Econ Exam 2
Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is $24. $32. $48. $64.
$32.
Refer to Figure 6-12. In which market will the majority of the tax burden fall on the buyer? market (a) market (b) market (c) All of the above are correct.
All of the above are correct.
Refer to Figure 7-11. When the price rises from P1 to P2, which area represents the increase in producer surplus due to new producers entering the market? A B A+B
B
Consider Figure 6-11. Suppose the demand curve is not the one drawn on the graph; instead, the demand curve is a vertical line passing through the point (Q = 10, P = 5). Using the two supply curves that are drawn, which of the following statements would describe the effects of the tax correctly? The price paid by buyers would be $9. The price received by sellers (after paying the tax) would be $6.50. The government would collect $27 from the tax. Buyers of the good would bear 100 percent of the burden of the tax
Buyers of the good would bear 100 percent of the burden of the tax
Which of the Ten Principles of Economics does welfare economics explain more fully? The cost of something is what you give up to get it. Markets are usually a good way to organize economic activity. Trade can make everyone better off. A country's standard of living depends on its ability to produce goods and services.
Markets are usually a good way to organize economic activity.
Refer to Figure 6-13. The effective price that sellers receive after the tax is imposed is P0. P1. P2. impossible to determine.
P0.
Refer to Figure 7-16. The efficient price-quantity combination is P1 and Q1. P2 and Q2. P3 and Q1. P4 and 0.
P2 and Q2.
Which of the following is not true when the price of a good or service falls? Buyers who were already buying the good or service are better off. Some new buyers, who are now willing to buy, enter the market. The total consumer surplus in the market increases. The total value of purchases before and after the price change is the same.
The total value of purchases before and after the price change is the same.
Suppose that a tax is placed on books. If the buyers pay the majority of the tax, we know that the demand is more inelastic than the supply. supply is more inelastic than the demand. government has required that buyers remit the tax payments. government has required that buyers remit the tax payments.
demand is more inelastic than the supply.
The term tax incidence refers to the idespread view that taxes always will be a fact of life. ongoing debate about which types of taxes make the most economic sense. division of the tax burden between buyers and sellers. division of the tax burden between sales taxes and income taxes.
division of the tax burden between buyers and sellers.
The term tax incidence refers to the widespread view that taxes always will be a fact of life. ongoing debate about which types of taxes make the most economic sense. division of the tax burden between buyers and sellers. division of the tax burden between sales taxes and income taxes.
division of the tax burden between buyers and sellers.
If buyers are required to pay a $0.10 tax per bag on Hershey's kisses, the demand curve for kisses will shift upward by $0.10 per bag. upward by $0.05 per bag. downward by $0.10 per bag. downward by $0.05 per bag.
downward by $0.10 per bag.
When a tax is imposed on the buyers of a good, the demand curve shifts downward by the amount of the tax. upward by the amount of the tax. downward by less than the amount of the tax. upward by more than the amount of the tax.
downward by the amount of the tax.
Refer to Figure 6-5. When a certain price control is imposed in this market, the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P1 dollars per unit for that quantity and sellers are willing and able to accept a minimum of P2 dollars per unit for that quantity. If P1 - P2 = $3.00, then the price control in question is a price ceiling of $2.00. a price ceiling of $5.00. a price floor of $5.00. either a price ceiling of $2.00 or a price floor of $5.00.
either a price ceiling of $2.00 or a price floor of $5.00.
Advocates of the minimum wage deny that the minimum wage produces any adverse effects. emphasize the benefits to teenagers of increases in the minimum wage. emphasize the low annual incomes of those who work for the minimum wage. All of the above are correct.
emphasize the low annual incomes of those who work for the minimum wage.
A price ceiling that is not binding will cause a surplus in the market. cause a shortage in the market. cause the market to be less efficient than it would be without the price ceiling. have no effect on the market price.
have no effect on the market price.
Welfare economics is the study of taxes and subsidies. how technology is best put to use in the production of goods and services. government welfare programs for needy people. how the allocation of resources affects economic well-being.
how the allocation of resources affects economic well-being.
Raisin bran and milk are complementary goods. A decrease in the price of raisins will increase consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk. increase consumer surplus in the market for raisin bran and increase producer surplus in the market for milk. decrease consumer surplus in the market for raisin bran and increase producer surplus in the market for milk. decrease consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk.
increase consumer surplus in the market for raisin bran and increase producer surplus in the market for milk.
A price ceiling is a legal maximum on the price at which a good can be sold. is often imposed in markets in which "cutthroat competition" would prevail without a price ceiling. is often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling. All of the above are correct.
is a legal maximum on the price at which a good can be sold.
Consumer surplus is the amount of a good that a consumer can buy at a price below equilibrium price. is the amount a consumer is willing to pay minus the amount the consumer actually pays. is the number of consumers who are excluded from a market because of scarcity. measures how much a seller values a good.
is the amount a consumer is willing to pay minus the amount the consumer actually pays.
Under rent control, tenants can expect lower rent and higher quality housing. lower rent and lower quality housing. higher rent and a shortage of rental housing. higher rent and a surplus of rental housing.
lower rent and lower quality housing.
When a price floor is binding, the equilibrium price is lower than the price floor. higher than the price floor. equal to the price floor. It is impossible to compare the equilibrium price with the price floor.
lower than the price floor.
Minimum wage laws dictate the average price employers must pay for labor. highest price employers may pay for labor. lowest price employers may pay for labor. quality of labor which must be supplied.
lowest price employers may pay for labor.
Refer to Figure 6-2. If the government imposes a price ceiling of $12 in this market, the result would be a surplus of 10. a surplus of 20. a shortage of 20. neither a surplus nor a shortage.
neither a surplus nor a shortage.
Refer to Table 7-1. If the price of the product is $51, then who would be willing to purchase the product? Mike Mike and Sandy Mike, Sandy, and Jonathan no one
no one
Refer to Figure 6-3. Which of the panels represents a binding price floor? panel (a) but not panel (b) panel (b) but not panel (a) panel (a) and panel (b) neither panel (a) nor panel (b)
panel (b) but not panel (a)
Refer to Figure 6-1. A binding price ceiling is shown in panel (a) but not panel (b). panel (b) but not panel (a). both panel (a) and panel (b). neither panel (a) nor panel (b).
panel (b) but not panel (a).
The presence of price controls in a market usually is an indication that an insufficient quantity of a good or service was being produced in that market to meet the public's need. the usual forces of supply and demand were not able to establish an equilibrium price in that market. policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. policymakers correctly believed that, in that market, price controls would generate no inequities of their own.
policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.
Refer to Figure 7-14. When the price is P1, area C represents total benefit. producer surplus. consumer surplus. None of the above is correct.
producer surplus.
A tax imposed on the sellers of a good will raise the price paid by buyers and lower the equilibrium quantity. raise the price paid by buyers and raise the equilibrium quantity. raise the effective price received by sellers and raise the equilibrium quantity. raise the effective price received by sellers and lower the equilibrium quantity.
raise the price paid by buyers and lower the equilibrium quantity.
A tax imposed on the sellers of a good raises both the price buyers pay and the effective price for sellers. raises the price buyers pay and lowers the effective price for sellers. lowers the price buyers pay and raises the effective price for sellers. lowers both the price buyers pay and the effective price for sellers.
raises the price buyers pay and lowers the effective price for sellers.
To say that a price ceiling is binding is to say that the price ceiling results in a scarcity. is set above the equilibrium price. results in excess demand. All of the above are correct.
results in excess demand.
Cost is a measure of the seller's willingness to sell. seller's producer surplus. producer shortage. seller's willingness to buy.
seller's willingness to sell.
A seller is willing to sell a product only if the seller receives a price that is at least as great as the seller's producer surplus. sellers's cost of production. seller's profit. average willingness to pay of buyers of the product.
sellers's cost of production.
Refer to Figure 6-2. If the government imposes a price ceiling of $8 in this market, the result would be a surplus of 10. surplus of 20. shortage of 10. shortage of 20.
shortage of 20.
When a binding price ceiling is imposed to benefit buyers, a result is that every buyer in the market benefits. every seller in the market benefits, but the overall benefit to sellers is smaller than the overall benefit to buyers. every buyer in the market benefits and every seller in the market is harmed. some buyers will not be able to buy any amount of the good.
some buyers will not be able to buy any amount of the good.
Refer to Figure 6-2. If the government imposes a price floor of $14 in this market, the result would be a surplus of 20. surplus of 40. shortage of 20. shortage of 40.
surplus of 40.
Refer to Figure 6-8. As the figure is drawn, who sends the tax payments to the government? the buyers the sellers A portion of the tax payments is sent by the buyers and the remaining portion is sent by the sellers. The question of who sends the tax payments cannot be determined from the figure.
the buyers
Suppose a price ceiling is not binding; this means that the equilibrium price is above the price ceiling. the equilibrium price is below the price ceiling. it has no legal enforcement mechanism. people are finding a way to circumvent the law.
the equilibrium price is below the price ceiling.
Which of the following will cause a decrease in consumer surplus? an increase in the number of sellers of the good a decrease in the production cost of the good sellers expect the price of the good to be lower next month the imposition of a binding price floor in the market
the imposition of a binding price floor in the market
Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which the supply is more elastic than the demand. the demand in more elastic than the supply. the tax is placed on the sellers of the product. the tax is placed on the buyers of the product.
the supply is more elastic than the demand.
Refer to Figure 7-18. If the government mandated a price increase from P1 to a higher price, then total surplus would decrease. consumer surplus would increase. total surplus would increase, since producer surplus would increase. total surplus would remain unchanged.
total surplus would decrease.
At the equilibrium price of a good, the good will be purchased by those buyers who value the good more than price. value the good less than price. have the money to buy the good. consider the good a necessity.
value the good more than price.
Total surplus in a market is equal to value to buyers - amount paid by buyers. amount received by sellers - costs of sellers. value to buyers - costs of sellers. amount received by sellers - amount paid by buyers.
value to buyers - costs of sellers.
In a market, the marginal buyer is the buyer whose willingness to pay is higher than that of all other buyers and potential buyers. whose willingness to pay is lower than that of all other buyers and potential buyers. who is willing to buy exactly one unit of the good. who would be the first to leave the market if the price were any higher.
who would be the first to leave the market if the price were any higher.
Suppose Chris and Laura attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called deadweight loss. willingness to pay. consumer surplus. producer surplus.
willingness to pay.
Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because with shortages and waiting lists, they have no incentive to maintain and improve their property. they become resigned to the fact that many of their apartments are going to be vacant at any given time. with rent control the government guarantees landlords a minimal level of profit. with rent control it becomes the government's responsibility to maintain rental housing.
with shortages and waiting lists, they have no incentive to maintain and improve their property.
Refer to Figure 7-15. At the equilibrium price, total surplus is $480. $640. $1,120. $1,280.
$1,120.
Refer to Table 7-6. Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 4 if the price is $770. $970. $1,170. $1,370.
$1,370.
Refer to Figure 6-8. The burden of the tax on sellers is $1.00 per unit. $1.50 per unit. $2.00 per unit. $3.00 per unit.
$1.00 per unit.
Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per ton is $150. $200. $350. $550.
$150.
Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. At equilibrium, consumer surplus is $8. $12. $16. $32.
$16.
Sarah buys a new MP3 player for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is $25. $110. $135. $160.
$160.
Refer to Table 7-3. If the price is $30, then consumer surplus in the market is $20, and Wilbur and Ming-la purchase the good. $20, and Carlos and Quilana purchase the good. $30, and Wilbur and Ming-la purchase the good. $30, and Carlos and Quilana purchase the good.
$20, and Wilbur and Ming-la purchase the good.
Anita sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $3.50 per knife for as many knives as Anita is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.50, the third knife for $3.00, and the fourth knife for $3.50. Assume Anita is rational in deciding how many knives to sharpen. Her producer surplus is $3.50. $3.00. $2.00. $0.50.
$3.00.
Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for $15 or slightly less. $25 or slightly more. $35 or slightly more. $45 or slightly less.
$35 or slightly more.
Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. If the price is $8 but only 4 units are bought and sold, total surplus will be $20. $30. $36. $40.
$36.
Refer to Figure 6-8. The price that sellers receive after the tax is imposed is $8. $6. $5. $3.
$5.
Refer to Figure 7-15. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus would be $210. $360. $480. $570.
$570.
Refer to Figure 6-9. How much tax revenue does this tax produce for the government? $480 $600 $800 $1,080
$600
If Roberta sells a shirt for $30, and her producer surplus from the sale is $23, her cost must have been $53. $30. $7. We would have to know the consumer surplus in order to make this determination.
$7.
Refer to Table 7-6. If the market price is $1,000, the producer surplus in the market is $700. $750. $2,250. $3,700.
$750.
Refer to Figure 6-8. The effective price that buyers pay after the tax is imposed is $8. $6. $5. $3.
$8.
If a binding price ceiling were imposed in the computer market, the quantity of computers demanded would increase. the quantity of computers supplied would decrease. a shortage of computers would develop. All of the above are correct.
All of the above are correct.
Opponents of the minimum wage point out that the minimum wage encourages teenagers to drop out of school. prevents some workers from getting needed on-the-job training. contributes to the problem of unemployment. All of the above are correct.
All of the above are correct.
When a tax is placed on the sellers of a product, the size of the market is decreased. effective price received by sellers decreases and the price paid by buyers increases. supply of the product decreases. All of the above are correct.
All of the above are correct.
Refer to Table 7-2. If the price of Vanilla Coke is $6.90, who will purchase the good? all five individuals Megan, Mallory and Audrey David, Laura and Megan David and Laura
David and Laura
Refer to Table 7-6. If the price is $775, who would be willing to supply the product? Abby and Bobby Abby, Bobby, and Carlos Carlos, Dianne, and Evalina Dianne and Evalina
Dianne and Evalina
Suppose the demand for nachos decreases. What will happen to producer surplus in the market for nachos? It increases. It decreases. It remains unchanged. It may increase, decrease, or remain unchanged.
It decreases.
A minimum wage that is set below a market's equilibrium wage will result in an excess demand for labor, that is, unemployment. an excess demand for labor, that is, a shortage of workers. an excess supply of labor, that is, unemployment. None of the above is correct.
None of the above is correct.
Which of the following characterizations is correct? Rent control and the minimum wage are both examples of price ceilings. Rent control is an example of a price ceiling and the minimum wage is an example of a price floor. Rent control is an example of a price floor and the minimum wage is an example of a price ceiling. Rent control and the minimum wage are both examples of price floors.
Rent control is an example of a price ceiling and the minimum wage is an example of a price floor.
Refer to Figure 7-5. What happens to the consumer surplus if the price rises from $100 to $150? The new consumer surplus is half of the original consumer surplus. The new consumer surplus is 25 percent of the original consumer surplus. The new consumer surplus is double the original consumer surplus. The new consumer surplus is triple the original consumer surplus.
The new consumer surplus is 25 percent of the original consumer surplus.
Consider Figure 6-11. Which of these statements about the effects of the tax is correct? The tax is paid by sellers; sellers bear one-half of the burden of the tax; government collects $24 from the tax. The tax is paid by sellers; sellers bear one-third of the burden of the tax; government collects $24 from the tax. The tax is paid by sellers; sellers bear two-thirds of the burden of the tax; government collects $30 from the tax. The tax is paid by buyers; buyers bear two-thirds of the burden of the tax; government collects $16 from the tax.
The tax is paid by sellers; sellers bear one-third of the burden of the tax; government collects $24 from the tax.
A binding price floor in a market is set above equilibrium price and causes a shortage. above equilibrium price and causes a surplus. below equilibrium price and causes a surplus. below equilibrium price and causes a shortage.
above equilibrium price and causes a surplus.
A binding minimum wage alters both the quantity demanded and quantity supplied of labor. affects only the quantity of labor demanded; it does not affect the quantity of labor supplied. has no effect on the quantity of labor demanded or the quantity of labor supplied. causes only temporary unemployment, since the market will adjust and eliminate any temporary surplus of workers.
alters both the quantity demanded and quantity supplied of labor.
A price ceiling will be binding only if it is set equal to equilibrium price. above equilibrium price. below equilibrium price. none of the above; a price ceiling is never binding.
below equilibrium price.
On a graph, consumer surplus is represented by the area between the demand and supply curves. below the demand curve and above price. below the price and above the supply curve. below the demand curve and to the right of equilibrium price.
below the demand curve and above price.
Under rent control, bribery is a mechanism to bring the total price of an apartment (including the bribe) closer to the equilibrium price. allocate housing to the poorest individuals in the market. force the total price of an apartment (including the bribe) to be less than the market price. allocate housing to the most deserving tenants.
bring the total price of an apartment (including the bribe) closer to the equilibrium price.
If a tax is imposed on a market with inelastic demand and elastic supply, buyers will bear most of the burden of the tax. sellers will bear most of the burden of the tax. the burden of the tax will be shared equally between buyers and sellers. it is impossible to determine how the burden of the tax will be shared.
buyers will bear most of the burden of the tax.
On a graph, the area below a demand curve and above the price measures producer surplus. consumer surplus. deadweight loss. willingness to pay.
consumer surplus.
Assume the law of demand and the law of supply both apply to the market for cars. If the government imposed a $500 tax per car on buyers of cars, then the price received by sellers of cars would decrease by less than $500. decrease by exactly $500. decrease by more than $500. increase by an indeterminate amount.
decrease by less than $500.
Refer to Figure 7-11. When the price falls from P2 to P1, producer surplus decreases by an amount equal to C. decreases by an amount equal to A+B. decreases by an amount equal to A+C. increases by an amount equal to A+B.
decreases by an amount equal to A+B.
A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes increases, and the consumer surplus in the market for red wine increases. increases, and the consumer surplus in the market for red wine decreases. decreases, and the consumer surplus in the market for red wine increases. decreases, and the consumer surplus in the market for red wine decreases.
decreases, and the consumer surplus in the market for red wine decreases.
If the demand for a good or service decreases, producer surplus increases. decreases. remains the same. may increase, decrease, or remain the same.
decreases.
The decisions of buyers and sellers that affect people who are not participants in the market create market power. externalities. profiteering. market equilibrium.
externalities.
Over time, housing shortages caused by rent control increase, because the demand for, and supply of, housing are less elastic in the long run. increase, because the demand for, and supply of, housing are more elastic in the long run. decrease, because the demand for, and supply of, housing are less elastic in the long run. decrease, because the demand for, and supply of, housing are more elastic in the long run.
increase, because the demand for, and supply of, housing are more elastic in the long run.
A tax imposed on the sellers of blueberries increases sellers' costs, shifts the supply curve to the left (upward), and reduces profits. increases sellers' costs, shifts the supply curve to the right (downward), and reduces profits. increases sellers' costs, causes a movement upward and to the right along the supply curve, and reduces profits. is passed on in full to the buyers of blueberries and profits remain unchanged.
increases sellers' costs, shifts the supply curve to the left (upward), and reduces profits.
Refer to Figure 7-19. At the quantity Q2, the marginal value to buyers and the marginal cost to sellers are both P2. is P2, and the marginal cost to sellers is P3. and the marginal cost to sellers are both P3. is P3, and the marginal cost to sellers is P2.
is P2, and the marginal cost to sellers is P3.
When government imposes a price ceiling or a price floor in a market, price no longer serves as a rationing device. efficiency in the market is enhanced. shortages and surpluses are eliminated. buyers and sellers both become better off.
price no longer serves as a rationing device.
Refer to Figure 7-11. Area A represents producer surplus to new producers entering the market as the result of an increase in price from P1 to P2. the increase in consumer surplus that results from an upward-sloping supply curve. the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.
the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.
Which of the following will cause an increase in producer surplus? the imposition of a binding price ceiling in the market buyers expect the price of the good to be lower next month the price of a substitute increases income increases and buyers consider the good to be inferior
the price of a substitute increases
Refer to Figure 6-4. Suppose a price ceiling of $4.50 is imposed. As a result, there is a shortage of 15 units of the good. the demand curve will shift to the left so as to now pass through the point (Q = 35, P = $4.50). the situation is very much like the one created by a binding minimum wage. the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.
the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.
Refer to Figure 7-14. When the price is P1, area B+C represents total surplus. producer surplus. consumer surplus. None of the above is correct.
total surplus.