Econ Midterm #2

A tax on buyers shifts the D curve

down by the amount of tax

True or False: A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay

false

True or False: All else equal, a decrease in demand will cause an increase in producer surplus

false

True or False: Buyers and sellers always share the burden of a tax equally.

false

True or False: If government imposes a binding price floor in a market, then the consumer surplus in that market will increase.

false

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

false

True or False: The more inelastic are demand and supply, the greater is the deadweight loss of a tax

false

True or False: When a good is taxed, the revenue collected by the government equals the decrease in welfare of buyers and sellers caused by the tax

false

True or False: When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases

false

True or False: Whether a tax is levied on sellers or buyers, taxes encourages market activity

false

True or False: taxes affect market participants by increasing the price paid by the buyer and recieved by the seller

false

True or False: Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed

true

True or False: If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $10

true

True or False: If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss

true

True or False: Long lines and discrimination are examples of rationing methods that may naturally develop in response to a binding price ceiling

true

True or False: Producer surplus is the amount a seller is paid minus the cost of production.

true

True or False: The wedge between the buyers' price and sellers' price is the same, regardless of whether the tax is levied on buyers or sellers

true

True or False: When a free market for a good reaches equilibrium, anyone who is willing and able to sell at the market price can sell the good

true

True or False: When a tax is imposed, the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government

true

True or False: taxes affect market participants by increasing the price paid by the buyer and decreasing the price recieved by the seller

true

True or False: taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade

true

True or False: the dead weight loss of a tax rises even more rapidly than the size of the tax

true

True or False: total surplus = Value to buyers - costs to sellers

true

True or False:: As the price of elasticities of supply and demand increase, the deadweight loss from a tax increases

true

True or False:A price floor set above the equilibrium price causes quantity supplied to exceed quantity demanded

true

True or False:A tax on insulin is likely to cause a very large deadweight loss to society

true

True or False:A tax on sellers and an increase input prices affect the supply curve in the same way

true

True or False:Even though participants in the economy are motivated by self-interest, the invisible hand of the market place guides this self interest into promoting general economic well being.

true

True or False:If a price ceiling of $1.5 per gallon is imposed on gasoline, and the market equilibrium price is $2, then the price ceiling is a binding constraint on the market

true

True or False:In a competitive market, sales go to those producers who are willing to supply the product at the lowest price

true

True or False:The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies

true

True or False:The area below the demand curve and above the suppy curve measures the producer surplus in a market

true

True or False:When demand increases so that market the prices increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market

true

True or False:Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.

true

True or False:Who bears the majority of a tax burdens depends on whether the tax is placed on the buyers or the sellers.

true

What is the marginal tax rate?

40%

Would the DWL of a tax would be larger if the tax is on: cereal or sunscreen

Breakfast cereal has more close substitution than sunscreen so the demand fro breakfast cereal is more price-elastic than demand for sunscreen so, a tax on breakfast cereal would cause a larger DWL than sunscreen

True or False: If a tax is imposed on the sellers of a product, then the tax burders will fall entirely on the sellers

False

true or false:Binding price floors benefit sellers because they allow sellers to sell all the goods they want at a higher price

False

What does the Laffer Curve Show?

The relationship between the size of the tax and the tax revenue

price ceiling

a legal maximum on the price of a good or service

price floor

a legal minimum on the price of a good or service

A price ceiling, if the eq'm price is above the ceiling, causes

a shortage

Is it easier for buyers or sellers to leave the market when demand is more elastic than supply?

buyers

When supply is more elastic than demand, who bears most of the tax burden?

buyers

When tax is small, increasing it

causes tax revenue to rise

The more eleastic supply is, the _____ DWL is

greater

When Demand is elastic, the DWL is

greater

2 Rationing mechanisms

long lines and discrimination according to seller'sbiases

Doubling the tax causes the DWL to

more than double

If a Price Floor is below the eq'm price than it is

non binding

When supply is more elastic than demand who is it easier for to leave the market?

sellers

who bears the most of the burden of tax when demand is more elastic than supply?

sellers

When Demand is inelastic, the DWL is

small

When supply is inelastic, the DWL is

small

The eq'm wage is below the floor and causes a

surplus

When tax is larger, increasing it causes

tax revenue to fall

Which goods or services should govt tax to raise the revenue it needs?

those with the smallest DWL

True or False: A binding minimum wage creates unemployment

true

True or False: A price ceiling set below the equilibrium price is binding

true

True or False: A tax on sellers usually causes buyers to pay more the good and sellers to recieve less for the good than they did before the tax was levied.

true

True or False: All else equal, and increase in supply will cause an increase in consumer surplus

true

True or False: As the size of a tax increases, the government's tax revenue rises, then falls

true

True or False: Because taxes distort incentives, they cause markets to allocate resourses inefficiently

true

True or False: Connie can clean windows in large office buildings at a cost of $1 per window, The Market price for window-cleaning services is $3 per Window. If Connie cleans 100 Windows, her producer surplus is $200

true

True or False: Consumer surplus can be measured as the aea between the demand curve and the equilibrium price

true

A tax on sellers shifts the S curve

up by the amount of the tax