ch 6 micro

Every summer, Matt travels by air to see his grandmother. Matt's maximum willingness to pay for an airline ticket is $260, but the airline only requires a minimum of $100 to fly him. Normally, Matt pays the airline the going market price of $250 per ticket. If the government places a $50 tax on each ticket, raising ticket prices to $270, and causing Matt not to go, what is the deadweight loss created by this tax? A) $160 B) $150 C) $10 D) $260

A) $160

(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do buyers pay for a gallon of gasoline in this market? A) $3.50 B) $3 C) $2.50 D) between $2.50 and $3.50, depending on the elasticity of supply

A) $3.50

(Figure: Wage Subsidy) Consider the use of wage subsidies versus the minimum wage. Employment with a wage subsidy is: ________, versus employment with an $8 minimum wage is: ________. A) 180; 120 B) 120; 180 C) 150; 150 D) 180; 180

A) 180; 120

3D printing is an exciting new manufacturing technology that will allow producers to fabricate all kinds of items with a single, small, mobile printer. If the technology succeeds, we won't have as much need for large, immovable factories. What would be the result? A) Governments would have a harder time raising revenue by taxing manufacturing. B) The deadweight loss from taxing manufacturing would decrease. C) The elasticity of demand for manufactured goods would increase. D) Consumers would pay a smaller portion of the tax on manufactured goods.

A) Governments would have a harder time raising revenue by taxing manufacturing.

Government subsidies to California cotton farmers: A) create deadweight losses because the billions of dollars of resources used to grow cotton in deserts could be put to higher-valued uses. B) correct a market failure because cotton prices are too low to support cotton farmers. C) raise prices to consumers and lower prices received by cotton farmers. D) benefit California cotton buyers because they pay only a small fraction of the world

A) create deadweight losses because the billions of dollars of resources used to grow cotton in deserts could be put to higher-valued uses.

In Virginia, the state taxes automobiles. In Northern Virginia, there is ample public transportation, and many neighborhoods are very walkable. In the rest of the state, there is less public transportation, and neighborhoods are more spread out. Other things equal, which of the following is likely to be an effect of the car tax? A) The car tax will raise relatively more money in Northern Virginia. B) The deadweight loss of the tax will be higher in Northern Virginia. C) The deadweight loss of the tax will be higher in the rest of the state. D) The deadweight loss will be the same throughout the state.

B) The deadweight loss of the tax will be higher in Northern Virginia.

(Figure: Commodity Tax on Suppliers) Refer to the figure. If a tax shifts the supply curve from S1 to S2, tax revenue is: A) $3,600. B) $2,700. C) $1,800. D) $1,000.

C) $1,800.

(Figure: Supply and Demand with Subsidy) Refer to the figure. With a $2-per-unit subsidy, the price received by sellers is ________ and the price paid by consumers is ________. A) $3; $2 B) $2; $4 C) $4; $2 D) $3; $4

C) $4; $2

Which of the following is a correct statement about tax burdens? A) A tax burden is distributed independently of relative elasticities of supply and demand. B) A tax burden falls most heavily on the side of the market that is closer to unit elastic. C) A tax burden falls most heavily on the side of the market that is less elastic. D) A tax burden falls most heavily on the side of the market that is more elastic.

C) A tax burden falls most heavily on the side of the market that is less elastic.

Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline? A) It depends on the tax rate at the time the gasoline is sold. B) Sellers will bear the majority of the tax, as long as supply is more elastic than demand. C) Buyers will bear the majority of the tax, as long as demand is less elastic than supply. D) No one will bear the majority of the tax; the tax burden will be borne equally by both buyers and sellers

C) Buyers will bear the majority of the tax, as long as demand is less elastic than supply.

In the figure, demand curve _____ is the least elastic demand curve, and the lost gains from trade because of a tax are greater with demand curve _____. A) D1; D1 B) D2; D2 C) D1; D2 D) D2; D1

C) D1; D2

A subsidy causes deadweight loss: A) only because of inefficient increases in trade. B) only because of unexploited gains from trade. C) because of both inefficient increases in trade and the unexploited gains from trade. D) only if the supply of the good being subsidized is unit elastic.

C) because of both inefficient increases in trade and the unexploited gains from trade.

Suppose there is a tax of $50 on bicycles. The supply curve for bicycles slopes upward. The demand curve for bicycles slopes downward. Sellers are required by law to pay the tax. If the tax is reduced from $50 to $10 per bicycle, then the: A) supply curve will shift downward by $40. B) demand curve will shift downward by $40. C) demand curve will shift upward by $40. D) supply curve will shift upward by $40.

C) demand curve will shift upward by $40.

In the market for Good X—a necessity good without any good substitutes—the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall: A) more heavily on buyers, given that demand is more inelastic than supply. B) evenly between buyers and sellers. C) more heavily on sellers, given that supply is more inelastic than demand. D) more heavily on buyers, given that demand is more elastic than supply.

C) more heavily on sellers, given that supply is more inelastic than demand.

If a tax is imposed on sellers of a product, the demand curve will: A) shift upward. B) shift downward. C) not shift. D) shift upward or downward depending on elasticity of demand.

C) not shift.

(Figure: Tax Imposed on Sellers) According to the figure, the price that buyers pay AFTER the tax is imposed is: A) $5. B) $4.40. C) $4. D) $3.40.

D) $3.40.

Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers? A) $5.00 B) $7.75 C) $3.00 D) $3.75

D) $3.75

With a $4 subsidy in the figure, buyers pay _____ and sellers receive _____. A) $5; $9 B) $7; $3 C) $9; $7 D) $3; $7

D) $3; $7

(Figure: Consumer and Producer Surplus) According to the figure, what would happen to the deadweight loss if the tax increased to $2 per basket of apples? A) The new tax would minimize deadweight loss. B) Deadweight loss does not change due to a change in the tax. C) Deadweight loss will decrease due to a change in the tax. D) Deadweight loss will increase.

D) Deadweight loss will increase.

The typical teen-age smoker has a more elastic demand for cigarettes than does a typical older smoker. We expect a given cigarette tax to ______ a teen-age smoker's consumption by______ than an older smoker's consumption. A) increase; less B) increase; more C) reduce; less D) reduce; more

D) reduce; more