EC 110 Test 2A

You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. Which of the following graphs represents the market supply curve?

C.

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the a. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases. b. supply curve for toothpaste shifts to the right. c. demand curve for toothpaste shifts to the left. d. quantity supplied of toothpaste stays the same.

a. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.

During the last two days, Chad purchased a latte from two different stores. The table below shows Chad's willingness to pay on each day and his consumer surplus from each purchase. The price that Chad paid for a latte on the second day is a. $0.50 less than the amount he paid on the first day. b. $1.50 less than the amount he paid on the first day. c. $0.25 less than the amount he paid on the first day. d. $1.00 less than the amount he paid on the first day.

a. $0.50 less than the amount he paid on the first day.

A price ceiling set at $20 will a. be binding and will result in a shortage of 75 units. b. be binding and will result in a shortage of 125 units. c. be binding and will result in a shortage of 200 units. d. not be binding.

b. be binding and will result in a shortage of 125 units.

When the price ceiling applies in this market, and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is a. Q3. b. less than Q3. c. between Q1 and Q3. d. at least Q1.

b. less than Q3.

A $0.10 tax levied on the sellers of chocolate bars will cause the a. demand curve for chocolate bars to shift up by $0.10. b. supply curve for chocolate bars to shift down by $0.10. c. demand curve for chocolate bars to shift down by $0.10. d. supply curve for chocolate bars to shift up by $0.10.

d. supply curve for chocolate bars to shift up by $0.10.

Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 4 if the price is a. $1,400. b. $1,050. c. $860. d. $1,650.

a. $1,400.

Buyers pay how much of the tax per unit? a. $1.50. b. $5.00. c. $3.00. d. $0.50.

a. $1.50.

The vertical distance between points A and B represents a tax in the market. When the tax is imposed in this market, the price sellers effectively receive is a. $6. b. $4. c. $10. d. $16.

a. $6.

At Nick's Bakery, the cost to make homemade chocolate cake is $4 per cake. As a result of selling five cakes, Nick experiences a producer surplus in the amount of $17.50. Nick must be selling his cakes for a. $7.50 each. b. $9.50 each. c. $10.50 each. d. $6.50 each.

a. $7.50 each.

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. If the market price of an orange is $0.40, then a. 7 oranges are demanded per day, and consumer surplus amounts to $5.30. b. 6 oranges are demanded per day, and consumer surplus amounts to $5.10. c. 7 oranges are demanded per day, and consumer surplus amounts to $5.15. d. 6 oranges are demanded per day, and consumer surplus amounts to $4.95.

a. 7 oranges are demanded per day, and consumer surplus amounts to $5.30.

If the price of the product is $130, then who would be willing to purchase the product? a. Calvin and Sam b. Calvin, Sam, Andrew, and Lori c. Calvin d. Calvin, Sam, and Andrew

a. Calvin and Sam

Consumer surplus in a market can be represented by the a. area below the demand curve and above the price. b. distance from the demand curve to the horizontal axis. c. area below the demand curve and above the horizontal axis. d. distance from the demand curve to the vertical axis.

a. area below the demand curve and above the price.

Suppose a tax of $3 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed? a. between $16 and $20 b. $16 c. $22 d. between $20 and $22

a. between $16 and $2

One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the a. tax reduces the welfare of both buyers and sellers. b. equilibrium quantity of the good is unchanged. c. price the buyer effectively pays is lower. d. supply curve for the good shifts upward by the amount of the tax.

a. tax reduces the welfare of both buyers and sellers.

If the government removes a binding price floor from a market, then the price paid by buyers will a. decrease, and the quantity sold in the market will increase. b. increase, and the quantity sold in the market will decrease. c. decrease, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.

a. decrease, and the quantity sold in the market will increase.

Sellers whose costs are less than the equilibrium price are represented by which line segment? a. CK. b. BC. c. AC. d. CH.

b. BC

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk? a. Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling. b. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. c. Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. d. Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole.

b. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is a. $1.30. b. $1.85. c. $0.95. d. $1.15.

b. $1.85.

Suppose the government imposes a $10 per unit tax on a good. The tax causes producer surplus to decrease by the area a. D+F+J. b. D+F. c. D+F+G. d. D+F+G+H.

b. D+F.

The vertical distance between points A and C represents a tax in the market. The price that sellers effectively receive after the tax is imposed is a. P3. b. P1. c. P4. d. P2.

b. P1.

Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be a. higher than P2. b. between P1 and P2. c. lower than P1. d. P1.

b. between P1 and P2.

When the supply of a good decreases and the demand for the good remains unchanged, consumer surplus a. is unchanged. b. decreases. c. increases. d. may increase, decrease, or remain unchanged.

b. decreases.

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the a. tax is placed on the sellers of the product. b. demand for the product is more elastic than the supply of the product. c. tax is placed on the buyers of the product. d. supply of the product is more elastic than the demand for the product.

b. demand for the product is more elastic than the supply of the product

Neither a shift of the demand curve nor a shift of the supply curve is shown on the figure. However, we know that, when the tax is imposed, a. the demand curve will shift. b. either the demand curve or the supply curve will shift. c. the supply curve will shift. d. None of the above are correct; the tax causes neither the demand curve nor the supply curve to shift.

b. either the demand curve or the supply curve will shift.

Which of the following statements is not correct? a. A price floor set at $14 would be binding, but a price floor set at $8 would not be binding. b. A price floor set at $6 would result in a shortage. c. A price ceiling set at $6 would be binding, but a price ceiling set at $12 would not be binding. d. A price floor set at $9 would result in a surplus.

b. A price floor set at $6 would result in a shortage.

A price floor is binding when it is set a. Below the equilibrium price, causing a surplus b. Above the equilibrium price, causing a surplus c. Above the equilibrium price, causing a shortage d. Below the equilibrium price, causing a shortage

b. Above the the equilibrium, causing a surplus

Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $20 per ticket, then the a. supply curve will shift downward by $30, and the effective price received by sellers will increase by less than $30. b. demand curve will shift upward by $30, and the price paid by buyers will decrease by less than $30. c. supply curve will shift downward by $30, and the effective price received by sellers will increase by $30. d. demand curve will shift upward by $30, and the price paid by buyers will decrease by $30.

b. demand curve will shift upward by $30, and the price paid by buyers will decrease by less than $30.

The price that buyers pay after the tax is imposed is a. $8.00. b. $10.50. c. $12.00. d. $9.00.

c. $12.00.

Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money? a. $12.00 b. $10.50 c. $8.00 d. $9.00

c. $8.00

You and your best friend want to hire a professional photographer to take pictures of your two families. The table shows the costs of the four potential sellers in the local photography market. You and your friend agree to offer $500 for each session. Who accepts the offer, and what is the total producer surplus in the market? a. LeBron and Kobe; $500 b. LeBron and Kobe; $300 c. Kevin and Steve; $150 d. Kevin and Steve; $500

c. Kevin and Steve; $150

The vertical distance between points A and B represents a tax in the market. What happens to producer surplus when the tax is imposed in this market? a. Producer surplus falls by $600. b. Producer surplus falls by $2,100. c. Producer surplus falls by $1,800. d. Producer surplus falls by $900.

c. Producer surplus falls by $1,800.

Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely? a. Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. b. Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer. c. Roland and Karla still can engage in a mutually-agreeable trade. d. Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn.

c. Roland and Karla still can engage in a mutually-agreeable trade.

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount? a. The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. b. The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. c. The response of buyers and sellers to a change in the price of bananas is strong. d. The response of buyers and sellers to a change in the price of bananas is weak.

c. The response of buyers and sellers to a change in the price of bananas is strong.

Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount? a. The response of buyers and sellers to a change in the price of baseball bats is strong. b. The response of sellers to a change in the price of baseball bats is strong, and the response of buyers to a change in the price of baseball bats is weak. c. The response of buyers and sellers to a change in the price of baseball bats is weak. d. The response of buyers to a change in the price of baseball bats is strong, and the response of sellers to a change in the price of baseball bats is weak.

c. The response of buyers and sellers to a change in the price of baseball bats is weak.

Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to a. increase and the quantity of gasoline supplied to decrease. b. increase and the quantity of gasoline supplied to increase. c. decrease and the quantity of gasoline supplied to decrease. d. decrease and the quantity of gasoline supplied to increase.

c. decrease and the quantity of gasoline supplied to decrease.

Suppose a $3 per-unit tax is placed on this good. The tax causes the price received by sellers to a. increase by $6. b. decrease by $3. c. decrease by $1. d. increase by $2.

c. decrease by $1.

In the after-tax equilibrium, government collects a. $1,440 in tax revenue; of this amount, $720 represents a burden on buyers and $720 represents a burden on sellers. b. $1,680 in tax revenue; of this amount, $840 represents a burden on buyers and $840 represents a burden on sellers. c. $1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers. d. $1,440 in tax revenue; of this amount, $960 represents a burden on buyers and $480 represents a burden on sellers.

c. $1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers.

When a binding price ceiling is imposed on a market to benefit buyers, a. every buyer and seller in the market benefits. b. every buyer who wants to buy the good will be able to do so, but only if he waits in long lines. c. some buyers will not be able to buy any amount of the good. d. every buyer in the market benefits.

c. some buyers will not be able to buy any amount of the good.

When the price rises from P1 to P2, what area represents the increase in producer surplus? a. A b. A+B+C c. G d. A+B

d. A+B

At equilibrium, consumer surplus is measured by the area a. ABD. b. AHG. c. BDF. d. AFB.

d. AFB.

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. If the market price of an orange increases from $0.70 to $1.40, then consumer surplus a. increases by $2.60. b. decreases by $0.70. c. decreases by $2.60. d. decreases by $2.50.

d. decreases by $2.50.

The vertical distance between points A and B represents a tax in the market. When the tax is placed on this good, the quantity sold a. is 300, and buyers effectively pay $10. b. is 600, and buyers effectively pay $10. c. is 600, and buyers effectively pay $16. d. is 300, and buyers effectively pay $16.

d. is 300, and buyers effectively pay $16.

At the quantity Q2, the marginal value to buyers a. is P3 and the marginal cost to sellers is P2. b. and the marginal cost to sellers are both P2. c. and the marginal cost to sellers are both P3. d. is P2, and the marginal cost to sellers is P3.

d. is P2, and the marginal cost to sellers is P3.

Consumer surplus a. measures how much a seller values a good. b. is the amount of a good that a consumer can buy at a price below equilibrium price. c. is the number of consumers who are excluded from a market because of scarcity. d. is the amount a consumer is willing to pay minus the amount the consumer actually pays.

d. is the amount a consumer is willing to pay minus the amount the consumer actually pays.

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic, a. buyers of the good will bear most of the burden of the tax. b. the effective price paid by buyers will decrease as a result of the tax. c. buyers and sellers will each bear 50 percent of the burden of the tax. d. sellers of the good will bear most of the burden of the tax.

d. sellers of the good will bear most of the burden of the tax.

Suppose that the government imposes a tax of P3 - P1. The benefit to the government is measured by a. the net gain in total surplus and is represented by area B+D. b. the net gain in total surplus and is represented by area C+H. c. tax revenue and is represented by area A+B. d. tax revenue and is represented by area B+D.

d. tax revenue and is represented by area B+D.

Buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv)tax is placed on the buyers of the product. a. (i) and (iii) only b. (i) and (iv) only c. (ii) only d. (i) only

d. (i) only

When a binding price floor is imposed on a market, a. price no longer serves as a rationing device. b. the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor. c. only some sellers benefit. d. All of the above are correct.

d. All of the above are correct.

As the figure is drawn, who sends the tax payment to the government? a. The buyers send the tax payment. b. A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers. c. The question of who sends the tax payment cannot be determined from the graph. d. The sellers send the tax payment.

d. The sellers send the tax payment.