Econ Test 2
If a producer has market power (can influence the price of the product in the market) then free market solutions
are inefficient.
On the labor markets, taxes may distort labor markets greatly if
the number of hours many part-time workers want to work is very sensitive to the wage rate.
A tax on a good has a deadweight loss if
the reduction in consumer and producer surplus is greater than the tax revenue.
The reduction of a tax
could increase tax revenue if the tax had been extremely high.
Donna runs an inn and charges $300 a night for a room, which equals her cost. Sam, Harry, and Bill are three potential customers willing to pay $500, $325, and $250, respectively. When the government levies a tax on innkeepers of $50 per night of occupancy, Donna raises her price to $350. The deadweight loss of the tax is
$25
Diego, Emi, and Finn are available to work as tutors for the semester. The opportunity cost of tutoring is $100 for Diego, $200 for Emi, and $400 for Finn. The university is hiring tutors at a price of $300. Producer surplus equals
$300
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
Alexis, Bruno, and Camila each want an ice-cream cone. Alexis is willing to pay $12, Bruno is willing to pay $8, and Camila is willing to pay $4. The market price is $6. Consumer surplus equals
$8
Which of the following statements about a tariff is true?
A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus.
When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation?
Domestic production of coffee falls, and Ectenia becomes a coffee importer.
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
Which of the following is not employed as an argument in support of trade restrictions?
Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.
Suppose Japan exports cars to Russia and imports wine from France. This situation suggests
Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine.
The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a
Laffer curve.
When a country allows trade and becomes an exporter of a good, which of the following is not a consequence?
The losses of domestic consumers of the good exceed the gains of domestic producers of the good.
When a country allows trade and becomes an importer of bottled water, which of the following is not a consequence?
The losses of domestic producers of bottled water exceed the gains of domestic consumers of bottled water.
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases.
Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, andbuyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market?
Two vases will be sold, and consumer surplus is $5.
Assume, for Vietnam, that the domestic price of textiles without international trade is lower than the world price of textiles. This suggests that, in the production of textiles,
Vietnam has a comparative advantage over other countries and Vietnam will export textiles.
If the world price for a good exceeds the before-trade domestic price for a good, then that country must have
a comparative advantage in the production of the good.
Which of the following would likely cause the greatest deadweight loss?
a tax on jewelry
If free trade is allowed, a country will export a good if the world price is
above the before-trade domestic price of the good.
If a market generates a side effect or externality, then free market solutions
are inefficient.
Gavin has been working full-time as a gardener for $300 a week. When the market price of gardeners rises to $400, Hector becomes a gardener as well. How much does producer surplus rise as a result of this price increase?
between $100 and $200
A tax on gasoline is likely to
cause a greater deadweight loss in the long run when compared to the short run.
When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has
caused a deadweight loss.
To fully understand how taxes affect economic well-being, we must
compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
An efficient allocation of resources maximizes
consumer surplus plus producer surplus.
Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,
consumers will gain and producers will lose.
Steak and chicken are substitutes. A sharp reduction in the supply of steak would
decrease consumer surplus in the market for steak and increase producer surplus in the market for chicken.
When a country allows trade and exports a good,
domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.
The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase the
government's tax revenue.
An example of positive analysis is studying
how market forces produce equilibrium.
Because producers are better able to organize than consumers are, we would expect there to be political pressure to create
import restrictions.
The nation of Openia allows free trade and exports steel. If steel exports were prohibited, the price of steel in Openia would be ________, benefiting steel ________.
lower, consumers
In the economy of Agricola, tenant farmers rent the land they use from landowners. If the supply of land is perfectly inelastic, then a tax on land would have deadweight losses, and the burden of the tax would fall entirely on the .
no, landowners
Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is
positive but less than the marginal seller's cost.
A demand curve reflects each of the following except the
quantity that each buyer will ultimately purchase .
Suppose the supply of diamonds is relatively inelastic. A tax on diamonds would generate a
small deadweight loss and the burden of the tax would fall on the seller of diamonds.
The "unfair-competition" argument might be cited by an American who believes that
the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products.
If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then
the cost of production on the last unit produced exceeds the value placed on it by buyers.
If a nation that imports a good imposes a tariff, it will increase
the domestic quantity supplied
The seller's cost of production is
the minimum amount the seller is willing to accept for a good.
If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then
the value placed on the last unit of production by buyers exceeds the cost of production.
Taxes on labor income tend to encourage
workers to work fewer hours, second earners to stay home, the elderly to retire early, the unscrupulous to enter the underground economy. Therefore All of the answer choices are correct.
When a tax on a good starts small and is gradually increased, tax revenue will
first rise and then fall.