Econ

If the size of a tax doubles, the deadweight loss doubles.

false

Suppose a tax of $5 per unit is imposed on a good, and that 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

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

$3.50 each

Suppose that when the price of goof X increases from $800 to $580, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross-price elasticity of demand is about

1.2, and X a Y are substitutes

A manufacturer produces 400 unites when the market price is $10 per unit and produces 600 unites when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.2

Suppose the price elasticity of supply for cheese is 0.6, in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 1.5 percent, then the quantity supplied of cheese will increase by

9 percent in the short run and 21 percent in the long run

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

Dallas's consumer surplus would increase

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

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

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

Market quantity supplied does not change when the price changes

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

Which of the following is true when the price of a good or service rises?

Some buyers exit the market

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

which of the following is not a determinant of the price elasticity of demand for a good?

The steepness or flatness of the supply curve for the good

Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink the buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct?

This tax causes the demand curve for the fountains drinks to shift downwards by $0.50 at each quantity

A tax on the buyers of cameras encourages

a buyers to demand a smaller quantity at every price

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,

a shortage of treadmills will develop

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frames levied on picture frames will increase the price paid by buyers of picture frames by

between $0.50 and $1

When a good is taxed,

both buyers and sellers of the good are made worse off

Price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price

To fully understand how taxes affect economic well-being, we must

compare the reduced welfare of buyers and sellers to the amount of revenue the government raises

All else equal, what happens to consumer surplus if the price of a good increases?

consumer surplus decreases

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year

A binding price floor causes quantity supplied to be less than quantity demanded

false

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

A large majority of economists favor eliminating the minimum wage

false

A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied

false

A tax on buyers shifts the demand curve to the right

false

Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price

false

If we observe that when the consumers' incomes rise by 10%, the quantity demanded of ice cream increases by 5%, then ice cream is an inferior good

false

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic

false

Prices are inefficient rationing devices

false

Rent-control laws dictate a minimum rent that landlords may charge tenants

false

Renters of rent-controlled apartments will likely benefit from both lower rents and higher quality of apartments

false

Studies by economists have found that a 10 percent increase in the minimum wage decrease teenage employment 10 percent

false

Supply tends to be more elastic in the short tun and more inelastic in the long run

false

The distribution of the burden of a tax depends strictly on the elasticity of supply

false

The more inelastic are demand and supply, the greater is the deadweight loss of a tax

false

When a tax is imposed on a good, the result is always a shortage of the good

false

When a tax is imposed on buyers, consumer surplus decreases but producer surplus increases

false

Whether the minimum wage is a binding price floor always depends upon whether the economy is in a recession

false

what the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know the candy bar is...

inelastic

To say that a price ceiling is nonbinding is to say that the price ceiling

is set above the equilibrium price

The supply of good will be more elastic, the

longer the time period being considered

A result of welfare economies that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers

When OPEC raised the price crude oil in the 1970s, it caused the United States'

nonbinding price ceiling on gasoline to become binding

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

one year after the price increase

A legal minimum on the price at which a good can be sold is called a

price floor

The imposition of a binding price ceiling on a market causes

quantity demanded to be greater than quantity supplied

Moving production from a high-cost producer to a low-cost producer will

raise total surplus

When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied

Cost is a measure of the

seller's willingness to sell

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

smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax

A payroll tax is a

tax on the wages that firms pay their workers

If a price floor is not binding, then

the equilibrium price is above the price floor

A simultaneous increase in both demand for tablets and the supply of tablets and the supply of tablets would imply that

the value of tablets to consumers has increased, and the cost of producing tablets has decreased

Producer surplus directly measures

the well-being of sellers

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold

A key determinant of the price elasticity of supply is the

time horizon

A price ceiling caused the gasoline shortage of 1973 in the United States

true

A tax on a good causes the size of the market to shrink

true

A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and shrink the market

true

A tax on buyers decrease demand

true

A tax on sellers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tac was levied

true

Cross-price elasticity is used to determine whether goods are substitutes or complements

true

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue

true

Even though federal law mandates that workers and firms each pay half of the total FICA tax, the tax burden may not fall equally on workers and firms

true

FICA is an example of payroll tax, which is a tax wages that firms their workers

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 the demand curve is very elastic and the supply curve is very inelastic in a market, then the sellers will bear a greater burden of a tax imposed on the market, even id the tax is imposed on the buyers

true

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is unit price inelastic

true

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price

true

In order to calculate consumer surplus in a market, we need to know willingness to pay and price

true

In order to conclude that markets are efficient, we assume that they are perfectly competitive.

true

Minimum-wage laws dictate the lowest wage that firms may pay workers

true

Normal goods have positive income elasticities of demand, while inferior goods have negative income elasticities of demand

true

One common example of a price floor is the minimum wage

true

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls

true

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

Taxes create deadweight losses

true

The Social Security tax, and to a large extent, the federal income tax, are labor taxes

true

The more elastic the supply, the larger the deadweight loss from a tax, all else equal

true

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase

true

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price

true

Who bears the majority of a tax burden depends on the relative elasticity of supply and demand

true

Workers determine the supply of labor, and firms determine the demand for labor

true

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is...

unit elastic

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