micro test

All else equal, what happens to consumer surplus if the price of a good decreases?

Consumer surplus decreases.

If a tax is levied on the sellers of flour, then

buyers and sellers will share the burden of the tax.

When a tax is levied on buyers of tea,

buyers of tea and sellers of tea both are made worse off.

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to

$4

Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be

$45

Policymakers use taxes

both to raise revenue for public purposes and to influence market outcomes.

A tax imposed on the buyers of a good will raise the

price paid by buyers and lower the equilibrium quantity.

A payroll tax is a

tax on the wages that firms pay their workers.

The benefit that government receives from a tax is measured by

tax revenue.

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers.

The Laffer curve relates

the tax rate to tax revenue raised by the tax.

Economists typically measure efficiency using

total surplus

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

value the good more than price.

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

whose cost is less than price.

George produces cupcakes. His production cost is $10 per dozen. He sells the cupcakes for $16 per dozen. His producer surplus per dozen cupcakes is

$6

Total surplus

-can be used to measure a market's efficiency. -is the sum of consumer and producer surplus. -is the value to buyers minus the cost to sellers.

Laffer curve

A Laffer curve is a graphical representation of the theoretical relationship between the size of a tax and the tax revenue collected by the government

ad valorem tax

An ad valorem tax is based on a percentage of a good's price.

excise tax

An excise tax is a tax on a specific good (such as gasoline, cigarettes, or alcohol) and is an example of a per-unit tax.

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

Consumer surplus (individual)

Consumer surplus (CS) for an individual buyer is the amount a buyer is willing to pay minus the amount the buyer actually pays.

Which of the following tools help us evaluate how taxes affect economic well-being?

Consumer surplus, producer surplus, tax revenue, and deadweight loss.

cost

Cost is the value of everything a seller must give up to produce a good. (We also call this "opportunity cost".)

Deadweight Loss

Deadweight Loss (DWL) is the fall in total surplus that results from a market distortion (such as a tax).

Efficiency

Efficiency is the property of a resource allocation of maximizing the total surplus received by all members of society.

Externalities

Externalities are the impact of one person's actions on the well-being of a bystander.

Total surplus in a market will increase when the government

NEITHER imposes a binding price floor or a binding price ceiling on that market. imposes a tax on that market.

Producer Surplus individual

Producer Surplus (PS) is the amount a seller is paid for a good, minus the seller's cost.

A seller is willing to sell a product only if the seller receives a price thatis at least as great as the

Seller's cost of production.

Cost is a measure of the

Seller's willingness to sell.

tax revenue

Tax revenue is the amount of the money the government collects from implementing a tax. It is calculated by multiplying the size of the tax (in dollars) by the quantity sold when the tax is implemented: $T x QT

taxes

Taxes are the amount of money the government requires from buyers or sellers on each unit bought or sold.

tax incidence

The incidence of a tax is how the burden of a tax is shared among market participants.

consumer surplus (total)

Total Consumer Surplus is the sum of the individual consumer surpluses for every buyer who participates in a market.

Producer Surplus total

Total producer surplus is the sum of the individual producer surpluses for every seller who participates in a market.

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

Total surplus decreases.

total surplus

Total surplus is the sum of consumer surplus and producer surplus. It is one measure of the economic well-being of a society.

Welfare economics

Welfare economics is the study of how the allocation of resources affects economic well-being.

Which of the following statements is correct?

Who actually pays a tax depends on the price elasticities of supply and demand

In a market, the marginal buyer is the buyer

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

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

Willingness to pay

Willingness to pay

Willingness to pay is the maximum amount that a buyer will pay for a good.

The marginal seller is the seller who

Would leave the market first if the price were any lower.

Total surplus with a tax is equal to

consumer surplus plus producer surplus plus tax revenue.

The decrease in total surplus that results from a market distortion, such as a tax, is called a

deadweight loss.

If a tax is levied onthe buyers of a product, then there will be a(n)

downward shift of the demand curve

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

elastic demand and elastic supply.

A tax burden falls more heavily on the side of the market that

is more inelastic

If the size of a tax increases, tax revenue

may increase, decrease, or remain the same.

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

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

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect

most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

tax revenue decreases, and the deadweight loss increases.