Micro Exam Chapters 7 and 8

The lower the price, the lower the consumer surplus, all else equal. a. TRUE b. FALSE

b. FALSE

The only four consumers in a market have the following willingness to pay for a good: Buyer Willingness to Pay Carlos $15 Quilana $25 Wilbur $35 Ming-la $45 Refer to Table 7-3. If the price is $20, then consumer surplus in the market is A. $45, and Quilana, Wilbur, and Ming-la purchase the good. B. $45, and Carlos and Quilana purchase the good. C. $55, and Carlos, Wilbur, and Ming-la purchase the good. D. $20, and Wilbur and Ming-la purchase the good.

A. $45, and Quilana, Wilbur, and Ming-la purchase the good.

Which of the following will cause an increase in consumer surplus? A. a technological improvement in the production of the good B. a decrease in the number of sellers of the good C. an increase in the production cost of the good D. the imposition of a binding price floor in the market

A. a technological improvement in the production of the good

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

D. in a market to buyers and sellers that is not offset by an increase in government revenue.

A. $900.

If the market price increases to $130 due to an increase in demand, then producer surplus is A. $900. B. $1,950. C. $1,800. D. $975.

C. $1,000.

If the price of the good is $600, then producer surplus amounts to A. $650. B. $800. C. $1,000. D. $900.

C. $2,500

If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? A. $625 B. $1,250 C. $2,500 D. $5,000

D. total surplus after the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+L+M represents A. deadweight loss from the tax. B. tax revenue. C. total surplus before the tax. D. total surplus after the tax.

B. D+H.

Suppose that the government imposes a tax of P3 - P1. Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area A. C+H. B. D+H. C. A. D. F.

B. S4.

Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by A. S3. B. S4. C. S2. D. S1.

A. (P2-P8) x Q2.

Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The tax revenue is A. (P2-P8) x Q2. B. (P5-P8) x Q5. C. (P0-P2) x Q2. D. (P2-P5) x Q5.

A. $300.

Suppose the price of the good is $400. Then, on the first unit of the good that is sold, producer surplus amounts to A. $300. B. $200. C. $400. D. $450.

D. $52.50.

The vertical distance between points A and B represents a tax in the market. Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is A. $45.25. B. $35.00. C. $105.00. D. $52.50.

C. $2,400.

The vertical distance between points A and B represents a tax in the market. Refer to Figure 8-6. Without a tax, producer surplus in this market is A. $3,600. B. $3,000. C. $2,400. D. $1,500.

B. P3.

The vertical distance between points A and C represents a tax in the market. Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is A. P1. B. P3. C. P4. D. P2.

A. $2,500

What is the consumer surplus if the price is $100? A. $2,500 B. $20,000 C. $10,000 D. $5,000

B. A+B+C.

When the price is P2, producer surplus is A. A. B. A+B+C. C. D+G. D. A+C.

All else equal, an increase in demand will cause an increase in producer surplus. a. TRUE b. FALSE

a. TRUE

Consumer surplus measures the benefit to buyers of participating in a market. a. TRUE b. FALSE

a. TRUE

Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being. a. TRUE b. FALSE

a. TRUE

Free markets allocate (a) the supply of goods to the buyers who value them most highly and (b) the demand for goods to the sellers who can produce them at least cost. a. TRUE b. FALSE

a. TRUE

Ticket scalping can increase total surplus in the market for tickets to sporting events. a. TRUE b. FALSE

a. TRUE

All else equal, an increase in demand will always increase consumer surplus. a. TRUE b. FALSE

b. FALSE

Which of the following statements is correct? A. Buyers always want to pay less and sellers always want to be paid more. B. Buyers always want to pay more and sellers always want to be paid more. C. Buyers always want to pay more and sellers always want to be paid less. D. Buyers always want to pay less and sellers always want to be paid less.

A. Buyers always want to pay less and sellers always want to be paid more.

Externalities are A. side effects passed on to a party other than the buyers and sellers in the market. B. side effects of government intervention in markets. C. external forces that help establish equilibrium price. D. external forces that cause the price of a good to be higher than it otherwise would be.

A. side effects passed on to a party other than the buyers and sellers in the market.

The Laffer curve relates A. the tax rate to tax revenue raised by the tax. B. government welfare payments to the birth rate. C. the price elasticity of supply to the deadweight loss of the tax. D. the tax rate to the deadweight loss of the tax

A. the tax rate to tax revenue raised by the tax.

A. the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.

Area A represents A. the increase in producer surplus to those producers already in the market when the price increases from P1 to P2. B. the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. C. producer surplus to new producers entering the market as the result of an increase in price from P1 to P2. D. the increase in consumer surplus that results from an upward-sloping supply curve.

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. If Karla hires Roland to mow her lawn, Roland's producer surplus is A. $25. B. $5. C. $2. D. $3.

B. $5.

The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a Chicago Cubs vs. St. Louis Cardinal's baseball game at Wrigley Field. Buyer Willingness to Pay Jennifer $10 Bryce $15 Dan $20 David $25 Ken $50 Lisa $60 Refer to Table 7-4. If tickets sell for $25 each, then what is the total consumer surplus in the market? A. $25 B. $60 C. $110 D. $35

B. $60

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. $600. C. $400. D. $1,200.

B. $600.

If a tax shifts the demand curve upward (or to the right), we can infer that the tax was levied on A. buyers of the good. B. We cannot infer anything because the shift described is not consistent with a tax. C. sellers of the good. D. both buyers and sellers of the good.

B. We cannot infer anything because the shift described is not consistent with a tax.

The benefit to sellers of participating in a market is measured by the A. amount sellers receive for their product. B. producer surplus. C. sellers' willingness to sell. D. amount of taxes collected on sales of the good.

B. producer surplus.

Which of the following quantities decrease in response to a tax on a good? A. the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus B. the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good C. the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus D. None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

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

The amount of deadweight loss that results from a tax of a given size is determined by A. the number of buyers in the market relative to the number of sellers. B. the price elasticities of demand and supply. C. whether the tax is levied on buyers or sellers. D. the ratio of the tax per unit to the effective price received by sellers.

B. the price elasticities of demand and supply.

uppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market A. decreases. B. is unchanged. C. may increase, decrease, or remain unchanged. D. increases.

C. may increase, decrease, or remain unchanged.

The only four consumers in a market have the following willingness to pay for a good: Buyer Willingness to Pay Carlos $15 Quilana $25 Wilbur $35 Ming-la $45 Refer to Table 7-3. 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 consumer surplus will be A. $0 or slightly more. B. $45 or slightly less. C. $30 or slightly more. D. $10 or slightly less.

D. $10 or slightly less.

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is A. $575. B. $750. C. $1,325. D. $175.

D. $175.

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total of A. $10. B. $30. C. $5. D. $25.

D. $25.

The amount of deadweight loss from a tax depends upon the A. amount of the tax per unit. B. price elasticity of demand. C. price elasticity of supply. D. All of the above are correct.

D. All of the above are correct.

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct? A. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. B. The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone. C. Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer. D. For the three individuals together, consumer surplus amounts to $35.

D. For the three individuals together, consumer surplus amounts to $35.

The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. Seller Cost Marcia $200 Jan $250 Cindy $350 Greg $400 Peter $700 Bobby $800 Refer to Table 7-13. You wish to purchase 10 piano lessons, so you take bids from each of the sellers. The bids are required to be rounded to the nearest dollar. You will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. Your parents have given you $450 to spend on piano lessons. You believe that the sellers with higher opportunity costs offer higher quality lessons. You want the highest quality lessons that you can afford, but you can spend any remaining money on dinner with friends. From whom will you take lessons, and how much money will you spend? A. Peter; $450 B. Cindy; $450 C. Cindy; $401 D. Greg; $401

D. Greg; $401

Who once said that taxes are the price we pay for a civilized society? A. Milton Friedman B. Theodore Roosevelt C. Arthur Laffer D. Oliver Wendell Holmes, Jr.

D. Oliver Wendell Holmes, Jr.

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is . If 90 units of the good are produced and sold, then producer surplus amounts to $1,350. a. TRUE b. FALSE

a. TRUE

The area below the price and above the supply curve measures the producer surplus in a market. a. TRUE b. FALSE

a. TRUE

The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market. a. TRUE b. FALSE

a. TRUE

The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good. a. TRUE b. FALSE

a. TRUE

Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers. a. TRUE b. FALSE

a. TRUE

Economists generally believe that, although there may be advantages to society from ticket-scalping, the costs to society of this activity outweigh the benefits. a. TRUE b. FALSE

b. FALSE

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

b. FALSE

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is . If 80 units of the good are produced and sold, then producer surplus amounts to $1,200. a. TRUE b. FALSE

b. FALSE