tax structure you know that the:

elasticities of supply and demand are the same.

If the supply curve is perfectly inelastic, the burden of a tax on suppliers is borne:

entirely by the suppliers.

A per-unit tax in a competitive market will result in a deadweight loss unless the tax causes no change in:

equilibrium quantity sold.

Consumers are willing to purchase a product up to the point where

he marginal benefit of consuming a product is equal to its price.

Refer to the graph shown below. Assume the market is initially in equilibrium at pointj in the graph but the imposition of a per-unit tax on this product moves theSupply + tax curve to S1. The welfare loss triangle from this tax is represented by area:the supply

hji.

One impact of an import quota, like the US quota on imported sugar, is to:

increase the price of the domestic good for the consumer

The area above the market supply curve and below the market price

is equal to the total amount of producer surplus in a market.

The rule for making optimal decisions is that an activity should be increased until:

marginal benefits equal marginal costs.

For a price ceiling to have an impact on a market it:

must be set below the equilibrium price.

To affect the market outcome, a price ceiling

must be set below the equilibrium price.

If a minimum wage of $12 per hour is imposed in this labor market then worker surplus will______ and employer surplus will ______.

rise; fall

Consumer surplus in a market for a product would be equal to ________ if the market price was zero.

the area under the demand curve

Consumers may benefit more than sellers from a subsidy to sellers if:

the demand curve is relatively less elastic than the supply curve.

In a competitive market equilibrium

the marginal benefit equals the marginal cost of the last unit sold.

Refer to Figure 4-4. The figure above represents the market for coffee. Assume that this is a competitive market. If there are 30,000 cups of coffee produced in this market, then

the marginal cost of coffee is greater than the marginal benefit; therefore, output is inefficiently high.

If, in a competitive market, marginal benefit is less than marginal cost,

the quantity sold is greater than the equilibrium quantity.

If, in a competitive market, marginal benefit is greater than marginal cost

the quantity sold is less than the equilibrium quantity.

Suppose a minimum wage law required the wage to be at least $20 per hour in this market. If that happened, then:

there would be no change the equilibrium number of person-hours.

The figure above shows the demand and supply curves for housing. As a result of the arent ceiling at $500, the deadweight loss is represented by the ___.

triangle eca.

Refer to the graph shown below. With an effective price floor at Pf, total surplus is reduced by:

triangles E and F.

The deadweight loss from taxing a good will be smaller for goods:

whose supply and demand curves are more inelastic.