CH 5, 6, 18 and 20 Quiz

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

$0

What is the producer surplus earned by a seller whose willingness to sell is $10 below the market price of a good?

$10

Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13. If the market price of hammers is $12, what would total producer surplus be?

$7

A market has four individuals, each considering buying a grill. Assume that grills come in only one size and model. Martina considers herself a grill-master, and finds a grill a necessity, so she is willing to pay $400 for a grill. Javier is a meat-lover, honing his grilling skills, and is willing to pay $350 for a grill. Kamal wants to impress his friends with his vegetable grilling skills and is willing to pay $320 for a grill. Lina loves grilled shrimp and thinks it might be cheaper in the long run if she grills her own shrimp instead of eating out at a restaurant, so she is willing to pay $200 for a grill. If the market price of grills is $320, what is Martina's consumer surplus?

$80

The graph shown portrays a subsidy to buyers. Before the subsidy was put in place, sellers sold _______ units and received _______ for each one.

100; $30

The graph shown demonstrates a tax on sellers. After the tax is in place, buyers purchase _______ units, and the post-tax price paid for each one is _______

15; $16

If a price floor is set at $23 in the market shown in the graph, which area(s) would represent consumer surplus?

A

If a price ceiling is set at $8 in the market shown in the graph, which area(s) would represent consumer surplus?

A + C

Which action could cause the price ceiling shown in the graph to become non-binding?

A decrease in demand (a shift to the left)

Suppose a tax has been imposed in the market shown in the graph. Which kind of tax is most likely demonstrated by this graph?

A tax on sellers

If a price floor is set at $23 in the market shown in the graph, which area(s) would represent the surplus that is transferred from consumers to producers?

B

Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13. If the market price of hammers decreased from $15 to $10:

Bob's Hardware would no longer sell hammers.

The graph shown displays a market with an externality; Which areas represent the deadweight loss?

C + B

Assume the market depicted in the graph is in equilibrium. Producer surplus consists of area(s):

D + E.

If a price ceiling of $14 is set in the market shown in the graph: QS appears to be incomplete. I. Total surplus will be $90. II. Deadweight loss will be $8. III. Producer surplus will be $25.

I, II, and III

Assume a market has an equilibrium price of $5. If the market price is set at $9: I. Producer surplus rises for some producers because of the increased II. Producer surplus decreases for some producers because fewer transactions are taking III. Total surplus may rise or fall depending on the change in producer surplus.

II only

Suppose Sam's opportunity cost of producing a sweater is $37. Which of the following prices would he have to observe in the market in order to sell a sweater?

Sam would sell a sweater at any of these prices.

Which of the following is an example of entitlement spending?

Social Security

Assume the market depicted in the graph is in equilibrium. If the market price is set to $7, which of the following statements is true?

Some consumers will gain surplus, but total surplus will fall.

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

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

Suppose S1 represents the initial market supply in the graph shown. A price ceiling is then set at $8. If supply shifts from S1 to S2, what will occur?

The price ceiling will no longer be binding.

The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect of this tax?

The tax decreases consumer surplus.

The graph shown best represents:

a non-binding price ceiling.

A market failure is most likely to occur when:

a sole producer of a good faces no threat of competition.

In order for a price floor to be binding, it must be set _______ the equilibrium price, and it will likely cause _______.

above; excess supply

A lump-sum tax: is the most efficient form of taxation. charges the same amount to each taxpayer. is a regressive tax.

all true

If a negative consumption externality were present in a market, the social benefit curve would be:

below the private demand curve.

In order for a price ceiling to be binding, it must be set _______ the equilibrium price, and it will likely cause _______.

below; a shortage

A price ceiling that is set at $8 in the market shown in the graph is:

binding and would cause a shortage.

Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13. If the market price of hammers increased from $8 to $12, producer surplus would increase:

by $4 for House Depot.

The Coase theorem will hold only if:

contracts are enforceable.

When the quantity of a good bought and sold is below the equilibrium quantity, the loss of total surplus that results is called:

deadweight loss

If the federal government brings in $3 trillion in tax revenues and spends $4 trillion, the government has a budget _______ of _______ trillion.

deficit; $1

In general, raising taxes has:

diminishing returns to revenue.

Suppose the market in the graph shown is in equilibrium. If a price floor is set at $13, the total number of units traded:

falls by 3

The Laffer curve demonstrates that raising tax rates:

first increases and then eventually decreases tax revenues.

A tax on cigarettes:

increases both total surplus and efficiency in the market.

When negative externalities are present in a market:

individuals are not taking into account all the costs associated with their market choices.

The Coase theorem is the idea that:

individuals can reach an efficient equilibrium through private trades, even in the presence of an externality.

When a market is fully corrected for externalities, it:

is efficient and maximizes surplus.

When a tax is present in a market, the price paid by consumers:

is greater than that received by suppliers.

The federal income tax _______ than a state sales tax.

is less efficient

The willingness to pay of buyers in a market:

is represented by the demand curve.

The administrative burden of taxes:

is smallest with a lump-sum tax.

A price ceiling is non-binding when:

it is set above the equilibrium price.

The downside of using a tax to target specific activities, rather than the externality itself, is:

it risks misaligning the incentives that producers and consumers face with the goal of minimizing the externality.

If a production process causes a negative externality, then the social cost of production will be _______ the private cost of production.

larger than

If companies that are causing pollution were forced to pay the social cost of production, they would want to supply:

less at any given price.

If a Pigovian tax is not large enough, the resulting market quantity will be _______ the efficient quantity.

less than

Efficient markets:

maximize total surplus can occur without a central planner. occur when a perfectly competitive, well-functioning market is in equilibrium.

To calculate tax revenue, we:

multiply the tax per unit by the number of units being taxed.

f a price floor is set at $23 in the market shown in the graph:

no shortage will occur

When a quota is imposed on a market with a negative externality, the market is:

not efficient, because the net benefits individuals receive from the amount set by the quota are different.

A tax on the wages paid to an employee is called a(n):

payroll tax.

In the real world, lump-sum taxes are:

perceived as unfair. very efficient. rarely used.

The government offers subsidies to offset _______ externalities.

positive

Suppose there is currently a $4 per pack tax on cigarettes that generates $40,000 in revenue per month. If the tax increases to $6 per pack, the revenue the tax generates will increase to $55,000. This tells us that, in this range of tax rates, the _______ effect outweighs the _______ effect.

price; quantity

When positive consumption externalities are present in a market:

private benefits are less than social benefits.

Many tax-funded programs are intended to:

provide basic human needs.

When considering different tax levels, the revenue-maximizing point will be reached _______ when demand is _______ elastic

quickly; more

The primary intent of a tax on tobacco is to:

reduce its consumption.

A tax on sellers:

shifts the supply curve vertically upwards by the amount of the tax, but does not shift the demand curve.

For any given tax, the revenue generated is:

smaller in markets with price-elastic demand and supply.

One way to make consumers take a positive externality into account when making demand decisions is to:

subsidize the purchase of the item.

A proportional tax:

takes the same percentage from all taxpayers, regardless of income.

In order to bring a market to its efficient outcome when a negative externality is present, the government might:

tax the buyers or sellers in the market at the value of the external cost.

A lump-sum tax:

taxes everyone the same amount, regardless of income.

When someone's willingness to pay is the same as the actual price paid for an item:

the individual's surplus is zero.

When the market price is set above the equilibrium price:

the market is not efficient

Assume the market depicted in the graph is in equilibrium. If the market goes from equilibrium to having its price set at $18:

the quantity exchanged will be 4,000.

The net increase to total surplus when a negative externality is corrected or eliminated is due to:

the reduced number of transactions in the market.

Pigovian taxes are not always effective because:

they do not directly compensate those who are affected by the externality.

When policy makers are deciding where to place the statutory incidence of a tax, it is helpful to remember that:

this decision will have no effect on the economic incidence of the tax.

When a perfectly competitive, well-functioning market is not in equilibrium:

total surplus is not maximized. the market is not efficient. exchanges exist that make some better off without making someone else worse off.

When a tax is imposed, the surplus that is lost to buyers and sellers but converted into tax revenue is:

transferred to others through public programs.

Pigovian taxes are not always effective because it is difficult to identify:

what the amount of the tax should be.

External benefits accrue:

without compensation to someone other than the person who caused them.