ECON HW 5

11. 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 a. $250. b. $500. c. $750. d. $1,000.

A

24. Refer to Figure 1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents a. tax revenue. b. consumer surplus before the tax. c. producer surplus after the tax. d. total surplus before the tax.

A

28. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

A

32. Suppose the nation of Canada forbids international trade. In Canada, you can obtain a hockey stick by trading 5 baseball bats. In other countries, you can obtain a hockey stick by trading 8 baseball bats. These facts indicate that a. if Canada were to allow trade, it would export hockey sticks. b. Canada has an absolute advantage, relative to other countries, in producing hockey sticks. c. Canada has a comparative advantage, relative to other countries, in producing baseball bats. d. All of the above are correct

A

5. When a tax is imposed on the buyers of a good, the demand curve shifts a. downward by the amount of the tax. b. upward by the amount of the tax. c. downward by less than the amount of the tax. d. upward by more than the amount of the tax.

A

1. Anger over British taxes played a significant role in bringing about the a. election of John Adams as the second American president. b. American Revolution. c. War of 1812. d. "no new taxes" clause in the U.S. Constitution.

B

47. At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true? a. The quotas are probably the result of lobbying from U.S. consumers of sugar. The quotas increase consumer surplus for the United States, reduce producer surplus for the United States, and harm foreign sugar producers. b. The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers. c. The quotas are probably the result of lobbying from foreign producers of sugar. The quotas reduce producer surplus for the United States, increase consumer surplus for the United States, and benefit foreign sugar producers. d. U.S. lawmakers did not need to be lobbied to impose the quotas because total surplus for the United States is higher with the quotas than without them.

B

55. Refer to Figure 2. The increase in total surplus in China when trade is allowed is a. $400. b. $500. c. $600. d. $750.

B

39. When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country a. cannot experience significant gains or losses by trading with other countries. b. cannot have a significant comparative advantage over other countries. c. cannot affect world prices by trading with other countries. d. All of the above are correct.

C

33. A tariff is a tax placed on a. an exported good and it lowers the domestic price of the good below the world price. b. an exported good and it ensures that the domestic price of the good stays the same as the world price. c. an imported good and it lowers the domestic price of the good below the world price. d. an imported good and it raises the domestic price of the good above the world price.

D

4. When a tax is imposed on the sellers of a good, the a. demand curve shifts downward by less than the amount of the tax. d. supply curve shifts upward by the amount of the tax. c. supply curve shifts upward by less than the amount of the tax.

D

48. Suppose France subsidizes French wheat farmers, while Germany offers no subsidy to German wheat farmers. As a result of the French subsidy, sales of French wheat to Germany a. may prompt German farmers to invoke the unfair-competition argument. b. increase the consumer surplus of German buyers of wheat. c. increase the total surplus of the German people. d. All of the above are correct.

D

29. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the a. deadweight loss due to the tax. b. loss in consumer surplus due to the tax. c. loss in producer surplus due to the tax. d. total surplus before the tax.

A

34. For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should a. export copper, since that country has a comparative advantage in copper. b. import copper, since that country has a comparative advantage in copper. c. neither export nor import copper, since that country cannot gain from trade. d. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

A

35. Assume, for Mexico, that the domestic price of oranges without international trade is lower than the world price of oranges. This suggests that, in the production of oranges, a. Mexico has a comparative advantage over other countries and Mexico will export oranges. b. Mexico has a comparative advantage over other countries and Mexico will import oranges. c. other countries have a comparative advantage over Mexico and Mexico will export oranges. d. other countries have a comparative advantage over Mexico and Mexico will import oranges.

A

41. When the nation of Duxembourg allows trade and becomes an importer of software, a. residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises. b. residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg falls. c. residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg rises. d. residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg falls.

A

42. Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began a. importing televisions and the price of a television in Paraguay decreased to $300. b. importing televisions and the price of a television in Paraguay remained at $350. c. exporting televisions and the price of a television in Paraguay decreased to $300. d. exporting televisions and the price of a television in Paraguay remained at $350.

A

46. Suppose France imposes a tariff on wine of 3 euros per bottle. If government revenue from the tariff amounts to 30 million euros per year and if the quantity of wine supplied by French wine producers, with the tariff, is 8 million bottles per year, then we can conclude that a. the quantity of wine demanded by France, with the tariff, is 18 million bottles per year. b. the quantity of wine demanded by France, without the tariff, would be 24 million bottles per year. c. the amount of the deadweight loss is 24 million euros per year. d. the tariff causes French buyers of wine to pay 2 euros more per bottle than they would pay without the tariff.

A

50. Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that a. foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding. b. foreign competition may cause unemployment in import-competing industries, but the increase in consumer surplus due to free trade is more valuable than the lost jobs. c. the critics are correct, so countries must protect their industries with tariffs or quotas. d. foreign competition may cause unemployment in import-competing industries, but the increase in the variety of goods consumers can choose from is more valuable than the lost jobs

A

51. Refer to Figure 2. With no international trade, a. the equilibrium price is $12 and the equilibrium quantity is 300. b. the equilibrium price is $16 and the equilibrium quantity is 200. c. the equilibrium price is $16 and the equilibrium quantity is 300. d. the equilibrium price is $16 and the equilibrium quantity is 450.

A

8. Deadweight loss measures the loss a. in a market to buyers and sellers that is not offset by an increase in government revenue. b. in revenue to the government when buyers choose to buy less of the product because of the tax. c. of equality in a market due to government intervention. d. of total revenue to business firms due to the price wedge caused by the tax.

A

12. Suppose a tax of $5 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $10,000 and decreases producer surplus by $15,000. The deadweight loss of the tax is $2,500. The tax decreased the equilibrium quantity of the good from a. 6,500 to 5,500. b. 5,500 to 4,500. c. 5,000 to 3,000. d. 6,000 to 4,000.

B

13. Suppose a tax of $3 is imposed on each new garden hose that is sold, resulting in a deadweight loss of $22,500. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. Before the tax was imposed, the equilibrium quantity of garden hoses was 100,000. We can conclude that the equilibrium quantity of garden hoses after the tax is imposed is a. 75,000. b. 85,000. c. 90,000. d. 95,000.

B

15. When a good is taxed, the burden of the tax a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is more inelastic. c. falls more heavily on the side of the market that is closer to unit elastic. d. is distributed independently of relative elasticities of supply and demand.

B

16. The deadweight loss from a tax of $2 per unit will be smallest in a market with a. inelastic supply and elastic demand. b. inelastic supply and inelastic demand. c. elastic supply and elastic demand. d. elastic supply and inelastic demand.

B

23. Refer to Figure 1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area a. I+Y. b. J+K+L+M. c. I+Y+B. d. I+J+K+L+M+Y.

B

27. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

B

3. A tax on a good a. raises the price that buyers effectively pay and raises the price that sellers effectively receive. b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive. c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive. d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.

B

36. Suppose Ireland exports beer to China and imports pineapples from the United States. This situation suggests that a. Ireland has a comparative advantage relative to the United States in producing pineapples, and China has a comparative advantage relative to Ireland in producing beer. b. Ireland has a comparative advantage relative to China in producing beer, and the United States has a comparative advantage relative to Ireland in producing pineapples. c. Ireland has an absolute advantage relative to the United States in producing pineapples, and China has an absolute advantage relative to Ireland in producing beer. d. Ireland has an absolute advantage relative to China in producing beer, and the United States has an absolute advantage relative to Ireland in producing pineapples.

B

37. Suppose that Honduras opens its markets to international trade. As a result of this, the domestic price of coffee decreases. We can conclude that a. Honduras has a comparative advantage in the production of coffee. b. Honduras has begun to import coffee into the country. c. the price of coffee in Honduras prior to the opening of trade was lower than the world price. d. Honduras should specialize in the production of coffee.

B

38. When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy, a. producer surplus increases and total surplus increases in the market for that good. b. producer surplus increases and total surplus decreases in the market for that good. c. producer surplus decreases and total surplus increases in the market for that good. d. producer surplus decreases and total surplus decreases in the market for that good.

B

54. Refer to Figure 2. Relative to a no-trade situation, which of the following comes with trade? a. Consumer surplus increases by $1,800 and producer surplus increases by $1,600. b. Consumer surplus decreases by $1,000 and producer surplus increases by $1,500. c. Consumer surplus decreases by $1,000 and producer surplus increases by $1,750. d. Total surplus increases by $400.

B

6. A tax placed on buyers of tuxedoes shifts the a. demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase. b. demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease. c. supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase. d. supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease.

B

9. For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is a. $1,750. b. $2,250. c. $3,000. d. $4,500.

B

10. In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by a. 40 per month. b. 50 per month. c. 75 per month. d. 100 per month.

C

18. Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct? a. After the tax is imposed, the equilibrium quantity of diapers is 900 per month. b. The demand for diapers is more elastic than the supply of diapers. c. The deadweight loss of the tax is $12.50. d. The tax causes a decrease in consumer surplus of $380.

C

20. Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that a. tax revenue increases, and the deadweight loss increases. b. tax revenue increases, and the deadweight loss decreases. c. tax revenue decreases, and the deadweight loss increases. d. tax revenue decreases, and the deadweight loss decreases.

C

21. Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss? a. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. b. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. c. The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. d. There is insufficient information to make this determination.

C

26. Refer to Figure 1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

C

30. Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is a. $200. b. $400. c. $600. d. $1,200.

C

31. Patterns of trade among nations are primarily determined by a. cultural considerations. b. political considerations. c. comparative advantage. d. differences in the income elasticity of demand among nations.

C

40. When the nation of Worldova allows trade and becomes an exporter of silk, a. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova rises. b. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova falls. c. 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. d. 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 falls.

C

43. Chile is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Chile imposes a $7 tariff on chips. Which of the following outcomes is possible? a. The price of chips in Chile increases to $19; the quantity of Chilean-produced chips decreases; and the quantity of chips imported by Chile decreases. b. The price of chips in Chile increases to $16; the quantity of Chilean-produced chips increases; and the quantity of chips imported by Chile decreases. c. The price of chips in Chile increases to $19; the quantity of Chilean-produced chips increases; and the quantity of chips imported by Chile decreases. d. The price of chips in Chile increases to $16; the quantity of Chilean-produced chips increases; and the quantity of chips imported by Chile does not change.

C

45. The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes a. benefit the United States as a whole, because they generate revenue for the government. In addition, because the goods are priced below cost, the taxes do not harm domestic consumers. b. benefit the United States as a whole, because they generate revenue for the government and increase producer surplus. c. harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue. d. harm the United States as a whole, because they reduce producer surplus by an amount that exceeds the gain in consumer surplus and government revenue.

C

49. Several arguments for restricting trade have been advanced. Those arguments do not include a. the jobs argument. b. the protection-as-a-bargaining-chip argument. c. the no-deadweight-loss argument. d. the infant-industry argument.

C

14. Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the a. tax is placed on the sellers of the product. b. tax is placed on the buyers of the product. c. supply of the product is more elastic than the demand for the product. d. demand for the product is more elastic than the supply of the product.

D

17. Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal, a. the larger is the decrease in quantity demanded as a result of the tax. b. the smaller is the tax burden on buyers relative to the tax burden on sellers. c. the larger is the deadweight loss of the tax. d. All of the above are correct.

D

19. Which of the following is a tax on labor? a. Medicare tax b. Social Security tax c. federal income tax d. All of the above are labor taxes.

D

2. When a tax is levied on a good, the buyers and sellers of the good share the burden, a. provided the tax is levied on the sellers. b. provided the tax is levied on the buyers. c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. d. regardless of how the tax is levied.

D

22. Refer to Figure 1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area a. I+Y. b. J+K+L+M. c. L+M+Y. d. I+J+K+L+M+Y.

D

25. Refer to Figure 1. Suppose the government imposes a tax of P' - P'''. The area measured by L+M+Y represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

D

44. The nation of Aquilonia 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. We can conclude that Aquilonia's new free-trade policy has a. increased consumer surplus and producer surplus in the incense market. b. increased consumer surplus in the steel market and left producer surplus in the rug market unchanged. c. decreased consumer surplus in both the steel and rug markets. d. decreased consumer surplus in the steel market and increased total surplus in the incense market.

D

52. Refer to Figure 2. With trade, China will a. import 100 pencil sharpeners. b. import 250 pencil sharpeners. c. export 150 pencil sharpeners. d. export 250 pencil sharpeners.

D

53. Refer to Figure 2. With trade, producer surplus in China is a. $800. b. $1,200. c. $1,800. d. $2,700.

D

7. When a tax is levied on a good, a. government collects revenues which might justify the loss in total welfare. b. there is a decrease in the quantity of the good bought and sold in the market. c. a wedge is placed between the price buyers pay and the price sellers effectively receive. d. All of the above are correct.

D