Econ 2

If a price floor is not binding, then A)the equilibrium price is above the price floor. B)the equilibrium price is below the price floor. C)there will be a surplus in the market. D)Both a) and c) are correct.

A

If the government removes a binding price ceiling from a market, then the price paid by buyers will A)increase, and the quantity sold in the market will increase. B)increase, and the quantity sold in the market will decrease. C)decrease, and the quantity sold in the market will increase. D)decrease, and the quantity sold in the market will decrease.

A

If the government removes a tax on a good, then the quantity of the good sold will A)increase. B)decrease. C)not change. D)All of the above are possible.

A

Buyer Willingness To Pay Lori $50.00 Audrey $30.00 Zach $20.00 Calvin $10.00 Use this table for this question. If the price of the product is $18, then the total consumer surplus is A)$38 B)$42 C)$46 D)$72

C

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is A)$250. B)$500. C)$750. D)$1,000.

A

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? A)The effective price received by sellers is $0.40 per bottle less than it was before the tax. B)Sixty percent of the burden of the tax falls on sellers. C)This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. D)All of the above are correct.

A

A binding price floor will reduce a firm's total revenue A)always. B)when demand is elastic. C)when demand is inelastic. D)never.

B

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it A)maximizes both the total revenue for firms and the quantity supplied of the product. B)maximizes the combined welfare of buyers and sellers. C)minimizes costs and maximizes output. D)minimizes the level of welfare payments.

B

If a price ceiling is not binding, then A)the equilibrium price is above the price ceiling. B)the equilibrium price is below the price ceiling. C)it has no legal enforcement mechanism. D)None of the above is correct because all price ceilings must be binding.

B

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by A)25 per month. B)50 per month. C)75 per month. D)100 per month.

B

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is A)$250. B)$125. C)$75. D)$50.

B

Raisin bran and milk are complementary goods. A decrease in the price of raisins will A)increase consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk. B)increase consumer surplus in the market for raisin bran and increase producer surplus in the market for milk. C)decrease consumer surplus in the market for raisin bran and increase producer surplus in the market for milk. D)decrease consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk.

B

Seller Cost Abby $1,500 Bobby $1,200 Carlos $1,000 Dianne $750 Evalina $500 Use this table for the question. If the market price is $1,000, the producer surplus in the market is A)$700. B)$750. C)$2,250. D)$3,700.

B

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will A)decrease, and producer surplus in the industry will decrease. B)increase, and producer surplus in the industry will increase. C)decrease, and producer surplus in the industry will increase. D)increase, and producer surplus in the industry will decrease.

B

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? A)Improvements in production technology reduce the costs of producing laptop computers. B)The number of firms selling laptop computers decreases. C)Consumers' income decreases, and laptop computers are a normal good. D)The number of consumers buying laptop computers decreases.

B

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding? A)Cellular phones become less popular. B)Traditional land line phones become more expensive. C)The components used to produce cellular phones become less expensive. D)Firms expect the price of cellular phones to fall in the future.

B

Which of the following quantities decrease in response to a tax on a good? A)the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus B)the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good C)the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus D)None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

B

Which of the following statements is correct regarding the imposition of a tax on gasoline? A)The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. B)The incidence of the tax depends upon the price elasticities of demand and supply. C)The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. D)The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit.

B

Which of the following will cause an increase in consumer surplus? A)an increase in the production cost of the good B)a technological improvement in the production of the good C)a decrease in the number of sellers of the good D)the imposition of a binding price floor in the market

B

A supply curve can be used to measure producer surplus because it reflects A)the actions of sellers. B)quantity supplied. C)sellers' costs. D)the amount that will be purchased by consumers in the market.

C

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 A)only existing customers who now get lower prices on the gowns they were already planning to purchase. B)only new customers who enter the market because of the lower prices. C)both 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. D)Consumer surplus does not increase; it decreases.

C

If the current allocation of resources in the market for hammers is inefficient, then it must be the case that A)producer surplus exceeds consumer surplus in the market for hammers. B)consumer surplus exceeds producer surplus in the market for hammers. C)the sum of consumer surplus and producer surplus could be increased by moving to a different allocation of resources. D)the costs that sellers of hammers are incurring could be reduced by moving to a different allocation of resources.

C

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would A)increase by more than $1,000. B)increase by exactly $1,000. C)increase by less than $1,000. D)decrease by an indeterminate amount.

C

If the government removes a binding price floor from a market, then the price paid by buyers will A)increase, and the quantity sold in the market will increase. B)increase, and the quantity sold in the market will decrease. C)decrease, and the quantity sold in the market will increase. D)decrease, and the quantity sold in the market will decrease.

C

If the government removes a tax on a good, then the price paid by buyers will A)increase, and the price received by sellers will increase. B)increase, and the price received by sellers will decrease. C)decrease, and the price received by sellers will increase. D)decrease, and the price received by sellers will decrease.

C

Producer surplus is the area A)under the supply curve. B)between the supply and demand curves. C)below the price and above the supply curve. D)under the demand curve and above the price.

C

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by A)less than $0.50. B)$0.50. C)between $0.50 and $1. D)$1.

C

The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar is elastic, and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt, and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on A)sellers of salt and the buyers of caviar. B)sellers of salt and the sellers of caviar. C)buyers of salt and the sellers of caviar. D)buyers of salt and the buyers of caviar.

C

The price paid by buyers in a market will decrease if the government A)increases a binding price floor in that market. B)increases a binding price ceiling in that market. C)decreases a tax on the good sold in that market. D)All of the above are correct.

C

When a binding price ceiling is imposed on a market to benefit buyers, A)no buyers actually benefit. B)some buyers benefit, but no buyers are harmed. C)some buyers benefit, and some buyers are harmed. D)all buyers benefit.

C

Which of the following will cause an increase in producer surplus? A)the imposition of a binding price ceiling in the market B)buyers expect the price of the good to be lower next month C)the price of a substitute increases D)income increases and buyers consider the good to be inferior

C

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the A)demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20. B)demand curve will shift upward by $20, and the price paid by buyers will decrease by $20. C)supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20. D)supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.

C)

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes A)increases, and the consumer surplus in the market for red wine increases. B)increases, and the consumer surplus in the market for red wine decreases. C)decreases, and the consumer surplus in the market for red wine increases. D)decreases, and the consumer surplus in the market for red wine decreases.

D

A legal maximum on the price at which a good can be sold is called a price A)floor. B)subsidy. C)support. D)ceiling.

D

A seller's willingness to sell is A)measured by the seller's cost of production. B)related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. C)less than the price received if producer surplus is a positive number. D)All of the above are correct.

D

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct? A)The demand for cigars is less elastic than the supply of cigars. B)The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. C)The deadweight loss of the tax is $12.50. D)All of the above are correct.

D

Buyer Willingness to Pay Carlos $15 Quilana $25 Wilbur $35 Ming-la $45 Use this table for this question. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22? A)Quilana B)Wilbur C)Ming-la D)All three buyers experience the same loss of consumer surplus.

D

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is A)$0.95. B)$1.15. C)$1.30. D)$1.85.

D

Which of the following will cause a decrease in producer surplus? A)the imposition of a nonbinding price ceiling in the market B)buyers expect the price of a good to be higher next month C)the price of a substitute increases D)income increases and buyers consider the good to be inferior

D