ECON 2113-Exam Two

1. Which is the most accurate statement about taxes and government? a. all governments, federal, state, and local rely on taxes to raise revenue for public purposes b. federal and state governments uses taxes to raise revenue, but local governments use borrowing c. federal and local governments uses taxes to raise revenue, but state governments use borrowing d. state and local governments use taxes to raise revenue, but the federal government uses borrowing

A

19. Efficiency occurs when a. total surplus is maximized b. all resources are being used c. producer surplus is maximized d. consumer surplus equal producer surplus

A

20. The "invisible hand" refers to a. the marketplace guiding the self-interest to market participants into promoting general economic well-being b. the automatic maximization of consumer surplus in free markets c. the marketplace as a place where government looks out for the interest of individual participants in the market d. the equity that results from market forces allocating the goods produced in the market

A

26. Economic policies often have effects that their architects did not intend or anticipate

A, true

27. Policymakers use taxes both to raise revenue for public purposes and to influence market outcomes

A, true

29. If buyers of a product are required to pay a tax, the demand curve for the product will shift downward by exactly the size of the tax

A, true

31. A tax on seller shifts the supply curve upward by exactly the size of the tax

A, true

32. Lawmakers can decide whether the buyer or the seller must send a tax to the government, but they cannot legislate the true burden of a tax

A, true

34. In general, a tax burden falls more heavily on the side of the market that is more inelastic

A, true

36. The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers

A, true

37. The willingness to pay is the maximum amount that a buyer will pay for a good and measure how much the buyer values the good

A, true

39. Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product

A, true

41. The area below the price and above the supply curve measures the producer surplus in a market

A, true

44. Free markets allocate (1) the supply of goods to the buyers who value them most highly and (2) the demand for goods to the sellers who can produce them at least cost

A, true

45. When markets fail, public policy can potentially remedy the problem and increase economic efficiency

A, true

46. Market is efficient when there is neither underproduction or overproduction because is no deadweight loss

A, true

47. Normally, both buyers and sellers are worse off when a good is taxed

A, true

49. When a tax is imposed, the loss of consumer surplus and producer surplus and producer surplus as a result of the tax exceeds the revenue raised by the government

A, true

50. If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss

A, true

10. A consumer's willingness to pay measures a. how much a seller receives from the sale of a good b. how much buyer values a good c. the cost of a good to the buyer d. how much a buyer has to pay to receive a good

B

12. Refer to Figure 7-4. What area represents consumer surplus when the price is P1? a. D b. B c. C d. A

B

15. Suppose the demand for nachos increases. What will happen to producer surplus in the market for nachos? a. It decreases briefly, then increases b. it increases c. it decreases d. it is unaffected by this change in market forces

B

16. Producer surplus measures a. unsold inventories b. the well-being of sellers c. the well-being of buyers and sellers d. it is unaffected by this change in market forces

B

22. To analyze economic well-being in an economy it is necessary to use a. government spending and tax revenue b. producer and consumer surplus c. demand and supply d. equilibrium price and quantity

B

23. A tax imposed on a market with an inelastic demand and elastic supply will cause a. the tax burden to be divided, but it cannot be determined how b. buyers to pay the majority of the tax c. sellers to pay the majority of the tax d. the tax burden to be equally divided between buyers and sellers

B

24. Deadweight loss is the a. loss of profit to businesses when a tax is imposed b. reduction in total surplus that results from a tax c. reduction in consumer surplus when a tax is placed on buyers d. decline in government revenue when taxes are reduced in market

B

25. The benefit from a tax is measured by the a. government's surplus, which is tax revenue minus government expenditures b. benefit received by those people who gain from governments expenditure of the tax revenue c. cost of collecting (administrating) the tax d. interest saved because the government did not borrow the funds

B

4. Refer to Figure 6-8. The amount of the tax imposed in this market is a. $2.50 b. $3.00 c. $1.00 d. $1.50

B

6. If buyers are required to pay a $.10 tax per bag on Hershey's kisses, the demand for kisses will shift a. down by $.05 per bag b. down by $.10 per bag c. up by $.05 per bag d. up by $.10 per bag

B

7. When a tax is placed on the buyers of milk, the a. price of milk increases, and equilibrium quantity of milk is unchanged b. size of the mile market is reduced c. price of milk decreases d. supply of milk decreases

B

28. Economist use the term tax incidence to refer to who is legally responsible for paying the tax

B, false

30. If a tax is imposed on the buyer of a product, the tax incidence will fall entirely on the buyer, causing the buyer to pay more

B, false

33. Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or seller

B, false

35. Welfare economics is the study of the welfare system

B, false

38. The area above the demand curve and below the price measures the consumer surplus in a market

B, false

40. Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window cleaning is $3 per window. If Connie cleans 100 windows, her producer surplus is $100

B, false

42. Total surplus in a market is consumer surplus minus producer surplus

B, false

43.Efficientcy refers to whether a market outcome is fair, while equity refers to whether the maximum amount of output was produced from a given number of inputs

B, false

48. A tax on a good causes the size of the market to increase

B, false

14. Refer to Figure 7-4. What area represents total surplus in the market when the price is P1? a. A+B+C+D b. A+B c. B+C d. C+D

C

18. In a market, total surplus is a. equal to consumers' willingness to pay plus producer costs b. greater than consumer surplus plus producer surplus c. equal to producer surplus plus consumer surplus d. equal to the total costs to sellers less the total value to buyers

C

2. Refer to the Figure 6-8. The equilibrium price in the market before the tax is imposed is a. $3.00 b. $8.00 c. $6.00 d. $5.00

C

21. Externalities are a. side effects of government intervention in markets b. external forces that help establish equilibrium price c. side effects passed on to a party other than the buyers and seller in the market d. the equity that results from market forces allocating the goods produced in the market

C

8. A tax placed on the seller of blueberries a. increases costs, lowers profit and shifts supply to the right (downward) b. increases costs, lowers profit and causes a movement along the supply curve c. increases costs, lowers profit and shifts supply to the left (upwards) d. reduces costs, raises profit and shifts supply to the left (upwards)

C

11. Belva is willing to pay $65.00 for a pair of shoes for a formal dance. She finds a pair at her favorite outlet shoe store for $48.00. Belva's consumer surplus is a. $48 b. $31 c. $65 d. $17

D

13. Refer to Figure 7-4. What area represents producer surplus when the price is P1? a. A b. B c. D d. C

D

17. Denea produces cookies. Her production cost is $3 per dozen. She sells the cookies for $8 per dozen. Her producer surplus is a. $8 per dozen b. $3 per dozen c. $11 per dozen d. $5 per dozen

D

3. Refer to Figure 6-8. The price buyers will pay after the tax in imposed is a. $5.00 b. $6.00 c. $3.00 d. $8.00

D

5. the term tax incidence refers to the a. Boston Tea Party b. division of the tax burden between sales taxes and income taxes c. "flat tax" movement d. division of the tax burden between buyers and sellers

D

9. Wellfare economics is the study of a. the well-being of less fortunate people b. welfare programs in the United States c. the effect of income redistribution on work effort d. how the allocation of resources affects economic well-being

D