Microeconomics True and False: CH 5,6,7
A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay
False
At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.
False
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.
False
Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it
False
Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.
False
Demand is inelastic if the elasticity is greater than 1.
False
Economists use the term tax incidence to refer to who is legally responsible for paying the tax.
False
Efficiency 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
False
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.
False
If the price elasticity of demand is equal to 0, demand is unit elastic.
False
Joel has a 1966 Mustang, which he sells to Susie, an avid car collector. Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car. Susie's consumer surplus is $2,000.
False
The area above the demand curve and below the price measures the consumer surplus in a market
False
The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years
False
The flatter the demand curve that passes through a given point, the more inelastic the demand.
False
The incidence of a tax depends on whether the tax is levied on buyers or sellers.
False
Total surplus in a market can be measured as the area below the supply curve and the area above the demand curve.
False
Total surplus in a market is consumer surplus minus producer surplus.
False
Welfare economics is the study of the welfare system.
False
Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or the seller.
False
underproduction is caused by the increase in price
False
when demand equals supply the deadweight loss is maximized
False
The area below the price and above the supply curve measures the producer surplus in a market.
True
The demand for Rice Krispies is more elastic than the demand for cereal.
True
The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers.
True
The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.
True
The price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent. The price elasticity of demand is 3.
True
The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good
True
Total surplus = Value to buyers - Costs to sellers.
True
When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.
True
When markets fail, public policy can potentially remedy the problem and increase economic efficiency
True
market is efficient when there is neither underproduction or overproduction because there is no deadweight loss
True
when there is a deadweight loss we can be certain that the entire society experiences a loss
True
A government imposed tax on a market shrinks the size of the market.
True
A tax on golf clubs will cause the equilibrium market price of golf clubs to increase, and the equilibrium quantity sold to decrease.
True
A tax on sellers shifts the supply curve upward by exactly the size of the tax.
True
Consumer surplus measures the benefit to buyers of participating in a market
True
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.
True
Economic policies often have effects that their architects did not intend or anticipate.
True
Efficiency is related to the size of the economic pie, where equity is related to how the pie gets sliced and distributed.
True
Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.
True
For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay
True
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
True
Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
True
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.
True
If demand is perfectly inelastic, the demand curve is vertical, and elasticity is equal to 0.
True
In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.
True
In general, a tax burden falls more heavily on the side of the market that is more inelastic.
True
In order for market outcomes to maximize the total benefits to buyers and sellers, the markets must be perfectly competitive.
True
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.
True
Necessities tend to have price inelastic demands, whereas luxuries have price elastic demands.
True
Policymakers use taxes both to raise revenue for public purposes and to influence market outcomes.
True
Producer surplus is the amount a seller is paid minus the cost of production.
True
