Practice test

Refer to Figure 1. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is not correct?

Compared to the original tax, the larger tax will increase tax revenue.

Five hundred 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 A. the equilibrium price of good x is somewhere between $35 and $40. B. the equilibrium quantity of good x exceeds 500 units. C. 500 units is not an efficient quantity of good x. D. All of the above are correct.

D. All of the above are correct.

Refer to Figure 2. From the figure it is apparent that

Guatemala has a comparative advantage in producing coffee, relative to the rest of the world.

An increase in quantity demanded

Results in a movement downward and to the right along a demand curve

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

In the broadest sense, economics is the study of

how society manages its scarce resources

When a binding price ceiling is imposed on a market to benefit buyers,

some buyers benefit, and some buyers are harmed.

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales.

Consumer surplus is equal to the

value to buyers - amount paid by buyers

Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is

$64

Refer to Figure 2. In the absence of trade, total surplus in the Guatemalan coffee market amounts to

1,650

Refer to Figure 2. With trade, total surplus in the Guatemalan coffee market amounts to

1,870

Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can wash two windows per hour or he can iron five shirts per hour. A. Susan has an absolute advantage over Paul in washing windows. B. Susan has a comparative advantage over Paul in washing windows. C. Paul has a comparative advantage over Susan in ironing shirts. D. All of the above are correct.

D. All of the above are correct.

Total surplus A. can be used to measure a market's efficiency. B. is the sum of consumer and producer surplus. C. is the value to buyers minus the cost to sellers. D. All of the above are correct.

D. All of the above are correct.

Which of the following events must cause equilibrium price to rise?

Demand increases and supply decreases

With respect to how economists study the economy, which of the following statements is most accurate?

Economists devise theories, collect data, and analyze the data to test the theories.

Economists face an obstacle that many other scientists do not face. What is that obstacle?

It is often impractical to perform experiments in economics.

Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss?

Market B

Which of the following is not correct?

Normative statements can be judged using data alone.

Suppose sellers of liquor are required to send $5.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $3.00 per bottle. Which of the following statements is correct?

This tax causes the supply curve for liquor to shift upward by $5.00 at each quantity of liquor.

Which of the following is an example of something economists study? a. Mitch chooses to work overtime to earn extra income for his family. b. Megan sells her physics textbook from last semester to her roommate for half the price of a new textbook. c. The unemployment rate in the United States has fallen by two percentage points in the last few years. d. All of the above are correct.

d. All of the above are correct

Refer to Figure 1. If the government changed the per-unit tax from $5.00 to $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would

decrease government revenue and decrease the deadweight loss from the tax.

Refer to Figure 2. With trade, Guatemala will

export 22 units of coffee.

A market supply curve is determined by

horizontally summing individual supply curves

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

supply is more elastic at low levels of output and less elastic at high levels of output.