Econ 2000 mid term 2

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus

might increase or decrease

Which of the following causes the price paid by buyers to be different than the price received by sellers?

Tax on the good

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for

a. $3.50 each.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

a. The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Which of the following is an example of a positive externality?

a. The mayor of a small town plants flowers in the city park.

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

a. demand is more inelastic than the supply.

If the government removes a binding price ceiling from a market, then the price paid by buyers will

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

The dead weight loss from a tax per unit of good will be smallest in a market with

a. inelastic supply and inelastic demand.

Producer surplus is

a. the amount a seller is paid minus the cost of production.

Which of the following causes a shortage of a good?

b. Binding price ceiling

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 when she hires someone to clean her house for a week. Which of the following is correct?

c. Erin will now clean her own house.

Consider the U.S. market for chocolate, a market in which the government has imposed a nonbinding price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling?

c. South American cocoa bean producers refuse to ship to chocolate producers in the United States.

If a binding price floor is imposed on the video game market, then

c. a surplus of video games will develop.

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

c. decreases, and producer surplus decreases.

An externality is the uncompensated impact of

c. one person's actions on the well-being of a bystander.

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

c. supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.

Suppose the government imposes a 20-cent tax on the sellers of artificially-sweetened beverages. The tax would shift

c. supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages.

When an externality is present, the market equilibrium is

d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

We can say that the allocation of resources is efficient if

d. total surplus is maximized.

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes

decreases, and the consumer surplus in the market for red wine decreases.

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market

may increase, decrease, or remain unchanged.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

zero

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?

8

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. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

10$

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

a. Dallas's consumer surplus would increase.

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

a. a smaller quantity of the good is bought and sold.

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

c. At the current output level, the marginal social benefit exceeds the marginal private benefit.

The distinction between efficiency and equality can be described as follows:

d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

A seller's opportunity cost measures the

value of everything she must give up to produce a good.