Test 3-Microeconomics
A surplus results when a
binding price floor is imposed on a market
If a price floor is not binding, then
there will be no effect on the market price or quantity sold.
All else equal, what happens to consumer surplus if the price of a good increases?
Consumer surplus decreases
A consumer's willingness to pay directly measures
how much a buyer values a good
Under rent control, tenants can expect
lower rent and lower quality housing
tax incidence
depends on the elasticities of supply and demand
If Gina sells a shirt for $40, and her producer surplus from the sale is $32, her cost must have been
$8
Which of the following causes a surplus of a good?
a binding price floor
A price floor is
a legal minimum on the price at which a good can be sold often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor a source of inefficiency in a market
Which of the following causes the price paid by buyers to be different than the price received by sellers?
a tax on the good
A price floor will be binding only if it is set
above the equilibrium price
A price ceiling will be binding only if it is set
below the equilibrium price
A price ceiling is binding when it is set
below the equilibrium price, causing a shortage
to say that a price floor is binding is to say that the price floor
causes quantity supplied to exceed quantity demanded
A tax placed on a good
causes the equilibrium quantity of the good to decrease
The benefit to buyers of participating in a market is measured by
consumer surplus
total surplus with a tax is equal to
consumer surplus plus producer surplus plus tax revenue
the decrease in total surplus that results from a market distortion, such as a tax, is called a
deadweight loss
if the government removes a tax on a good, then the price paid by buyers will
decrease, and the price received by sellers will increase
if the government removed a binding price floor from a market, then the price paid by buyers will
decrease, and the quantity sold in the market will increase
The price paid by buyers in a market will decrease if the government
decreases a tax on the good sold in that market
if the government removes a binding price ceiling from a market, then the price paid by buyers will
increase, and the quantity sold in the market will increase
An increase in the size of a tax is most likely to increase tax revenue in a market with
inelastic demand and inelastic supply
If a nonbinding price ceiling is imposed on a market, then the
quantity sold in the market will stay the same
When a tax is placed on a product, the price paid by buyers
rises, and the price received by
When a tax is placed on a product, the price paid by buyers
rises, and the price received by sellers falls
Cost is a measure of the
seller's willingness to sell
When a binding price ceiling is imposed on a market to benefit buyers
some buyers benefit, and some buyers are harmed
the benefit that government receives from a tax is measured by
tax revenue
suppose the tax on liquor is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that
tax revenue increases, and the deadweight loss increases
Welfare economics is the study of how
the allocation of resources affects economic well-being
Consumer surplus is
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
If a price ceiling is not binding, then
the equilibrium price is below the price ceiling
