ECON 2000 Exam 2

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell? A) 200 B) 50 C) 40 D) 8

(.50-.10)= .40. 20/ .40 =. B) 50

Suppose a tax of $4 per unit is imposed on a vaping liquid, and the tax causes the equilibrium quantity of vaping liquid to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is A) $1,200. B) $400. C) $600. D) $200.

(2,000-1,700) x 4)/2 C) $600.

Will created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software? A) $150. B) $50. C) $200. D) $350.

150+200= D) $350

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to consumers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? A) The equilibrium quantity is greater than the socially optimal quantity. B) The equilibrium quantity is less than the socially optimal quantity. C) They are equal. D) There is not enough information to answer the question.

A) The equilibrium quantity is greater than the socially optimal quantity.

Suppose a tax is created that the buyers of a good must pay to the government. A) This will raise the price paid by buyers and lower the equilibrium quantity. B) price paid by buyers and raise the equilibrium quantity. C) effective price received by sellers and raise the equilibrium quantity. D) effective price received by sellers and lower the equilibrium quantity.

A) This will raise the price paid by buyers and lower the equilibrium quantity.

The decrease in total surplus that results from a market distortion, such as a tax, is called A) a deadweight loss. B) consumer surplus loss. C) wedge loss. D) revenue loss

A) a deadweight loss.

Suppose the government puts a tax on a market with inelastic demand and elastic supply, then A) buyers will bear most of the burden of the tax. B) the burden of the tax will be shared equally between buyers and sellers. C) it is impossible to determine how the burden of the tax will be shared. D) sellers will bear most of the burden of the tax.

A) buyers will bear most of the burden of the tax.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution A) encourages the firms with the lowest costs of reducing pollution to reduce the most. B) lowers revenue for the government. C) is less efficient. D) can result in a greater increase in pollution.

A) encourages the firms with the lowest costs of reducing pollution to reduce the most.

Suppose Peter, Paul, and Mary are the only three consumers in the market for tambourines. Peter values a tambourine at $30, Paul values a tambourine at $20, and Mary values a tambourine highest at $40. If the price of tambourines is $35, what is their consumer surplus? A) $30 B) $5 C) $20 D) $25

B) $5

Which of the following is an example of a positive externality? A) A college student buys a new car when she graduates. B) A neighbor plants beautiful flowers in her front yard. C) A family goes on an exotic safari vacation. D) An avid fisherman buys new fishing gear for his next fishing trip.

B) A neighbor plants beautiful flowers in her front yard.

The majority of economists prefer corrective taxes to command-and-control regulation as a way to correct the problem of pollution because A) the market-based solution raises revenue for the government. B) All of the above are correct. C) the market-based solution is less costly to society. D) the market-based solution can result in a greater reduction in pollution.

B) All of the above are correct

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Suppose Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct? A) Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. B) Erin will now clean her own house. C) Ernesto will continue to clean Erin's house, but his producer surplus will decline. D) Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase.

B) Erin will now clean her own house.

When the government places a new tax on a good, A) neither buyers nor sellers are made worse off. B) both buyers and sellers are made worse off. C) only sellers are made worse off. D) only buyers are made worse off.

B) both buyers and sellers are made worse off.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of lower prices to A) only existing customers who now get lower prices on the gowns they were already planning to purchase. B) 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. C) Consumer surplus does not increase; it decreases. D) only new customers who enter the market because of the lower prices.

B) 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.

Introducing a binding price floor into a market will A) increase producer surplus and have ambiguous implications for producer surplus. B) decrease consumer surplus and have ambiguous implications for producer surplus. C) decrease consumer and producer surplus. D) increase total surplus.

B) decrease consumer surplus and have ambiguous implications for producer surplus.

Moving production from a high-cost producer to a low-cost producer will A) lower total surplus. B) raise total surplus. C) lower producer surplus. D) raise producer surplus but lower consumer surplus.

B) raise total surplus.

Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo? A) $1,020 B) $750 C) $250 D) $550

Between 700-1000. B) $750

Which of the following statements is correct? A) Government should tax goods with either positive or negative externalities. B) Government should tax goods with positive externalities and subsidize goods with negative externalities. C) Government should tax goods with negative externalities and subsidize goods with positive externalities. D) Government should subsidize goods with either positive or negative externalities.

C) Government should tax goods with negative externalities and subsidize goods with positive externalities.

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) This tax does not change the quantity of perfume bought and sold. B) This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. C) The effective price received by sellers is $0.40 per bottle less than it was before the tax. D) Sixty percent of the burden of the tax falls on sellers.

C) The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Suppose that a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will A) reduce producer surplus. B) not affect producer surplus. C) increase producer surplus. D) Any of the above are possible.

C) increase producer surplus.

A positive externality is a A) benefit to the consumer of the good. B) is a benefit to the producer of the good. C) is a benefit to someone other than the producer and consumer of the good. D) results in an optimal level of output.

C) is a benefit to someone other than the producer and consumer of the good.

Consider a good to which a per-unit tax applies. A) The size of the deadweight that results from the tax is smaller, the larger is the amount of the tax. B) larger is the price elasticity of demand. C) smaller is the price elasticity of supply. D) All of the above are correct.

C) smaller is the price elasticity of supply.

Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, A) the greater the deadweight loss from the tax. B) less efficient is the tax. C) smaller the deadweight loss from the tax. D) more equitable is the distribution of the tax burden between buyers and sellers.

C) smaller the deadweight loss from the tax.

C) $7,500

Consider the market shown in the graph above. If the equilibrium price rises from $200 to $350, what is the producer surplus to new producers? A) $15,000 B) $30,000 C) $7,500 D) $3,750

Which of the following would cause a shortage? A) binding price ceiling is removed from a market. B) nonbinding price ceiling is imposed on a market. C) nonbinding price ceiling is removed from a market. D) binding price ceiling is imposed on a market.

D) binding price ceiling is imposed on a market.

A negative externality A) is a cost to the seller. B) is a cost to the buyer. C) exists with all market transactions. D) is a cost to a bystander.

D) is a cost to a bystander.

C) 420 units to any other quantity of output

In the market depicted in the graph above, a benevolent social planner who wants to maximize total surplus would prefer a A) $24 price to any other price. B) All of the above are correct. C) 420 units to any other quantity of output. D) a subsidy of $24 per unit to a subsidy of $27 per unit.

9-6= D)3

In this market, the per-unit burden of the tax on buyers is A)$5. B) $2. C)$4. D) $3.

Paul purchases a hamburger, and his consumer surplus is $3. If Paul is willing to pay $8 for the hamburger, then the price of the hamburger must be A) $5. B) $8. C) $11. D) $3.

Purchase-Consumer Surplus= A) $5

C) $2,000

Refer to Figure 10-6. If the government imposed a corrective tax that successfully moved the market equilibrium to the social optimum, then tax revenue from the government would amount to A) $1,600. B) $2,500. C) $2,000. D) $1,250.

B) no shortage

Refer to Figure 6-13. If the government imposes a price ceiling of $6 on this market, then there will be A) a shortage of 5 units. B) no shortage. C) a shortage of 20 units. D) a shortage of 10 units.

A) The market shown in graph (b).

Refer to Figure 6-15. In which market will the majority of the tax burden fall on buyers? A) The market shown in graph (b). B) The tax burden on buyers is the same for all three graphs. C) The market shown in graph (c). D) The market shown in graph (a).

B) a shortage will occur at the new market price of P2 .

Refer to Figure 6-8. When the price ceiling is enforced in this market and the supply curve for gasoline shifts from S1 to S2 A) a surplus will occur at the new market price of P2 . B) a shortage will occur at the new market price of P2 . C) the market price will stay at P1 . D) the market price will increase to P3

B) $7.50

Refer to Figure above. Suppose that a $3 per-unit tax is placed on this good. What is the amount of deadweight loss resulting from this tax? A) $45.00. B) $7.50. C) $15.00. D) $22.50.

D) $15

Suppose the market consists only of the buyers listed in the table above. If price of the product is $135, then the total consumer surplus is A) $150. B) $-35. C) $-50. D) $15.

B=10. C) 10

The effective price that sellers receive after the tax is imposed is A) $6. B) $16. C) $10. D) $24.

C) $6.00

The equilibrium price is A)$4.00. B) $8.00. C) $6.00. D) $10.00.

D) between $7 and $10

Use the graph above to analyze the effect of a $4 tax. How much will buyers pay per unit after the tax is imposed? A) $10 B) $4 C) between $4 and $7 D) between $7 and $10

A 800 x20 =1600. - 300 x 20= 600. (1600-600)/2. =. A) 5,000

What is the amount of deadweight loss caused by the tax shown in the graph above? A) $5,000. B) $4,000. C) $10,000. D) $6,000.

A,B,C above P1 C) A+B+C.

When the price is P1, consumer surplus is A) A+B. B) A+B+D. C) A+B+C. D) A.