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cost is a measure of the

seller's willingness to sell

do buyers or sellers bear more of the tax burden with an inelastic supply and elastic demand?

sellers bear most of the tax burden

because of shortage

sellers must ration the goods among buyers

economists as policy advisors

use theories to help change the world for the better

the maximum price that a buyer will pay for a good is called

willingness to pay

the amount of tax on each unit of the good is

$5

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is

$500

consumer surplus without the tax is

$6, and consumer surplus with the tax is $1.5

if the government imposes a price floor of $110 in this market, then consumer surplus will decrease by

$600

Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is

$62.5

the equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market?

$400

both the demand curve and supply curve are straight lines. at equilibrium, consumer surplus is

$48

Evan purchases a wall calendar for $9, and his consumer surplus is $1. How much is Evan willing to pay for the wall calendar?

$10

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing their event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game?

$10

total surplus without the tax is

$10, and total surplus with the tax is $7.5

Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be

$18

the amount of deadweight loss as a result of the tax is

$2.5

the vertical distance between points E and F represents a tax in the market. The per-unit burden of the tax on buyers is

$3

producer surplus without the tax is

$4, and producer surplus with the tax is $1

evaluating price controls - markets are usually a good way to organize economic activity

-Economists usually oppose price ceilings and price floors -Prices are not the outcome of some haphazard process -Prices have the crucial job of balancing supply and demand (coordinating economic activity)

minimum wage laws - the minimum wage has its greatest impact on the market for teenage labor

-Least skilled and least experienced -Willing to accept a lower wage in exchange for on-the-job training -A 10% increase in minimum wage decreases teenage employment by 1-3% -Focus on the effects in short-run -Long-run effects: harder to estimate, but more relevant and likely larger

when a good is taxed

-buyers and sellers of the good share the burden of the tax

opponents of the minimum wage: not the best way to combat poverty

-causes unemployment, encourages teenagers to dropout of school, prevents some unskilled workers from getting on-the-job training -minimum-wage workers: less than a third of minimum-wage earners are in families with incomes below the poverty line, many are teenagers from middle-class homes working at part-time jobs for extra spending money

long-run effects of minimum wage laws

-harder to estimate, but more relevant and likely larger impacts on teenage workers -increase in quantity supplied of labor, higher number of teenagers who choose to look for jobs

tax incidence

-how the burden of a tax is shared among makrets -manner in which the burden of a tax is shared among participants in a market -the government can make the seller or the buyer to pay the tax

rationing mechanisms

-long lines -discrimination according to sellers' biases -often unfair and inefficient, the goods do not necessarily go to the buyers who value them most highly

government policies

-often have effects that their architects did not intend or anticipate -alter the private market outcome -price controls -taxes

advocates of the minimum wage

-one way to raise the income of working poor -workers who earn the minimum wage can afford only a meager standard of living

buyers and sellers share the tax burden

-the incidence of tax depends on the price elasticities of supply and demand -most of the burden falls on the side of the market that is less elastic

evaluating price controls - governments can sometimes improve market outcomes

-want to use price controls because of unfair market outcome, aimed at helping the poor -often hurt those they are trying to help -other ways of helping those in need: rent subsidies and wage subsidies (earned income tax credit)

who pays the luxury tax?

1990, Congress adopted a new luxury tax -on yachts, private planes, furs, jewelry, expensive cars -goal: to raise revenue from those who could most easily afford to pay

The market equilibrium quantity of output is

3 units.

The socially optimal quantity of output is

5 units.

Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 2 if the price is

950

not binding price ceiling

has no effect on the market outcome

total surplus in this market before trade is

A + B + C

total surplus in this market after trade is

A + B + C + D

At equilibrium, consumer surplus is represented by the area

A+B+C

Which area represents producer surplus when the price is P2?

ACH

If the price of the product is $110, then who would be willing to purchase the product?

Calvin, Sam, and Andrew

the deadweight loss created by the tariff is represented by the area

D + F

government revenue raised by tariff is represented by the area

E

In which of the following cases is the Coase theorem most likely to solve the externality?

Ed is allergic to his roommate's cat

Which of the following statements is not correct?

Government policies cannot improve upon private market outcomes.

Which graph represents a market with a negative externality?

Graphs (b) only

assume, for india, that the domestic price of copper without international trade is lower than the world price of copper. this suggests that, in the production of copper,

India has a comparative advantage over the other countries and India will export copper

price floor

Legal minimum on the price at which a good can be sold (ex: minimum wage laws) -binding if above the equilibrium price (surplus) -buyers' demands for the good or service must in some way be rationed among sellers

If all external costs were internalized, then the market's output would be

Q2.

The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point

Q2.

The socially optimal quantity would be

Q2.

The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

Q3 to point Q2.

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by the government can be expressed as

T x Q

Which of the following is NOT a way of internalizing technology spillovers?

Taxes

Which of the following is not an advantage of corrective taxes?

They subsidize the production of goods with positive externalities.

graph (a) and graph (b) each illustrate a $4 tax placed on a market. in comparison to graph (a), graph (b) illustrates which of the following statements?

When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.

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

Your neighbor plants a nice garden in front of his house.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke.

which of the following not an advantage of a multilateral approach to free trade over a unilateral approach?

a multilateral approach requires the agreement of two or more nations

This market is characterized by

a negative externality.

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost.

do buyers or sellers bear more of the tax burden with an elastic supply and inelastic demand?

buyers bear most of the tax burden

binding price ceiling

causes a shortage

when the price falls from P2 to P1, producer surplus

decrease by an amount equal to A+B

elasticity/inelasticity in demand and supply of luxury items

demand: elastic supply: inelastic

how is the tax burden divided?

depends on the elasticity of demand and elasticity of demand and elasticity of supply

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

when the government levies a tax on a good, the equilibrium quantity does what?

equilibrium quantity of the good falls -the tax places a wedge between the price paid by buyers and the price received by sellers -buyers pay more for the good and sellers receive less for it

equilibrium price is above the ceiling...

illegal and binding

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

importing televisions and the price of a television in Paraguay decreased to $300.

the tariff

increases producer surplus by the area C, decreases consumer surplus by the area C + D + E + F, and decreases total surplus by the area D + F.

the deadweight loss from a tax per unit of good will be smallest in a market with

inelastic supply and inelastic demand

a price ceiling above the equilibrium price...

is not binding

(inelastic supply, elastic demand) is it easier for sellers or buyers to leave the market?

it's easier for buyers to leave the market than sellers

(elastic supply, inelastic demand) is it easier for sellers or buyers to leave the market?

it's easier for sellers than buyers to leave

the social security tax is a tax on

labor

price ceiling

legal maximum on the price at which a good can be sold (ex: rent-control laws) -binding if below the equilibrium price (shortage) -sellers must in some way ration the good or service among buyers

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

maximizes the combined welfare of buyers and sellers

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

as a result of a decrease in price

new buyers enter the market, increasing consumer surplus

An externality is the uncompensated impact of

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

the size of a tax and the deadweight loss that results from the tax are

positively related

not binding price floor

price floor is below the equilibrium price, so not binding, and has no effect on the market

According to the Coase theorem, private parties can solve the problem of externalities if

property rights are clearly defined.

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

a tax imposed on buyers

shifts the D curve down by the amount of the tax

tax on sellers

shifts the S curve up by the amount of the tax

When positive externalities are present in a market

social benefits will be greater than private benefits.

binding price ceiling in long run

supply and demand are more price-elastic, so the shortage is larger

outcome of tax imposed on buyers vs sellers

the effects on P and Q, and the tax incidence are the same whether the tax is imposed on buyers or sellers

binding price floor

the equilibrium price is below the floor, therefore illegal, and causes a surplus (unemployment)

When a country allows trade and becomes an exporter of silk, which of the following is not a consequence?

the gains of domestic producers of silk exceed the losses of domestic consumers of silk

as a result of the tax,

the market experiences a deadweight loss of $80

tax drives a wedge between...

the price buyers pay and the price sellers receive

From the given information, it is apparent that

the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable.

A simultaneous increase in both the demand for 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

government uses taxes...

to raise revenue for public projects (roads, schools, and national defense)


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