Test 2

Ray buys a new tractor for $118,000. He receives consumer surplis of $13,000 on his purchase. Ray's willingness to pay is

$131,000

Refer to Figure 8-9. The imposition of the tax causes the price received by selelrs to decrease by

$300

Refer to Figure 7-9. If the price of the good is $9.50, then producer surplus is

$8.50

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third for $140, and the fourth piano for $160. Assume Tom is deciding how many pianos to tune. HIs producer surplis is

$80

When demand is elastic, an increase in price will cause

a decrease in total revenue

Economists generally believe that rent control is

a highly inefficient way to help the poor raise their standard of living

​A shortage is eliminated when

binding price ceiling is removed.

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

$0

Demand is said to be unit elastic if quantity demanded

changes by the same percent as the price

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P"". The area measured by J+K+I represents

consumer surplis before the tax

When a supply curve is relatively flat, the

supply is relatively elastic

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

the elasticity of labor supply.

In general, deman curves for luxuries tend to be price elastic

True

Refer to Figure 6-1. The price ceiling shown in panel (b)

creates a shortage

Minimum-wage laws dictate

minimum wage that firms may pay workers.

Refer to figure 6-16. In this market, a minimum wage of $7.25 creates a labor

surplis of 4,500 workers

Refer to Figure 6-24. Andrew is a buyer of the good. Taking the tax into account, how much does Andrew effectively pay to acquire one unit of the good?

$24

Refer to Figure 7-18. Total surplis amounts to $500 if consumer surplus amount to

$290 and if the price of the good is $150

Refer to Figure 7-18. Total surplus amounts to $500 if consumer surplus amounts to

$290 and if the price of the good is $150.

Refer to Figure 6-25. The amount of the tax per unit is

$3

Refer to Figure 8-2. The per-unit burden of the tax on buyers is

$3

Refer to Figure 7-5. If the price of the good is $6, then consumer surplus is

$36

Refer to Figure 8-9. The amount of deadweight loss as a result of the tax is

$5,000

Refer to Figure 6-13. Which of the following price floors would be binding in this market?

$6

At Nick's Bakery, the cost to make homemade chocolate cake is $4 per cake. As a result of selling five cakes, Nick experiences a producer surplus in the amount of $17.50. Nick must be selling his cakes for

$7.50 each

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

.65

Suppose a tax of $3 per unit is imposed on a good. The supply curve is a typical upward- sloping sraight line, and the demand curve is a typical downward-sloping straight line. The dax decreases consumer surplis by $3,900 and decreases producer surplis by $3,000, The tax generates tax revenue of $6,000. The tax decreased the equilibrium quantity of the good from

2,600 to 2,000

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

A smaller quantity of the good is bought and sold

Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

A+B+C

Refer to Figure 7-23. At equilibrium, total surplus is represented by the area

A+B+C+D+H+F

Refer to Figure 7-10. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?

ABGD

A seller's willingness to sell is

All of the above are correct.

Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

Between $3 and $5

Refer to Figure 8-19. 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 correct?

Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss.

Refer to Figure 8-19. 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.

Refer to Figure 8-19. 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.

Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?

Consumer surplus falls by $2,700.

Refer to Figure 8-3. The per unit burden of the tax on buyers is

P3 - P2.

Refer to Figure 8-3. The amount of the tax on each unit of the good is

P3-P1

A tax on sellers reduces the size of a market.

True

In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

True

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands

True

One common example of a price ceiling is rent control.

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.

True

Refer to figure 6-4. A government-imposed price ceiling of $6 in this market results in

a shortage of 8 units

Which of the following will cause an increase in consumer surplus?

a technological improvement in the production of the good

Produce surplis is the area

below the price and above the supply curve

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

buyers of the good will bear most of the burden of the tax.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

buyers tend to be much more less sensitive to a change in price when given more time to react

Price ceiling and price floors that are binding

cause surpluses and shortages to persist

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the

demand for labor and supply of labor are equally elastic.

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to

determine the price elasticity of demand for the bakery's products

Total surplus is

equal to the totaly value to buyers minus the total cost to sellers

Demand is elastic if the price elasticity of demand is

greater than 1

Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price paid by buyers to

increase by $2

If the government levies a $5 tax per MP3 player on the buyers of MP3 players, then the price paid by buyers of MP3 players would likely

increase by less than $5

Holding all other forces constant, if decreacing the price of a good leads to a decrease in total revenue, then the demand for the good must be

inelastic

The supply of oil is likely to be

inelastic in the short run and elastic in the long run

A key determinant of the price elasticity of supply is the

length of the time period

Which of the follwoing is likely to have the most price inelastic demand

lightbulbs

The price elasticity of demand measures the

magnitude of the response in quantity demanded to a change in price

Refer to Figure 6-5. Suppose the market is initially in equilibrium, Then the government imposes a price control, as represented by the solid horitzontal line on the graph. If the price control is a price floor, then the price control

means that some firms will not be able to sell all that they want

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

one year after the price increases

For which of the following goods is the price elasticity of demand most inelastic

pizza

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a

rectangle

Refer to Figure 8-8. One effect of the tax is to

reduce producer surplus from $96 to $24

If a tax imposed on a market with inelastic supply and elastic demand, then

sellers will bear most of the burden of the tax

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 liquors 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

A binding price floor will reduce a firm's total revenue

when demand is elastic

Refer to Table 6-1. Suppose the government imposes a price floor of $30 on this market. What will be the size of the surplus in this market?

1800 units

Consumer surplus is equal to the

Value to buyers - Amount paid by buyers.

A good will have a more inelastic demand, the

broader the definition of the market.

Refer to Figure 8-6. The amount of the tax on each unit of the good is

$10

Refer to Figure 6-13. Which of the following statements is correct?

A price floor is set at $6.50 would result in a surplus.

Refer to Table 5-11. Which scenario describes the market for oil in the short run?

D

Refer to FIgure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the largest in the market represented by

D4

Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

Demand 1, and supply is represented by Supply 1.

A tax on a good causes the size of the market to increase.

False

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.

False

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P"". Total surplis before the tax is measured by the area

I+J+K+L+M+Y

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

Which of the following is not true when the price of a good or service falls?

The total value of purchases before and after the price change is the same.

Which of the following is correct?

Total surplus is measured as the area below the demand curve and above the supply curve, up to the equilibrium quantity.

Refer to Figure 7-5. If the price of the good is $12, then consumer surplus is

$16

Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on buyers is

$2

Refer to Figure 8-6. Without a tax, producer surplis in this market is

$2,400

Refer to Figure 8-6. Without a tax, producer surplus in this market is

$2,400

Producer surplus directly measures

the well-being of sellers

Refer to Figure 6-21. The price that buyers pay after the tax is imposed is

$12.00

Refer to Figure 7-2. If the price of the good is $100, then consumer surplus amounts to

$125

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 $150. Rebecca and Susan agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Rebecca and Susan worse off by a total of

$10

When demand is inelastic, a decrease in price will cause

an decrease in total revenue

Suppose that the market price for pizzas increase. The increase in producer surplus comes from the benefit of the higher prices to

both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

bothing existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices

To say that a price floor is binding is to say that the price floor

causes quantity supplied to exceed quantity demanded