ECO 1305 Test 2

Refer to Figure 9-3. The size of the tariff on roses is

$1

Refer to Figure 9-1. With trade, total surplus in the Guatemalan coffee market amounts to

1,870

A tax on buyers shifts the demand curve to the right.

False

When a country that imports a particular good imposes an import quota on that good,

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

A minimum wage that is set below a market's equilibrium wage will result in an excess

none of the other answers

An alternative to rent-control laws that would not reduce the quantity of housing supplied is

the payment by government of a fraction of a poor family's rent

Refer to Figure 9-2. The increase in total surplus resulting from trade is

$1,280, since consumer surplus increases by $3,520 and producer surplus falls by $2,240.

Refer to Figure 8-2. Total surplus without the tax is

$10, and total surplus with the tax is $7.50.

Refer to Figure 9-3. The amount of deadweight loss caused by the tariff equals

$100

(Refer to the figure) If the price of the good is $12, then consumer surplus is

$16

(Refer to the figure) If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus to existing producers?

$2500

(Refer to the figure) If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus?

$2500

Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10, the cost of mowing the second lawn is $12, and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is

$30

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm A produces a monitor that Cassie buys but David does not, then the market outcome illustrates which of the following principles? (i) Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. (ii) Free markets allocate the demand for goods to the sellers who can produce them at the least cost.

(ii) only

What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?

Consumer surplus may increase, decrease, or remain unchanged

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $40 if she hires Ernesto to clean her house for a week. Which of the following is correct?

Erin will now clean her own house

All else equal, a decrease in demand will cause an increase in producer surplus

False

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

False

If the government imposes a binding price floor in a market, then the consumer surplus in that market will increase.

False

Suppose you buy an iPod for $100. If your consumer surplus is $30, your willingness to pay is $70.

False

When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

False

Without free trade, the domestic price of a good must be equal to the world price of a good.

False

Refer to Figure 8-8. Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?

Graph (a)

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

I + J + K + L + M + Y

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

J+K+L+M

(Refer to the figure) If the supply curve is S and the demand curve shifts from D to D', what is the change in producer surplus?

Producer surplus increases by $3,125

Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Roland and Karla still can engage in a mutually-agreeable trade.

Which of the following quantities decrease in response to a tax on a good?

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

Suppose Yolanda needs a dog sitter so that she can travel to her sister's wedding. Yolanda values dog sitting for the weekend at $200. Rebecca is willing to dog sit for Yolanda so long as she receives at least $175. Yolanda and Rebecca agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

The lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda

What generally happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases

Suppose you sell a kayak for $600, but you were willing to sell it for $450. The buyer was willing to pay $650. The total surplus is $200.

True

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.

Long times

are an inefficient rationing mechanism because they waste buyers' time, and discrimination according to seller bias is an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly.

Under rent control, bribery is a mechanism to

bring the total price of an apartment (including the bribe) closer to the equilibrium price.

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

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

deadweight loss due to the tax.

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

decrease, and the quantity sold in the market will increase

Refer to Figure 9-1. When trade in coffee is allowed, consumer surplus in Guatemala

decreases by the area B + D

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

decreases, and producer surplus decreases

(Refer to the figure) The price ceiling causes quantity

demanded to exceed quantity supplied by 85 units

Refer to Figure 9-1. With trade, Guatemala will

export 22 units of coffee.

The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began

exporting almonds and the price per pound in Uruguay increased to $4.50.

Refer to Figure 9-3. When a tariff is imposed in the market, domestic producers

gain $150 of producer surplus.

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

he fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that

if Wheatland were to allow trade, it would import corn.

When the supply of a good increases and the demand for the good remains unchanged, consumer surplus

increases

Refer to Figure 9-1. When trade in coffee is allowed, producer surplus in Guatemala

increases by the area B + D + G.

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

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

If a tax is levied on the sellers of a product, then the demand curve will

not shift.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by L + M + Y represents

producer surplus before the tax.

Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?

producers of steel and consumers of incense

When the nation of Worldova allows trade and becomes an exporter of silk,

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.

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

slow replacement of old rental cars with newer ones

A tax levied on the sellers of a good shifts the

supply curve upward by the size of the tax.

A tax on an imported good is called a

tariff

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

tax revenue

The government's benefit from a tax can be measured by

tax revenue

Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

$1

Refer to Figure 9-2. With trade, producer surplus is

$1000

Refer to Figure 6-10. The amount of the tax per unit is

$14

Refer to Figure 9-3. The amount of revenue collected by the government from the tariff is

$200

Refer to Figure 6-10. The price that buyers pay after the tax is imposed is

$24

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

Refer to Figure 8-2. The amount of tax revenue received by the government is

$5

(Refer to the figure) If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus due to new producers entering the market?

$625

Refer to Figure 6-10. The per-unit burden of the tax on buyers is

$8

(Refer to the figure) A government-imposed price of $6 in this market could be an example of a (i) binding price ceiling. (ii) non-binding price ceiling. (iii) binding price floor. (iv) non-binding price floor.

(i) and (iv) only

Refer to Figure 9-5. Consumer surplus in this market after trade is

A+B+D

A tax on sellers increases supply.

False

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

Which of the following statements regarding a Laffer curve is the most plausible?

Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

True

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

True

(Refer to the figure) If the price of the good is $6, then consumer surplus is

$36

Refer to Figure 8-4. The tax causes consumer surplus to decrease by the area

B+C

Refer to Figure 6-12. Suppose a tax of $5 per unit is imposed on this market. Which of the following is correct?

Sellers will bear more of the burden of the tax than buyers will.

taxes create deadweight losses

True

A shortage results when a

binding price ceiling is imposed on a market.

Motor oil and gasoline are complements. If the price of motor oil decreases, consumer surplus in the gasoline market

may increase, decrease, or remain unchanged