Exam 2

C

Refer to Figure 7-3. If the price of the good is $6, then consumer surplus is a. $4. b. $6. c. $8. d. $10

E.

Refer to Figure 9-6. Government revenue raised by the tariff is represented by the area E. B + E. D + E + F. B + D + E + F.

consumer surplus after the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents consumer surplus after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.

$1

Refer to Figure 9-3. The size of the tariff on roses is $4. $3. $2. $1

b. $1,000.

For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $10 per unit is imposed on good X. The tax reduces the equilibrium quantity in the market by 200 units. The deadweight loss from the tax is a. $2,000. b. $1,000. c. $500. d. $250.

Comparative advantage

What is the fundamental basis for trade among nations? Shortages or surpluses in nations that do not trade Misguided economic policies Absolute advantage Comparative advantage

b. there is a decrease in the quantity of the good bought and sold in the market.

When a tax is levied on a good, a. government revenues exceed the loss in total welfare. b. there is a decrease in the quantity of the good bought and sold in the market. c. the price that sellers receive exceeds the price that buyers pay. d. All of the above are correct.

$20.

. If Claudia pays John $80 to clean her house, Claudia's consumer surplus is a. $80. b. $30. c. $20. d. $10.

$10.

. If John cleans Claudia's house for $80, John's producer surplus is a. $80. b. $30. c. $20. d. $10.

c. upward by exactly $2.00.

A $2.00 tax pe r gallon of paint placed on the sellers of paint will shift the supply curve a. downward by exactly $2.00. b. downward by less than $2.00. c. upward by exactly $2.00. d. upward by less than $2.00

b. demand curve for tires downward, decreasing the price received by sellers of tires and causing the quantity of tires to decrease.

A tax placed on buyers of tires shifts the a. demand curve for tires downward, decreasing the price received by sellers of tires and causing the quantity of tires to increase. b. demand curve for tires downward, decreasing the price received by sellers of tires and causing the quantity of tires to decrease. c. supply curve for tires upward, decreasing the effective price paid by buyers of tires and causing the quantity of tires to increase. d. supply curve for tires upward, increasing the effective price paid by buyers of tires and causing the quantity of tires to decrease

All of the above are correct.

Assume Claudia is required to pay a tax of $15 when she hires someone to clean her house. Which of the following is true? a. Claudia will continue to hire John to clean her house, but her consumer surplus will decline. b. John will continue to cl ean Claudia's house, but his producer surplus will decline. c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will decrease. d. All of the above are correct.

Claudia will now clean her own house.

Assume Claudia is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct? a. Claudia will now clean her own house. b. John will continue to clean Claudia's house, but his pr oducer surplus will decline. c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase. d. Claudia will continue to hire John to clean her house, but her consumer surplus will decline.

D

Assume the supply curve for cigars is a typical, upward - sloping straight line, and the demand curve for cigars is a typical, downward - slopi ng straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct? a. The demand for cigars is less elastic than the supply of cigars. b. The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. c. The deadweight loss of the tax is $12.50. d. All of the above are correct.

Vietnam has a comparative advantage over other countries and Vietnam will export textiles.

Assume, for Vietnam, that the domestic price of textiles without international trade is lower than the world price of textiles. This suggests that, in the production of textiles, Vietnam has a comparative advantage over other countries and Vietnam will import textiles. Vietnam has a comparative advantage over other countries and Vietnam will export textiles. other countries have a comparative advantage over Vietnam and Vietnam will import textiles. other countries have a comparative advantage over Vietnam and Vietnam will export textiles.

$500.

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is $150. $425. $500. $850.

seller's willingness to sell.

Cost is a measure of the seller's willingness to sell. seller's producer surplus. producer shortage. seller's willingness to buy.

Dallas's consumer surplus would increase.

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then Dallas's consumer surplus would be unaffected. Dallas's consumer surplus would increase. Dallas's consumer surplus would decrease. Dallas would be wise to buy fewer strawberries than before.

$0

David walks Carolyn's dog once a day for $50 per week. Carolyn values this service at $60 per week, while the opportunity cost of David's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus? a. $50 b. $30 c. $25 d. $0

C

Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's willingness to pay is a. $150. b. $350. c. $500. d. $850.

the sum of producer surplus and consumer surplus is maximized.

Efficiency in a market is achieved when a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. the sum of producer surplus and consumer surplus is maximized. all firms are producing the good at the same low cost per unit. no buyer is willing to pay more than the equilibrium price for any unit of the good.

a. smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a. smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. b. bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. c. a right triangle. d. a triangle, but not necessarily a right triangle.

Equal revenue is always raised for the domestic government.

Import quotas and tariffs produce some common results. Which of the following is not one of those common results? Total surplus in the domestic country always falls. Producer surplus in the domestic country always increases. The domestic country always experiences a deadweight loss. Equal revenue is always raised for the domestic government.

d. 150 per month

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the post tax quantity of widgets is a. 50 per month. b. 75 per month. c. 100 per month. d. 150 per month

D

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue? a. The price elasticity of demand is small, and the price elasticity of supply is large. b. The price elasticity of demand is large, and the price elasticity of supply is small. c. The price elasticity of demand and the price elasticity of sup ply are both small. d. The price elasticity of demand and the price elasticity of supply are both large.

The tax on airline tickets increases from $20 per ticket to $60 per ticket.

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9? The tax on airline tickets increases from $20 per ticket to $60 per ticket. The tax on airline tickets increases from $20 per ticket to $90 per ticket. The tax on airline tickets increases from $15 per ticket to $60 per ticket. The tax on airline tickets increases from $15 per ticket to $135 per ticket.

Kate and William will agree to a new price somewhere between $85 and $100.

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training? Kate and William will agree to a new price somewhere between $85 and $100. Kate and William will agree to a new price somewhere between $70 and $110. Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax. The price will remain at $80, and Kate will pay the $10 tax.

50

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell? 40 200 8 50

B

Marjorie is willing to pay $68 for a pair of shoes for a formal dance. She finds a pair at her favorite outlet shoe store for $48. Marjorie's consumer surplus is a. $10. b. $20. c. $48. d. $68.

a. deadweight loss due to the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the a. deadweight loss due to the tax. b. loss in consumer surplus due to the tax. c. loss in producer surplus due to the tax. d. total surplus before the tax.

a. consumer surplus after the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

b. consumer surplus before the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

tax revenue.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents a. tax revenue. b. consumer surplus before the tax. c. producer surplus after the tax. d. total surplus before the tax.

producer surplus before the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by L+M+Y represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

producer surplus after the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

j

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus after the tax is measured by the area a. J+K+I. b. J. c. M. d. L+M+Y.

J+K+I.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus before the tax is measured by the area a. M. b. L+M+Y. c. J. d. J+K+I.

I+Y.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The deadweight loss due to the tax is measured by the area a. J+K+L+M. b. J+K+L+M+N. c. I+Y. d. I+Y+B.

M.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after the tax is measured by the area a. M. b. L+M+N+Y+B. c. L+M+Y. d. J.

L+M+Y.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus before the tax is measured by the area a. I+J+K. b. I+Y. c. L+M+Y. d. M.

K+L.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area a. K+L. b. I+Y. c. J+K+L+M. d. I+J+K+L+M+Y.

J+K+L+M.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area a. I+Y. b. J+K+L+M. c. I+Y+B. d. I+J+K+L+M+Y.

I+J+K+L+M+Y.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area a. I+Y. b. J+K+L+M. c. L+M+Y. d. I+J+K+L+M+Y.

$6, and consumer surplus with the tax is $1.50.

Refer to Figure 8-2. Consumer surplus without the tax is $6, and consumer surplus with the tax is $1.50. $6, and consumer surplus with the tax is $4.50. $10, and consumer surplus with the tax is $1.50. $10, and consumer surplus with the tax is $4.50.

$3

Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $0. $1.50. $3. $4.50.

$80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Refer to Figure 8-3. The deadweight loss associated with this tax amounts to $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Supply2 and Demand2

Refer to Figure 8-5. Which of the following combinations will maximize the deadweight loss from a tax? Supply1 and Demand1 Supply2 and Demand2 Supply1 and Demand2 Supply2 and Demand1

export 22 units of coffee.

Refer to Figure 9-1. With trade, Guatemala will export 22 units of coffee. export 10 units of coffee. import 30 units of coffee. import 12 units of coffee.

$1,280.

Refer to Figure 9-2. Total surplus with trade exceeds total surplus without trade by $640. $1,280. $2,560. $3,840.

$6,760.

Refer to Figure 9-2. With trade, consumer surplus is $3,240. $6,480. $6,760. $13,520.

$1,000.

Refer to Figure 9-2. With trade, producer surplus is $500. $1,000. $1,500. $2,000.

gain $150 of producer surplus.

Refer to Figure 9-3. When a tariff is imposed in the market, domestic producers gain $100 of producer surplus. gain $150 of producer surplus. gain $200 of producer surplus. gain $300 of producer surplus.

The well-being of domestic crude-oil producers is now higher in that they now sell more crude oil at a higher price per barrel.

Refer to Figure 9-4. A result of this country allowing international trade in crude oil is as follows: The well-being of domestic crude-oil producers is now higher in that they now sell more crude oil at a higher price per barrel. The effect on the well-being of domestic crude-oil consumers is unclear in that they now buy more crude oil, but at a higher price per barrel. The effect on the well-being of the country is unclear in that domestic producer surplus increases, while the effect on domestic consumer surplus is unclear. domestic consumers lose by more than domestic producers gain.

D, and this area represents a gain in total surplus because of trade.

Refer to Figure 9-4. The change in total surplus in this market because of trade is D, and this area represents a loss of total surplus because of trade. D, and this area represents a gain in total surplus because of trade. B + D, and this area represents a loss of total surplus because of trade. B + D, and this area represents a gain in total surplus because of trade.

consumer surplus for domestic crude oil consumers decreases.

Refer to Figure 9-4. When the country for which the figure is drawn allows international trade in crude oil, consumer surplus for domestic crude oil consumers decreases. the demand for crude oil by domestic crude oil consumers decreases. the losses of the domestic losers outweigh the gains of the domestic winners. domestic crude oil producers sell less crude oil.

A.

Refer to Figure 9-5. Consumer surplus in this market before trade is A. B + C. A + B + D. C.

D, and this area represents a gain in total surplus.

Refer to Figure 9-5. The change in total surplus in this market because of trade is A, and this area represents a loss of total surplus. B, and this area represents a gain in total surplus. C, and this area represents a loss of total surplus. D, and this area represents a gain in total surplus.

increases producer surplus by the area C, decreases consumer surplus by the area C + D + E + F, and decreases total surplus by the area D + F.

Refer to Figure 9-6. The tariff decreases producer surplus by the area C, decreases consumer surplus by the area C + D + E, and decreases total surplus by the area D + F. increases producer surplus by the area C, decreases consumer surplus by the area C + D + E + F, and decreases total surplus by the area D + F. creates government revenue represented by the area B + E and decreases total surplus by the area D + E + F. increases producer surplus by the area C + G and creates government revenue represented by the area D + E + F.

Markets B and D only

Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax? Market A only Markets A and C only Markets B and D only Market C only

the gains from trade are based on comparative advantage.

Representative Vazquez cites the "jobs argument" when he argues before Congress in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Representative Vazquez's reasoning is that he ignores the fact that there is no evidence that any worker ever lost their job because of free trade. unemployment of labor is not a serious problem relative to other economic problems. the gains from trade are based on comparative advantage. the gains from trade are based on absolute advantage.

It increases consumer surplus, increases producer surplus, and increases total surplus.

Scenario 9-1 ​ For a small country called Boxland, the equation of the domestic demand curve for cardboard is QD = 200 − 2P, where QD represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is QS = -60 + 3P, where QS represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard. ​ ​ Refer to Scenario 9-1. Suppose the world price of cardboard is $45. Then, relative to the no-trade situation, international trade in cardboard produces which of the following results for Boxland? It increases consumer surplus, decreases producer surplus, and increases total surplus. It increases consumer surplus, increases producer surplus, and increases total surplus. It increases consumer surplus, decreases producer surplus, and decreases total surplus. It decreases consumer surplus, increases producer surplus, and increases total surplus.

Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine.

Suppose Japan exports cars to Russia and imports wine from France. This situation suggests Japan has a comparative advantage relative to France in producing wine, and Russia has a comparative advantage to Japan in producing cars. Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine. Japan has an absolute advantage relative to Russia in producing cars, and France has an absolute advantage relative to Japan in producing wine. Japan has an absolute advantage relative to France in producing wine, and Russia has an absolute advantage relative to Japan in producing cars.

$1,000.

Suppose a tax of $5 per unit is imposed on a goo d, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $800 and decreases producer surplus by $700. The deadweight loss from the tax is a. $500. b. $1,000. 6 c. $1,500. d $2,000.

Prior to the tax, the equilibrium price would be $60 and the equilibrium quantity would be 280. After the tax is imposed, P, the price received by sellers would be $57. The price paid by buyers would be $72. The quantity sold would be 271. The new answer shows three obvious facts. First, buyers pay more with a tax. Second, sellers receive less with a tax. Third, the size of the market shrinks when a tax is imposed on a product.

Suppose that instead of a supply-demand diagram, you are given the following information: Qs = 100 + 3P Qd = 400 - 2P From this information compute equilibrium price and quantity. Now suppose that a ta x is placed on buyers so that Qd = 400 - (2P + T). If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

D

Suppose that the government imposes a tax on dairy products. The deadweight loss from this tax will likely be greater in the a. first year after it is imposed than in the fifth year after it is imposed because demand and supply will be more elastic in the first year than in the fifth year. b. first year after it is imposed than in the fifth year after it is imposed because demand and supply will be less elastic in the first year than in the fifth year. c. fifth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the fifth year. d. fifth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the fifth year.

d. All of the above are correct.

Taxes cause deadweight losses because they a. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. b. distort incentives to both buyers and s ellers. c. prevent buyers and sellers from realizing some of the gains from trade. d. All of the above are correct.

reduced trade restrictions among Canada, Mexico, and the United States.

The North American Free Trade Agreement is an example of the unilateral approach to free trade. eliminated tariffs on imports to North America from the rest of the world. reduced trade restrictions among Canada, Mexico, and the United States. eliminated quotas between North America and China.

inelastic supply and inelastic demand.

The deadweight loss from a tax per unit of good will be smallest in a market with inelastic supply and elastic demand. inelastic supply and inelastic demand. elastic supply and elastic demand. elastic supply and inelastic demand.

exporting steel and the price per ton in Russia increased to $1,000.

The world price of a ton of steel is $1,000. Before Russia allowed trade in steel, the price of a ton of steel there was $650. Once Russia allowed trade in steel with other countries, Russia began exporting steel and the price per ton in Russia remained at $650. exporting steel and the price per ton in Russia increased to $1,000. importing steel and the price per ton in Russia remained at $650. importing steel and the price per ton in Russia increased to $1,000.

The losses of domestic consumers of the good exceed the gains of domestic producers of the good.

When a country allows trade and becomes an exporter of a good, which of the following is not a consequence? The price paid by domestic consumers of the good increases. The price received by domestic producers of the good increases. The losses of domestic consumers of the good exceed the gains of domestic producers of the good. The gains of domestic producers of the good exceed the losses of domestic consumers of the good.

increase tax revenue and decrease the deadweight loss.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will decrease tax revenue and decrease the deadweight loss. decrease tax revenue and increase the deadweight loss. increase tax revenue and decrease the deadweight loss. increase tax revenue and increase the deadweight loss.

consumer surplus decreases and total surplus decreases in the market for that good.

When a country that imports a particular good imposes a tariff on that good, consumer surplus increases and total surplus increases in the market for that good. consumer surplus increases and total surplus decreases in the market for that good. consumer surplus decreases and total surplus increases in the market for that good. consumer surplus decreases and total surplus decreases in the market for that good.

a. both buyers and sellers of the good are made worse off.

When a good is taxed, a. both buyers and sellers of the good are made worse off. b. only buyers are made worse off, because they ultimately bear the burden of the tax. c. only sellers are made worse off, because they ultimately bear the burden of the tax. d. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

c. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.

When the nation of Worldova allows trade and becomes an exporter of silk, a. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova rises. b. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova falls. c. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises. d. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova falls.

b. the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good

Which of the following quantities decrease in response to a tax on a good? a. the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus b. the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good c. the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus d. None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

C

Table 7-10 Seller Cost (Dollars) LeBron 700 Kobe 600 Kevin 450 Steve 400 Refer to Table 7-10. 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?

5

Table 7-5 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. First Orange Second Orange Third Orange Allison$2.00$1.50$0.75 Bob$1.50$1.00$0.60 Charisse$0.75$0.25$0 Refer to Table 7-5. If the market price of an orange is $0.90, then the market quantity of oranges demanded per day is 2.8 5. 2. 3. 4.

decreasesby$0.95.

Table 7-5 For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of theday. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied perday. First Orange Second Orange Third Orange Allison$2.00$1.50$0.75 Bob$1.50$1.00$0.60 Charisse$0.75$0.25$0 Refer to Table 7-5. If the market price of an orange increases from $0.80 to $1.05, then consumer surplus increases by $0.75. decreasesby$0.95. decreases by $0.75. decreases by $1.00.

C

Ally mows lawns for a living. Ally's out-of-pocket expenses (for equipment, gasoline, and so on) plus the value that she places on her own time amount to her a. producer surplus. b. producer deficit. c. cost of mowing lawns. d. profit.

$5

Refer to Figure 8-2. The amount of tax revenue received by the government is $2.50. $4. $5. $9.

B

The area below a demand curve and above the price measures a. producer surplus. b. consumer surplus. c. excess supply. d. willingness to pay.

C

A major difference between tariffs and import quotas is that a. tariffs create deadweight losses, but import quotas do not. b. tariffs help domestic consumers, and import quotas help domestic producers. c. tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import. d. All of the above are correct.

A

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is a. zero. b. negative and the consumer would not purchase the product. c. positive and the consumer would purchase the product. d. There is not enough information given to answer this question.

B

Refer to Figure 8-7. The tax causes consumer surplus to decrease by the area a. A. b. B + C. c. A + B + C. d. A + B + C+ D + F.

B

Refer to Figure 9-1. As a result of trade, total surplus increases by a. $80. b. $97.50. c. $162.50. d. $495.50.

B

Refer to Figure 9-1. With free trade, consumer surplus is a. $45. b. $80. c. $210. d. $245.

B

Refer to Figure 9-5. Before the tariff is imposed, this country a. imports 200 carnations. b. imports 400 carnations. c. exports 200 carnations. d. exports 400 carnations.

C

Refer to Figure 9-5. When a tariff is imposed in the market, domestic producers a. gain by $100. b. gain by $200. c. gain by $300. d. lose by $100

D

Refer to Table 7-4. If the price is $775, who would be willing to supply the product? a. Dale and Jill b. Dale, Jill and Denise c. Denise, Catherine and Jackson d. Catherine and Jackson

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

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.

b.$0.60<P<$2.00.

Table 7-5 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. First Orange Second Orange Third Orange Allison$2.00$1.50$0.75 Bob$1.50$1.00$0.60 Charisse$0.75$0.25$0 Refer to Table 7-5. The market quantity of oranges demanded per day is exactly 7 if the price of an orange, P, satisfies a. $0.60 < P < $0.75. b.$0.60<P<$2.00. c. $0.25 < P < $0.75. d. $0.25 < P < $0.60.

a. the value of everything she must give up to produce a good.

A seller's opportunity cost measures a. the value of everything she must give up to produce a good. b. amount she is paid for a good minus her cost of providing it. c. consumer surplus. d. out of pocket expenses to produce a good but not the value of her time.

A

A tax levied on the sellers of a good shifts the a. supply curve upward (or to the left). b. supply curve downward (or to the right). c. demand curve upward (or to the right). d. demand curve downward (or to the left).

B

Efficiency in a market is achieved when a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. b. the sum of producer surplus and consumer surplus is maximized. c. all firms are producing the good at the same low cost per unit. d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

increase.

If the cost of producing sofas decreases causing the price of sofas to decrease, consumer surplus in the sofa market will increase. decrease. remain constant. increase for some buyers and decrease for other buyers.

zero

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is zero. negative, and the consumer would not purchase the product. positive, and the consumer would purchase the product. There is not enough information given to answer this question.

may increase, decrease, or remain the same.

If the size of a tax increases, tax revenue increases. decreases. remains the same. may increase, decrease, or remain the same.

A

Producer surplus measures a. the benefits to sellers of participating in a market. b. the costs to sellers of participating in a market. c. the price that buyers are willing to pay for sellers' output of a good or service. d. the benefit to sellers of producing a greater quantity of a good or service than buyers demand.

B

Refer to Figure 7-1. When the price rises from P1 to P2, consumer surplus a. increases by an amount equal to A. b. decreases by an amount equal to B + C. c. increases by an amount equal to B + C. d. decreases by an amount equal to C

D

Refer to Figure 7-4. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers? a. BCE b. ACF c. DEF d. ABED

B

Refer to Figure 7-5. If the price of the good is $8.50, then producer surplus is a. $6.50. b. $8.00. c. $9.50. d. $11.00.

B

Refer to Figure 7-8. Buyers who value this good less than price are represented by which line segment? a. AC. b. CE. c. BC. d. CD.

JNL.

Refer to Figure 7-8. Total surplus can be measured as the area JNK. JNML. JRL. JNL.

J + K + L + M.

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. Total surplus after the tax is measured by the area I + Y. J + K + L + M. I + Y + B. I + J + K + L + M + Y.

C

Refer to Figure 8-2. Which of the following equations is valid for the loss in producer surplus caused by the tax? a. Loss of producer surplus = (1/2)(P2 + P1)(Q1 + Q2). b. Loss of producer surplus = (1/2)(P2 + P1)(Q1 - Q2). c. Loss of producer surplus = (1/2)(P2 - P1)(Q1 + Q2). d. Loss of producer surplus = (1/2)(P2 - P1)(Q1 - Q2).

B

Refer to Figure 9-1. Without trade, consumer surplus is a. $210. b. $245. c. $455. d. $490

C

Refer to Figure 9-5. The imposition of a tariff on carnations a. increases the number of carnations imported by 100. b. increases the number of carnations imported by 200. c. decreases the number of carnations imported by 200. d. decreases the number of carnations imported by 400.

$250

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is $250. $500. $750. $1,000.

c. quadruples.

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax a. also doubles. b. triples. c. quadruples. d. rises by a factor of 8.

d. All of the above are correct.

Table 7-5 For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of theday. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied perday. First Orange Second Orange Third Orange Allison$2.00$1.50$0.75 Bob$1.50$1.00$0.60 Charisse$0.75$0.25$0 Refer to Table 7-5. Which of the following statements is correct? a. Neither Bob's consumer surplus nor Charisse's consumer surplus can exceed Allison's consumer surplus, for any price ofan orange. b. All three individuals will buy at least one orange only if the price of an orange is less than $0.25. c. If the price of an orange is $0.60, then consumer surplus is $4.90. d. All of the above are correct.

A

Taxes a. distort incentives and this distortion causes markets to allocate resources inefficiently. b. distort incentives and this distortion results in an inequitable allocation of resources. c. do not distort incentives, but they do cause markets to allocate resources inefficiently. d. do not distort incentives, but they do result in an inequitable allocation of resources.

a. positively related.

The size of a tax and the deadweight loss that results from the tax are a. positively related. b. negatively related. c. independent of each other. d. equal to each other.

B

To measure the gains and losses from a tax on a good, economists use the tools of a. macroeconomics. b. welfare economics. c. international-trade theory. d. circular-flow analysis.

D

When a country is on the upward-sloping side of the Laffer curves, an increase in the tax rate will a. decrease tax revenue and decrease the deadweight loss. b. decrease tax revenue and increase the deadweight loss. c. increase tax revenue and decrease the deadweight loss. d. increase tax revenue and increase the deadweight loss.

D

When a tax is imposed on a good for which demand is elastic and supply is elastic, a. sellers effectively pay the majority of the tax. b. buyers effectively pay the majority of the tax. c. the tax burden is equally divided between buyers and sellers. d. None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

may increase, decrease, or remain unchanged.

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

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

Which of the following events would increase producer surplus? Sellers' costs stay the same and the price of the good increases. Sellers' costs increase and the price of the good stays the same. Sellers' costs increase and the price of the good decreases. Sellers' costs stay the same and the price of the good decreases.

C

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward? a. As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. b. As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. c. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. d. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.

C

If the tax on a good is doubled, the deadweight loss of the tax a. remains constant. b. doubles. c. quadruples. d. decreases by a percentage that cannot be determined without further information.

D

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that a. Moldova can only import goods; it cannot export goods. b. Moldova's choice of which goods to export and which goods to import is not based on the principle of comparative advantage. c. only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant. d. Moldova is a price taker

cost of building fences.

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his producer surplus. producer deficit. cost of building fences. profit.

$3

Refer to Figure 8-2. The per-unit burden of the tax on buyers is $2. $3. $4. $5.

D + F.

Refer to Figure 8-4. The tax causes producer surplus to decrease by the area D + F. D + F + G. D + F + J. D + F + G + H.

A

Refer to Figure 8-7. The tax causes producer surplus to decrease by the area a. D + F. b. D + F + G. c. D + F + J. d. D + F + G + H

C

Refer to Table 7-3. If the market price of an orange is $1.20, the market quantity of oranges demanded per day is a. 1. b. 2. c. 3. d. 4

might increase or decrease.

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus would necessarily increase even if the higher price resulted in a surplus of widgets. would necessarily decrease because the higher price would create a surplus of widgets. might increase or decrease. would be unaffected.

the marginal buyer's willingness to pay for the 100th unit of the good is $25.

Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then the marginal buyer's willingness to pay for the 100th unit of the good is $25. the sum of the five buyers' willingness to pay for the 100th unit of the good is $25. the average of the five buyers' willingness to pay for the 100th unit of the good is $25. all of the five buyers are willing to pay at least $25 for the 100th unit of the good.

D

When a buyer's willingness to pay for a good is equal to the price of the good, a. the buyer's consumer surplus for that good is maximized. b. the buyer will buy as much of the good as the buyer's budget allows. c. the price of the good exceeds the value that the buyer places on the good. d. the buyer is indifferent between buying the good and not buying it.

$64.

Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is $40. $64. $12. $56.

below the demand curve and above price.

On a graph, consumer surplus is represented by the area between the demand and supply curves. below the demand curve and above price. below the price and above the supply curve. below the demand curve and to the right of equilibrium price.

B

Refer to Figure 8-7. The deadweight loss of the tax is represented by the area a. B + D. b. C + F. c. A + C + F + J. d. B + C + D + F.

$300.

Refer to Table 7-7. If the market price is $1,000, the producer surplus in the market is $1000. $300. $1,700. $700.

d. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the a. first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. b. first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. c. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. d. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

Allison

Table 7-5 For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of theday. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied perday. First Orange Second Orange Third Orange Allison$2.00$1.50$0.75 Bob$1.50$1.00$0.60 Charisse$0.75$0.25$0 Refer to Table 7-5. Who experiences the largest loss of consumer surplus when the price of an orange increases from$0.70 to $1.40? Allison Bob Charisse All three individuals experience the same loss of consumer surplus.

D

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate a. increases, and producer surplus increases. b. increases, and producer surplus decreases. c. decreases, and producer surplus increases. d. decreases, and producer surplus decreases.

less elastic the supply of labor will be.

The less freedom young mothers have to work outside the home, the more elastic the supply of labor will be. less elastic the supply of labor will be. more horizontal the labor supply curve will be. larger is the decrease in employment that will result from a tax on labor.

C

The world price of a simple electronic calculator is $5.00. Before Singapore allowed trade in calculators, the price of a calculator there was $4.00. Once Singapore began allowing trade in calculators with other countries, Singapore began a. importing calculators and the price of a calculator in Singapore increased to $5.00. b. importing calculators and the price of a calculator in Singapore remained at $4.00. c. exporting calculators and the price of a calculator in Singapore increased to $5.00. d. exporting calculators and the price of a calculator in Singapore remained at $4.00.

A

When a country takes a unilateral approach to free trade, it a. removes trade restrictions on its own. b. reduces its trade restrictions while other countries do the same. c. does not remove trade restrictions no matter what other countries do. d. is willing to trade with multiple countries at once.

16

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of 5. 9. 16. 24.

A

Refer to Figure 9-5. Without trade, the equilibrium price of carnations is a. $8 and the equilibrium quantity is 300. b. $6 and the equilibrium quantity is 200. c. $6 and the equilibrium quantity is 400. d. $4 and the equilibrium quantity is 500.

D

Which of the following is not a commonly-advanced argument for trade restrictions? a. the jobs argument b. the national-security argument c. the infant-industry argument d. the efficiency argument

B

Refer to Figure 8-7. The government collects tax revenue that is represented by the area a. L. b. B + D. c. C + F. d. F + G + L.

D

Refer to Figure 9-1. With free trade, this country will a. import 40 baskets. b. import 70 baskets. c. export 35 baskets. d. export 65 baskets

sellers' costs.

A supply curve can be used to measure producer surplus because it reflects the actions of sellers. quantity supplied. sellers' costs. the amount that will be purchased by consumers in the market.

B

A tariff on a product a. enhances the economic well-being of the domestic economy. b. increases the domestic quantity supplied. c. increases the domestic quantity demanded. d. results in an increase in producer surplus that is greater than the resulting decrease in consumer surplus.

c. The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon.

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss? a. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. b. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. c. The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. d. There is insufficient information to make this determination.

A

For any country, if the world price of computers is higher than the domestic price of computers without trade, that country should a. export computers, since that country has a comparative advantage in computers. b. import computers, since that country has a comparative advantage in computers. c. neither export nor import computers, since that country cannot gain from trade. d. neither export nor import computers, since that country already produces computers at a low cost compared to other countries.

a. benefits to sellers of participating in a market.

Producer surplus measures the a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market. c. price that buyers are willing to pay for sellers' output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

C

Refer to Figure 7-1. When the price is P1, consumer surplus is a. A. b. A + B. c. A + B + C. d. A + B + D.

AHGB

Refer to Figure 7-4. Which area represents the increase in producer surplus when the price rises from P1 to P2? BCG ACH ABGD AHGB

$2,500

Refer to Figure 7-5. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? $625 $1,250 $2,500 $5,000

B

Refer to Figure 9-5. When the tariff is imposed, domestic consumers a. lose by $500. b. lose by $900. c. gain by $500. d. gain by $900.

C

Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is $30, then their total consumer surplus is a. $-10. b. $-6. c. $20. d. $30.

$100 or slightly less.

Refer to Table 7-8. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for $50 or slightly more. $100 or slightly less. $150 or slightly less. $200 or slightly more.

$400

Refer to Table 7-9. The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market? $0 $300 $400 $700

C

Sally sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Sally is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Sally is rational in deciding how many knives to sharpen. Her producer surplus is a. $0.25. b. $0.50. c. $1.00. d. $1.75.

C

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and it decreases producer surplus by $4,400. The deadweight loss of the tax is a. $200. b. $400. c. $600. d. $1,200.

b. increases by more than 20 percent.

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax a. increases by 20 percent. b. increases by more than 20 percent. c. increases but by less than 20 percent. d. decreases by 20 percent.

4

Table 7-4For each of the 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. ​ Willingness to Pay (Dollars) First Orange Second Orange Third Orange Allison 2.00 1.50 0.75 Bob 1.50 1.00 0.60 Charisse 0.75 0.25 0.00 ​ Refer to Table 7-4. If the market price of an orange is $0.90, then the market quantity of oranges demanded per day is 5. 2. 3. 4.

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

Table 7-5 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. First Orange Second Orange Third Orange Allison$2.00$1.50$0.75 Bob$1.50$1.00$0.60 Charisse$0.75$0.25$0 Refer to Table 7-5. If the market price of an orange is $0.40, then a. 6 oranges are demanded per day, and consumer surplus amounts to $4.95. 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 $5.30. d. 7 oranges are demanded per day, and consumer surplus amounts to $5.15.

a.$3.90.

Table 7-5 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. First Orange Second Orange Third Orange Allison$2.00$1.50$0.75 Bob$1.50$1.00$0.60 Charisse$0.75$0.25$0 Refer to Table 7-5. If the market price of an orange is $0.65, then consumer surplus amounts to a.$3.90. b. $6.75. c. $3.60. d. $7.50.

C

The marginal seller is the seller a. for whom the marginal cost of producing one more unit of output is the lowest among all sellers, and the marginal buyer is the buyer for whom the marginal benefit of one more unit of the good is the highest among all buyers. b. who supplies the smallest quantity of the good among all sellers, and the marginal buyer is the buyer who demands the smallest quantity of the good among all buyers. c. who would leave the market first if the price were any lower, and the marginal buyer is the buyer who would leave the market first if the price were any higher. d. who has the largest producer surplus, and the marginal buyer is the buyer who has the largest consumer surplus.

D

Welfare 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.

B

When a good is taxed, the burden of the tax a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is more inelastic. c. falls more heavily on the side of the market that is closer to unit elastic. d. is distributed independently of relative elasticities of supply and demand.

D

When a nation first begins to trade with other countries and the nation becomes an exporter of corn, a. this is an indication that the world price of corn exceeds the nation's domestic price of corn in the absence of trade. b. this is an indication that the nation has a comparative advantage in producing corn. c. the nation's consumers of corn become worse off and the nation's producers of corn become better off. d. All of the above are correct

Consumer and producer surplus

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable? Profits and costs to firms Consumer and producer surplus The equilibrium price and quantity Incomes of and prices paid by buyers

A

Willingness to pay a. measures the value that a buyer places on a good. b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.