Microeconomics Chapter 7&8

How much a buyer values a good

A consumer's willingness to pay directly measures*

buyers, sellers, and the government

A tax affects*

Consumer surplus plus producer surplus

An efficient allocation of resources maximizes

Inelastic demand and inelastic supply

An increase in the size of a tax is most likely to increase tax revenue in a market with*

Consumer Surplus

Can be computed by finding the area below the demand curve and above the price

Producer Surplus

Can be computed by finding the area below the price and above the supply curve

consumer surplus is $20 larger than producer surplus

Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much as $300 for the massage, but they negotiate a price of $200. In this transaction,

Increases by less than 50 percent and may even decline

Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve.If a 10 cent per pound tax is increased to 15 cents, the government's tax revenue

$0, $-10, $0

Sofia pays Sam $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sam, he raises his price to $60. Sofia continues to hire him at the higher price.What is the change in producer surplus, change in consumer surplus, and deadweight loss?

Consumer Surplus

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Producer Surplus

The amount a seller is paid for a good minus the sellers cost of providing it

Equality

The property of distributing economics prosperity uniformly among the members of society

Tax on a Good

The reduction in consumer and producer surplus usually exceeds the revenue raised by the government

Welfare Economics

The study of how the allocation of resources affects economic well-being

Highest, lowest

When a market is in equilibrium, the buyers are those with the ________ willingness to pay, and the sellers are those with the ________ costs.

Consumer Surplus

measures the benefit buyers get from participating in a market

total surplus

the sum of consumer and producer surplus

The equilibrium price of good x is somewhere b/w $35 & $40, the equilibrium quantity of good x exceeds 500 units, 500 units is not an efficient quantity of good x

500 units of good x are currently bought and sold. The marginal buyer is willing to pay $40. for the 500th unit, and the cost to the marginal seller is $35 for the 500th unit. We know that*

Upward by exactly $3.50

A $3.50 tax per gallon of paint placed on the sellers of paint will shift the supply curve*

Induces buyers to consume less, and sellers to produce less

A deadweight loss in a consequence of a tax on a good is because the tax*

Elastic demand and elastic supply

A decrease in the size of a tax is most likely to increase tax revenue in a market with*

The reduction in consumer and producer surplus is greater than the tax revenue

A tax on a good has a deadweight loss if

Demand curve for the airline tickets downward, decreasing the price received by sellers of airline tickets and causing the quantity of airline tickets to decrease

A tax placed on buyers of airline tickets shifts the*

An upside-down U

According to Arthur Laffer, the graph that represents the amount tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like*

Tax revenue increases at first, but it eventually peaks and then decreases

As the tax on a goof increases from $1 per unit to $2 per unit to $3 per unit and so on, the*

A base of the triangle that represents the deadweight loss doubles, height of the triangle that represents the deadweight loss doubles, deadweight loss of the tax quadruples

Assume that for good x, the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubles, the*

There is insufficient information to make this determination

Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?*

Diana and Charles will agree to a new price somewhere between $85 and $100

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is 475 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?*

The elasticity of labor supply

Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about*

Tax on labor

Economists generally agree that the most important tax in the U.S economy is the*

Increase by more than 50 percent

Eggs have a supply curve that is linear and upward-sloping and a demand curve that is linear and downward-sloping.If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the taxC

Deadweight loss of the tax

Fall in total surplus

$8

If Gina sells a shirt for $40, and her producer surplus from the sale is $32, her cost must have been*

$4

If a consumer surplus is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to*

Small, small

If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ________ elasticities of demand and ________ elasticities of supply

Between $100 and $200

John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Jasmine enters the market and begins tutoring as well.How much does producer surplus rise as a result of this price increase?

In the presence of market failures such as market power or externalities

Markets do not allocate resources efficiently when?

Producer Surplus

Measures the benefit sellers get from participating in a market

Positive but less than the marginal seller's cost

Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is

Tax on a Good

Reduces the welfare of buyers and sellers of the good

Government's Tax Revenue

The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase the

Producer Surplus

The amount sellers receive for their goods minus their costs of production

It falls by less than $100

The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100.If the price rises to $3, what happens to consumer surplus?

Willingness to Pay

The maximum amount that a buyer will pay for a good

Efficiency

The property of a resource allocation of maximizing the total surplus received by all members of a society

Total surplus

The sum of consumer surplus, producer surplus, and tax revenue

Cost

The value of everything a seller must give up to produce a good

Effecient

an allocation of resources that maximizes total surplus is said to be

Consumer Surplus

buyers' willingness to pay for a good minus the amount they actually pay

Deadweight loss

the fall in total surplus that results form a market distortion, such as a tax