Chapter 4 Macroeconomics

Producer surplus

is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.

peer to peer

landlords might switch from long-term to short-term rentals in order to avoid rent controls

Price ceiling

A legally determined maximum price that sellers may charge.

Price floor

A legally determined minimum price that sellers may receive.

economic efficiency

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

B

According to​ economists, an efficient tax is one that A. splits the tax burden equally between consumers and producers. B. imposes a small excess burden relative to the tax revenue it raises.. C. is relatively easy to collect relative to the revenue it generates. D. maximizes tax revenue for government.

sum, social

Because economic surplus is the ________ of the benefit to firms and the benefit to​ consumers, it is the best measure we have of the benefit to society from the production of a particular good or service. For this​ reason, it is appropriate to label economic surplus as __________ surplus.

net, total

Consumer surplus measures the ____ benefit to consumers from participating in a market rather than the ______ benefit.

E

Economists define economic efficiency in this way A. to illustrate the benefits of a competitive market equilibrium. B. to help policymakers understand the negative consequences of price floors. C. to help policymakers understand the negative consequences of price ceilings. D. to help policymakers understand the negative consequences of taxes. E. all of the above.

A

Deadweight loss is A. the reduction in economic surplus resulting from a market not being in competitive equilibrium. B. a measure of market equity. C. the reduction in consumer expenditure resulting from market failure. D. the reduction in sales revenue resulting from market distortions.

E

Do producers tend to favor price floors or price​ ceilings? ​ Why? Producers favor A. price floors​ because, when​ binding, price floors decrease price below the equilibrium and increase producer surplus. B. price ceilings​ because, when​ binding, price ceilings increase price above the equilibrium and may increase producer surplus. C. price floors​ because, when​ binding, price floors increase price above the equilibrium and increase economic surplus. D. price floors​ because, when​ non-binding, price floors increase price above the equilibrium and may increase producer surplus. E. price floors​ because, when​ binding, price floors increase price above the equilibrium and may increase producer surplus.

D

Economic efficiency A. is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum. B. is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. C. is a market outcome in which every individual is better off than they would be at any other market outcome. D. both a and b. E. all of the above.

D

Economic efficiency is A. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is not at a maximum. B. a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. C. a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. D. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

D

Economic surplus in a market is the sum of​ _____ surplus and​ _____ surplus. In a competitive​ market, with many buyers and sellers and no government​ restrictions, economic surplus is at a​ _____ when the market is in​ _____. A. ​consumer; producer;​ maximum; disequilibrium B. ​consumer; producer;​ minimum; equilibrium C. ​consumer; government;​ maximum; equilibrium D. ​consumer; producer;​ maximum; equilibrium

A

Economic surplus is A. the sum of consumer surplus and producer surplus. B. equal to consumer surplus−producer surplus. C. equal to producer surplus−consumer surplus. D. the product of consumer surplus and producer surplus

decreases, increases

How does consumer surplus change as the equilibrium price of a good rises or​ falls? As the price of a good​ rises, consumer surplus ________​, and as the price of a good​ falls, consumer surplus __________.

excess burden

In the "public finance" literature, economists refer to the deadweight loss from a tax as its

•Some people are made better off, •Some people are made worse off, and •The economy generally suffers, as deadweight loss will generally occur.

It is clear that when a government imposes price controls

C

Marginal benefit is A. the additional cost of producing one more unit. B. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. C. the additional benefit from consuming one more unit. D. a legally determined maximum price that sellers may charge.

C

Marginal cost is A. the difference between the lowest price a firm would be willing to accept and the price it actually receives. B. the additional benefit from consuming one more unit. C. the additional cost of producing one more unit. D. the cost of producing output. E. a legally determined minimum price that sellers may charge.

•Minimum wages •Rent controls Agricultural price controls

Price ceilings and floors in the U S A are uncommon, but include:

Surplus

Something that remains above what is used or needed

deadweight loss

The reduction in economic surplus resulting from a market not being in competitive equilibrium is known as

not "whoever has the legal obligation to pay the tax"...

What determines this tax incidence?

C

When the government imposes price floors or price​ ceilings, A. everyone​ wins, goods and services distribution is more​ just, and there is a loss of economic efficiency. B. everyone​ wins, goods and services distribution is more​ just, and there is an increase in economic efficiency. C. some people​ win, some people​ lose, and there is a loss of economic efficiency. D. some people​ win, some people​ lose, and there is an increase in economic efficiency.

D

Why do some consumers tend to favor price controls while others tend to oppose​ them? A. Price ceilings generate surpluses.​ Consequently, consumers who obtain the product at a lower price​ win, but consumers who obtain the product at a higher price lose. B. Price floors generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. C. Price ceilings generate shortages.​ Consequently, consumers surplus​ increases, but producer surplus decreases. D. Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. E. None of the above.

D

Why is the demand curve referred to as a marginal benefit​ curve? A. It shows the price consumers actually pay to consume a product. B. It shows the difference between the highest price a consumer is willing to pay and the marginal benefit of consumption. C. It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. D. It shows the willingness of consumers to purchase a product at different prices. E. It shows the willingness of firms to supply a product at different prices.

A

Why is the supply curve referred to as a marginal cost​ curve? A. It shows the willingness of firms to supply a product at different prices. B. It shows the willingness of consumers to purchase a product at different prices. C. It shows the price producers actually receive in the market. D. It shows the difference between the lowest price a firm would be willing to accept and the marginal cost of production. E. It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept.

Black market

a market in which buying and selling take place at prices that violate government price regulations.

net

producer surplus measures the _________ benefit received by producers from participating in a market.

per-unit tax

taxes assessed as a particular dollar amount on the sale of a good or service

tax incidence

the actual division of the burden of a tax between buyers and sellers in a market.

Marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service.

Marginal cost

the additional cost to a firm of producing one more unit of a good or service.

A

​"Rent controls, government farm​ programs, and other price ceilings and price floors are​ bad." This is an example of a A. normative statement. The statement is concerned with what should be. B. positive statement. The statement is concerned with what should be. C. normative statement. The statement is concerned with what is. D. positive statement. The statement is concerned with what is.

advise

•Economists can __________ policymakers about which taxes are the most efficient.

Tax efficient

•if it imposes a small excess burden relative to the tax revenue it raises.

Consumer surplus

•is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.