exam 2 micro
If the government levies a $10 tax per designer handbag, then the price paid by buyers of designer handbags would
increase by less than $10
Suppose consumer income decreases. If carnations are an inferior good, the equilibrium price of carnations will
increase, and producer surplus in the industry will increase.
If the cost of producing flip-flops decreases, then consumer surplus in the flip-flop market will
increase.
Refer to the Table. If the market price of a cookie is $1.75, then consumer surplus amounts to
$3.25. .If the market price of a cookie is $1.75, then Regina buys one cookie and has $0.25 in consumer surplus ($2.00 - $1.75). Sarah buys two cookies and has $0.75 in consumer surplus [($2.50 - $1.75) + ($1.75 - $1.75)]. Tarek buys three cookies and has $2.25 in consumer surplus [($3.00 - $1.75) + ($2.50 - $1.75) + ($2.00 - $1.75)]. Summing the consumer surplus of all three buyers gives total consumer surplus of $3.25.
Refer to the figure. When the price falls from $45 to $35, consumer surplus
increases by $300 from consumers who were already buying the good now paying a lower price.
Refer to the Figure. If 55 units of the good are being bought and sold, then
the marginal cost to sellers is greater than the marginal value to buyers.
Which of the following will cause an increase in producer surplus?
the number of buyers in the market increases
Suppose the government has imposed a price ceiling on textbooks. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?
the number of students buying textbooks increases .When a price ceiling is not binding, the price ceiling is set higher than the market price. For a non-binding price ceiling to become a binding price ceiling, the market price must increase. When the number of students buying textbooks increases, the demand for textbooks shifts to the right, resulting in a higher market price.
Which of the following would not be considered a cost of Sheryl's Sweeties cupcake business?
the price buyers are willing to pay for Sheryl's cupcakes
After a tax is imposed on the buyers of bottled water, the price buyers pay is $2.50 per bottle and the price sellers receive is $1.75. If the equilibrium price was $2.00 before the tax was imposed on the market, how much is the tax per unit?
$0.75 .The tax per unit is the difference between the price the buyers pay after the tax and the price the sellers receive after the tax. In this case, the tax is ($2.50 − $1.75 =) $0.75 per unit.
Refer to the Figure. If the equilibrium price is $20, what is the producer surplus?
$1,200
Refer to the Table. If the sellers bid against each other for the right to sell the good to a consumer, then the producer surplus will be
$1,200 or slightly less. The sellers will bid up to their cost. XYZ Inc. is only willing to bid $11,000, while ABC Corp. is willing to sell for less. When XYZ Inc. stops bidding, ABC Corp. will not have to bid lower to win the right to sell the good, so the good will sell for $11,000 or slightly less. ABC Corp will have producer surplus of $11,000 - $9,800 = $1,200 or slightly less.
Consumer surplus is a good measure of economic welfare
if policymakers want to respect the preferences of buyers.
Refer to the Table. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for
$11,000 or slightly less.
Refer to the Figure. If the price of the good is $12, then producer surplus is
$12 If the price of the good is $12, two units of the good will be provided. There will be $12 - $3 = $9 in producer surplus on the first unit and $12 - $9 = $3 of producer surplus on the second unit for a total of $12 in producer surplus.
Refer to the Figure. At the equilibrium price, consumer surplus is
$120 .Consumer surplus is measured by the area below the demand curve and above the equilibrium price, which is $8 in this example. The value of consumer surplus is computed as ½ x 40 x ($14 - $8) = $120.
Refer to the Figure. At the equilibrium price, producer surplus is
$120. .Producer surplus is measured by the area above the supply curve and below the equilibrium price, which is $28 in this example. The value of producer surplus is computed as ½ x 10 x ($28 - $4) = $120.
Refer to the Table. If ABC Corp., XYZ Inc., and Acme Products sell the good, and the resulting producer surplus is $5,700, then the price must have been
$13,000. .When the price is $13,000, producer surplus is $13,000 - $12,500 = $500 for Acme Products, $13,000 - $11,000 = $2,000 for XYZ Inc., and $13,000 - $9,800 = $3,200 for ABC Corp. Summing the producer surplus for individual sellers, the total surplus in the market is $500 + $2,000 + $3,200 = $5,700.
Refer to the Table. If the price is $45, then consumer surplus in the market is
$14, and Marisol and Padraig purchase the good. .If the price is $45, only Padraig and Marisol purchase the good because they are the only buyers whose willingness to pay is greater than or equal to the price. Padraig's consumer surplus is $48 - $45 = $3 and Marisol's consumer surplus is $56 - $45 = $11. Total consumer surplus in the market is $14.
Refer to the Table. Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is
$144. Total surplus is measured by the area above the supply curve and below the demand curve up to the equilibrium. The value of total surplus is computed as ½ x 8 x ($36 - $0) = $144.
Sam produces bracelets. His production cost is $12 per bracelet. He sells the bracelets for $28 each. His producer surplus per bracelet is
$16. .Producer surplus is the amount a seller is paid for a good minus the seller's cost of providing it. Sam's producer surplus is $28 - $12 = $16 per bracelet
Refer to the Figure. At the equilibrium price, producer surplus is
$160. Producer surplus is measured by the area above the supply curve and below the equilibrium price, which is $8 in this example. The value of producer surplus is computed as ½ x 40 x ($8 - $0) = $160.
Refer to the Table. If the market price is $6.50, the combined total cost of all participating sellers is
$17.59. .if the market price is $6.50, Adriana, Kenzie, and Ming are willing to sell because their cost is less than the price. Summing their costs, $6.35 + $5.81 + $5.43 = $17.59.
Refer to the Figure. The price that buyers pay after the tax is imposed is
$18
Refer to the figure. When the price rises from $5 to $8, the additional producer surplus to initial producers is
$18 and the producer surplus to new producers who enter because of the price increase is $9.
Refer to the Figure. XYZ, Inc. is a seller of the good. XYZ sells a unit of the good to a buyer and then pays the tax on that unit to the government. XYZ is left with how much money?
$2.00 XYZ sells a unit to a buyer at a price of $5 per unit and pays the $3 tax per unit to the government, leaving XYZ with $2 from selling that unit.
Refer to the Figure. If the price of the good is $80, then consumer surplus amounts to
$20 If the price is $80, then two units will be purchased. For each of the two units purchased, the consumer is willing to pay $90. Consumer surplus is the willingness to pay minus the price, so the total consumer surplus amounts to $20.
Refer to the Figure. At the equilibrium price, consumer surplus is
$200 Consumer surplus is measured by the area below the demand curve and above the equilibrium price, which is $28 in this example. The value of consumer surplus is computed as ½ x 10 x ($68 - $28) = $200.
Refer to the Figure. If the price of the good is $15, then producer surplus is
$21.
Refer to the Figure. If producer surplus is $42, then the price of the good is
$21. If producer surplus is $42, then the price of the good is $21. At a price of $21, four units of the good will be provided. There will be $21 - $3 = $18 of producer surplus on the first unit, $21 - $9 = $12 of producer surplus on the second unit, $21 - $12 = $9 of producer surplus on the third unit, and $21 - $18 = $3 of producer surplus on the fourth unit. Summing across all four units, total producer surplus equals $42.
Refer to the Figure. What is the amount of the tax per unit?
$3 .The amount of the tax is the vertical distance between the two supply curves. At the intersection between D and S2, the price is $5 and the quantity is 80 units. On S1, at a quantity of 80 units, the price is $2. Therefore, the amount of the tax per unit is $5 - $2 = $3.
Refer to the Figure. The per-unit burden of the tax on sellers is
$3 The per-unit burden of the tax on the sellers is the difference between the price at point B, $11, and the equilibrium price before the tax, $14.
Refer to the Figure. If the equilibrium price rises from $20 to $40, what is the additional producer surplus?
$3,600
Refer to the Figure. At the equilibrium price, total surplus is
$320. Total surplus is measured by the area above the supply curve and below the demand curve up to the equilibrium. The value of total surplus is computed as ½ x 10 x ($68 - $4) = $320.
Refer to the figure. When the price falls from $45 to $35, the increase in the benefit that buyers receive from the good, as the buyers themselves perceive it, is
$350. The benefit that buyers receive from the good, as the buyers themselves perceive it, is consumer surplus. When the price falls from $45 to $35, consumer surplus increases for two reasons. Additional consumer surplus to initial consumers is ($45−$35) × 30 units = $300. Consumer surplus from new buyers who enter the market is (1/2 × (40 − 30) × (45 − 35) =) $50.The total increase in consumer surplus is $350.
Refer to the Figure. If the government imposes a price floor of $45 in this market, then consumer surplus will decrease by
$350. When the price is $35, consumer surplus is ½ x 40 x (75-35) = $800. With a price floor of $45, consumer surplus is ½ x 30 x (75-45) = $450. Consumer surplus decreases by ($800 - $450) = $350.
Refer to the Figure. At the equilibrium price, producer surplus is
$36 Producer surplus is the area below the price and above the supply curve. The area of this triangle is ½ x 12 x ($8 - $2) = $36.
Refer to the Figure. The per-unit burden of the tax on buyers is
$4 The tax burden on the buyers is the difference between the price at point A, $18, and the equilibrium price before the tax, $14.
Refer to the Figure. If the equilibrium price is $40, what is the producer surplus?
$4,800 .Producer surplus is measured by the area below the price and above the supply curve. When the price is $40, producer surplus is ½ x 240 x $40 = $4,800.
Refer to the Table. If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for
$48 or slightly more.
Refer to the Table. Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is
$48.
Clarence would be willing to pay $50 to attend an opera, but he buys a ticket for $45. Clarence values the opera at
$50.
Refer to the Figure. The value of the good to consumers minus the cost of the good to consumers amounts to $120 if the price of the good is
$50. .Consumer surplus is $120 if the price of the good is $50. When the price is $50, 4 units will be demanded. Consumer surplus is $40 each on the first two units, $30 on the third unit, and $10 on the fourth unit, for a total of $120.
Refer to the Figure. Which of the following price ceilings would be binding in this market?
$6
Refer to the Figure. The amount of the tax per unit is
$7 The tax is the distance between points A and B; 18-11 = 7.
Refer to the Table. Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 4 if the price is
$7.00.
Refer to the Table. If the market price is $8, the producer surplus in the market is
$7.66. When the market price is $8, Julia, Adriana, Kenzie, and Ming are willing to sell because their cost is less than the market price. Total producer surplus is ($8 - $6.75) + ($8 - $6.35) + ($8 - $5.81) + ($8 - $5.43) = $7.66.
Refer to the Figure. If the price of the good is $60, then consumer surplus amounts to
$80 .If the price is $60, three units will be demanded. Consumer surplus is $30 ($90 - $60) on the first unit, an additional $30 ($90 - $60) on the second unit, and $20 ($80 - $60) on the third unit. Total consumer surplus amounts to $80.
Refer to the Figure. If the price decreases from $11 to $8 due to a shift in the supply curve, consumer surplus increases by
$90 When the price is $11, consumer surplus is ½ x 20 x ($14 - 11) = $30. When price is $8, consumer surplus is ½ x 40 x ($14 - $8) = $120. The increase in consumer surplus is $120 - $30 = $90.
refer to the Table. Both the demand curve and the supply curve are straight lines. At equilibrium, consumer surplus is
$96 Consumer surplus is measured by the area below the demand curve and above the equilibrium price, which is $12 in this example. The value of consumer surplus is computed as ½ x 8 x ($36 - $12) = $96.
Suppose the government has imposed a price floor on cheese. Which of the following events could transform the price floor from one that is binding to one that is not binding?
A bovine disease affects half of the cow population resulting in a higher price for milk.
Refer to the Table. If the market price of a cookie is $2.35, then the market quantity of cookies demanded per day is
3 When the market price of a cookie is $2.35, Tarek buys two cookies and Sarah buys one cookie for a total of three cookies demanded. Regina does not buy any cookies because the price exceeds her willingness to pay for the first cookie.
refer to the Table. Suppose the government imposes a price ceiling of $2 on this market. What will be the size of the shortage in this market?
6 units
Refer to the Table. If the market price of a cookie is $1.00, then the market quantity of cookies demanded per day is
7 When the market price of a cookie is $1.00, Regina buys two cookies, Sarah buys two cookies, and Tarek buys three cookies for a total of seven cookies demanded per day.
Refer to the Figure. Total surplus can be measured as the area
ACE
Refer to the Table. Who experiences the largest loss of consumer surplus when the price of the good increases from $35 to $38?
Alfredo, Padraig, and Marisol experience the same loss. .When the price changes, all three buyers who would be willing to purchase the good lose the same amount of consumer surplus because the price changes by the same amount for all three buyers.
Which of the following is not a likely statement regarding the imposition of a binding price floor on the market for cigarettes?
Buyers of cigarettes have pressured policymakers into imposing the price floor.
If the production technology for smart televisions improves, what happens to consumer surplus in the market for smart televisions?
Consumer surplus increases. .When production technology improves, supply shifts to the right and the equilibrium price decreases. When the price decreases, consumer surplus increases.
Consumer surplus is the difference between the price buyers are willing to pay and the price at which sellers are willing to sell.
False
Refer to the Figure. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?
HJML .Existing producers are those who were producing when the price was P1, or up to Q1. Thus, when the price rises from P1 to P2, the increase in producer surplus for the producers of the first Q1 units of output is HJML.
Refer to the Figure. Which area represents the increase in producer surplus when the price rises from P1 to P2?
HJMN
Refer to the Figure. Which area represents producer surplus when the price is P2?
HKN
Suppose the demand for tea increases. What will happen to producer surplus in the market for tea?
It increases. .When demand increases, price increases and producer surplus increases.
Refer to the Table. If the price is $6.25, who would be willing to supply the product?
Kenzie and Ming If the market price is $6.25, Kenzie, and Ming are willing to sell because their cost is less than the price.
Refer to the Table. If the market price for the good is $40, who will purchase the good?
Marisol, Padraig, and Alfredo only
Which of the following will cause a decrease in consumer surplus?
Sellers expect the price of the good to be higher next month.
Refer to the Table. If price of the product is $700, then who would be willing to purchase the product?
Tessa .Tessa is the only buyer whose willingness to pay is greater than or equal to the product price so only Tessa will purchase the product.
Refer to the Table. If the price of the product is $600, then who would be willing to purchase the product?
Tessa and Joey
Refer to the Table. If the price of the product is $500, then who would be willing to purchase the product?
Tessa, Joey, John, and Helen .All four buyers have a willingness to pay that is greater than or equal to the product price so they will purchase the product.
Refer to the Figure. When the price falls from P1 to P2, which area represents the increase in consumer surplus to new buyers entering the market?
UVW
Refer to the Figure. Which area represents the increase in consumer surplus when the price falls from P1 to P2?
UXYW Consumer surplus when the price is P1 is area WYZ and consumer surplus when the price is P2 is area UXZ, so the increase in consumer surplus when the price falls from P1 to P2 is UXYW.
Refer to the Figure. Which area represents consumer surplus at a price of P2?
UXZ
Refer to the figure. When the price falls from P1 to P2, which area represents the increase in consumer surplus from buyers who were already buying the good before the price decrease?
VXYW
Refer to the Figure. Which area represents consumer surplus at a price of P1?
WYZ The area below the demand curve and above the price is the consumer surplus.
Refer to the Figure. In which of the following cases would the market price serve as a rationing mechanism?
a price floor set at $6
Refer to the Figure. If the government imposes a price ceiling of $6 on this market, then there will be
a shortage of 20 units If the government imposes a price ceiling of $6, the quantity demanded is 50 while the quantity supplied is 30, resulting in a shortage of 20 units.
A policy to help the poor that would not reduce the quantity of housing supplied is
a subsidy from the government to offset a portion of a poor family's rent.
Refer to the Table. A price floor set at $4 will
be binding and will result in a surplus of 6 units.
A $15.00 tax levied on the sellers of car batteries will
cause the supply curve for car batteries to shift to the left by $15.00.
Before OPEC raised the price of crude oil in the 1970s, the price
ceilingon gasoline was not binding, but it became binding and caused a shortage when the supply of gasoline decreased.
If a consumer places a value of $37 on a particular good and if the price of the good is $40, then the
consumer does not purchase the good.
Refer the Table. If the market price of a cookie increases from $2.00 to $2.50, then consumer surplus
decreases by $1.50. .If the market price of a cookie is $2.00, then Regina buys one cookie and has no consumer surplus ($2.00 - $2.00), Sarah buys one cookie and has $0.50 in consumer surplus ($2.50 - $2.00), and Tarek buys three cookies and has $1.50 in consumer surplus [($3.00 - $2.00) + ($2.50 - $2.00) + ($2.00 - $2.00)]. Summing the consumer surplus of all three buyers gives total consumer surplus of $2.00. When the market price rises to $2.50, Regina does not buy any cookies and has no consumer surplus, Sarah buys one cookie and has no consumer surplus ($2.50 - $2.50), and Tarek buys two cookies and has $0.50 in consumer surplus [($3.00 - $2.50) + ($2.50 - $2.50)]. Summing the consumer surplus of all three buyers gives total consumer surplus of $0.50. When the price increases from $2.00 to $2.50, consumer surplus decreases by $1.50.
A tax on the sellers of chocolate
decreases the amount of chocolate that will be bought and sold.
Refer to the Figure. A price ceiling set at $4 causes quantity
demanded to exceed quantity supplied by 20 units.
Refer to the Figure. For quantities less than F, the value to the marginal buyer is
greater than the cost to the marginal seller, so increasing the quantity increases total surplus.
A major university study finds that drinking green tea has many health benefits. As a result, the equilibrium price of green tea
increases, and producer surplus increases. .A study finding health benefits of drinking green tea leads to an increase in demand and an increase in the price of green tea. When the price increases, producer surplus increases.
A payroll tax has the effect of
increasing the wages paid by firms and decreasing the wages received by workers.
The Earned Income Tax Credit is a
method of raising living standards of the working poor without creating unemployment.
If the government removes a $4 tax on buyers of restaurant meals and imposes the same $4 tax on sellers of restaurant meals, then the price paid by buyers will
not change, and the price received by sellers will not change.
Suppose that in a particular market, the supply curve is relatively inelastic and the demand curve is relatively elastic. If a tax is imposed in this market, then the
sellers will bear a greater burden of the tax than the buyers.
Refer to the Figure. A price ceiling at $4.00 causes a
shortage of 20 units.
When OPEC raised the price of crude oil in the 1970s, it caused a
shortage of gasoline as the nonbinding price ceiling became binding.
If the equilibrium wage exceeds the minimum wage, then
there will be no unemployment.
When policymakers impose a luxury tax on buyers of a good,
they are not successful in redistributing income from the rich to the poor. .When a tax is imposed on a good with demand more elastic than its supply, as is the case with luxury goods, the burden of the tax falls more heavily on the sellers of the good than on the buyers. The imposition of a luxury tax does not successfully redistribute income from wealthy buyers of luxury goods to the poor.
Economists typically measure efficiency using
total surplus.
Refer to the Figure. How is the burden of the tax shared between buyers and sellers? Buyers bear
two-thirds of the burden, and sellers bear one-third of the burden.
Suppose Aila and Vika attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that she will bid for a spa weekend at a resort. This maximum is called
willingness to pay.
Suppose your own demand curve for sweaters slopes downward. Suppose also that, for the last sweater you bought this week, you paid a price exactly equal to your willingness to pay. Then
your consumer surplus on the last sweater you bought is zero.