Test 2

Refer to Figure 7-5. If the price of the good is $12, then consumer surplus is

$16

Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

A+B+C

Refer to Table 5-11. Which scenario describes the market for oil in the short run?

D

When demand is elastic, an increase in price will cause

a decrease in total revenue

Economists generally believe that rent control is

a highly inefficient way to help the poor raise their standard of living

Produce surplis is the area

below the price and above the supply curve

Suppose that the market price for pizzas increase. The increase in producer surplus comes from the benefit of the higher prices to

both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

Refer to Figure 6-1. The price ceiling shown in panel (b)

creates a shortage

Demand is elastic if the price elasticity of demand is

greater than 1

A key determinant of the price elasticity of supply is the

length of the time period

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a

rectangle

Ray buys a new tractor for $118,000. He receives consumer surplis of $13,000 on his purchase. Ray's willingness to pay is

$131,000

Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on buyers is

$2

Refer to Figure 8-6. Without a tax, producer surplis in this market is

$2,400

Refer to Figure 7-18. Total surplis amounts to $500 if consumer surplus amount to

$290 and if the price of the good is $150

Refer to Figure 8-9. The imposition of the tax causes the price received by selelrs to decrease by

$300

Refer to Figure 8-9. The amount of deadweight loss as a result of the tax is

$5,000

Refer to Figure 6-13. Which of the following price floors would be binding in this market?

$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

$7.50 each

Refer to Figure 7-9. If the price of the good is $9.50, then producer surplus is

$8.50

Tome tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third for $140, and the fourth piano for $160. Assume Tom is deciding how many pianos to tune. HIs producer surplis is

$80

Suppose a tax of $3 per unit is imposed on a good. The supply curve is a typical upward- sloping sraight line, and the demand curve is a typical downward-sloping straight line. The dax decreases consumer surplis by $3,900 and decreases producer surplis by $3,000, The tax generates tax revenue of $6,000. The tax decreased the equilibrium quantity of the good from

2,600 to 2,000

Refer to Figure 6-13. Which of the following statements is correct?

A price floor is set at $6.50 would result in a surplus.

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

A smaller quantity of the good is bought and sold

A binding price floor will reduce a firm's total revenue

when demand is elastic

Refer to Figure 7-23. At equilibrium, total surplus is represented by the area

A+B+C+D+H+F

Refer to Figure 7-10. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?

ABGD

Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

Between $3 and $5

Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to Fg. Which of the following statements is correct?

Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss.

Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. WHich of the following statements is NOT correct.

Compared to the original tax, the larger tax will increase tax revenue.

Refer to FIgure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the largest in the market represented by

D4

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P"". Total surplis before the tax is measured by the area

I+J+K+L+M+Y

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

Refer to Figure 8-3. The amount of the tax on each unit of the good is

P3-P1

In general, deman curves for luxuries tend to be price elastic

True

One common example of a price ceiling is rent control.

True

When demand is inelastic, a decrease in price will cause

an decrease in total revenue

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

bothing existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices

A good will have a more inelastic demand, the

broader the definition of the market.

Price ceiling and price floors that are binding

cause surpluses and shortages to persist

To say that a price floor is binding is to say that the price floor

causes quantity supplied to exceed quantity demanded

Demand is said to be unit elastic if quantity demanded

changes by the same percent as the price

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P"". The area measured by J+K+I represents

consumer surplis before the tax

Total surplis is

equal to the totaly balue to buyers minus the total cost to sellers

If the government levies a $5 tax per MP3 player on the buyers of MP3 players, then the price paid by buyers of MP3 players would likely

increase by less than $5

Refer to Figure 6-5. Suppose the market is initially in equilibrium, Then the government imposes a price control, as represented by the solid horitzontal line on the graph. If the price control is a price floor, then the price control

means that some firms will not be able to sell all that they want

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

one year after the price increases

Refer to Figure 8-8. One effect of the tax is to

reduce producer surplus from $96 to $24

If a tax imposed on a market with inelastic supply and elastic demand, then

sellers will bear most of the burden of the tax

Producer surplis directly measures

the well-being of sellers