econ exam 2

If a binding price floor is imposed on the video game market, then

- a surplus of video games will develop. - the quantity supplied of video games will increase. - the quantity demanded for video games will decrease.

The amount of deadweight loss from a tax depends upon the

- amount of the tax per unit. - price elasticity of demand. - price elasticity of supply.

A seller's willingness to sell is

- related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. - less than the price received if producer surplus is a positive number. - measured by the seller's cost of production.

A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied. T/F

False

A tax of $1 on buyers always decreases the equilibrium price by $1. T/F

False

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue. T/F

False

If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to occur?

The allocation of kidneys would be fair.

Suppose sellers of liquor are required to send $5.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $3.00 per bottle. Which of the following statements is correct?

This tax causes the supply curve for liquor to shift upward by $5.00 at each quantity of liquor.

The more elastic the supply, the larger the deadweight loss from a tax, all else equal. T/F

True

When a tax is imposed on sellers, consumer surplus and producer surplus both decrease. T/F

True

Consumer surplus is equal to the

Value to buyers - Amount paid by buyers.

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

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.

The price paid by buyers in a market will decrease if the government

decreases a binding price floor in that market.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

decreases, and producer surplus decreases.

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

downward by $2

The price that causes quantity supplied to equal quantity demanded is the "best" price since it

maximizes the combined welfare of buyers and sellers.

An example of a price floor is

minimum wage

At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes

neither consumer surplus or producer surplus.

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

When a binding price ceiling is imposed on a market,

price no longer serves as a rationing device.

Total surplus in a market will increase when the government

removes a binding price ceiling from that market.

Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the

smaller the deadweight loss from the tax.

One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the

tax reduces the welfare of both buyers and sellers.

The benefit that government receives from a tax is measured by

tax revenue.

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,

the deadweight loss of the tax necessarily decreases.

Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about

the elasticity of labor supply.

If the current allocation of resources in the market for hammers is inefficient, then it must be the case that

the sum of consumer surplus and producer surplus could be increased by moving to a different allocation of resources.