Macroeconomics Chapter 6 & 7

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases.

A tax on the buyers of cereal will increase the price of cereal paid by buyers,

decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.

The tax burden will fall most heavily on sellers of the good when the demand curve

is relatively flat, and the supply curve is relatively steep.

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it

maximizes the combined welfare of buyers and sellers.

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before the tax

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Producer surplus is

the amount a seller is paid minus the cost of production

A legal maximum on the price at which a good can be sold is called a price

ceiling.

If a price ceiling is not binding, then

the equilibrium price is below the price ceiling.

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

A technological advance makes cellular phone production less expensive.

A price floor is binding when it is set

above the equilibrium price, causing a surplus.

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?

It increases.

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,

a shortage of treadmills will develop.

When a tax is placed on the buyers of lemonade, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

A tax on the sellers of coffee will increase the price of coffee paid by buyers,

decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

If the government removes a binding price floor from a market, then the price received by sellers will

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

Total surplus is represented by the area below the

demand curve and above the supply curve, up to the equilibrium quantity.

A tax on buyers will shift the

demand curve downward by the amount of the tax.

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the

demand is more inelastic than the supply.

The imposition of a binding price floor on a market causes quantity demanded to be

greater than quantity supplied.

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

In response to a shortage caused by the imposition of a binding price ceiling on a market,

price will no longer be the mechanism that rations scarce resources. long lines of buyers may develop. sellers could ration the good or service according to their own personal biases. *All of the above are correct.

A $0.10 tax levied on the sellers of chocolate bars will cause the

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

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold.