Economics Quiz3
ceiling
A legal maximum on the price at which a good can be sold is called a price
tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import.
A major difference between tariffs and import quotas is that
increases the domestic quantity supplied.
A tariff on a product
American Revolution
Anger over British taxes played a significant role in bringing about the
increase, and the revenue generated from the tax to decrease.
As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to
tax revenue increases at first, but it eventually peaks and then decreases.
As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the
other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee.
Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that
All of the above are correct.
Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct? a. The demand for cigars is less elastic than the supply of cigars. b. The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. c. The deadweight loss of the tax is $12.50. Correctd. All of the above are correct.
Chad's willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté.
Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup. He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct?
d. All of the above are correct.
Consumer surplus is a. a concept that helps us make normative statements about the desirability of market outcomes. b. represented on a graph by the area below the demand curve and above the price. c. a good measure of economic welfare if buyers' preferences are the primary concern. d. All of the above are correct.
$150.
Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus is
tax on labor.
Economists generally agree that the most important tax in the U.S. economy is the
a concept developed by Adam Smith to describe the virtues of free markets.
The "invisible hand" is
better off, its producers of fish will become worse off, and on balance the citizens of Denmark will become better off.
The before-trade price of fish in Denmark is $10.00 per pound. The world price of fish is $6.00 per pound. Denmark is a price-taker in the fish market. If Denmark begins to allow trade in fish, its consumers of fish will become
producer surplus.
The benefit to sellers of participating in a market is measured by the
in which demand is inelastic and supply is inelastic.
The deadweight loss from a tax of $x per unit will be smallest in a market
is based on the belief that protecting industries when they are young will pay off later.
The infant-industry argument
reduce their quantity demanded more in the long run than in the short run
When consumers face rising gasoline prices, they typically
All of the above are correct
Taxes are costly to market participants because they A. transfer resources from market participants to the government. B. alter incentives. C. distort market outcomes. D. All of the above are correct.
All of the above are correct.
Taxes cause deadweight losses because taxes a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. Correctd. All of the above are correct.
supply is limited and demand is not limited
The 2005 Boston Globe article discussing ticket scalping points out that the price people will pay for tickets will rise when
All of the above are correct.
The amount of deadweight loss from a tax depends upon the A. price elasticity of supply. B. price elasticity of demand. C. amount of the tax per unit. D. All of the above are correct.
false
The demand for Rice Krispies is more elastic than the demand for cereal in general.
demand for wheat is elastic
The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if the
deadweight loss
The loss in total surplus resulting from a tax is called
willingness to pay
The maximum price that a buyer will pay for a good is called
some buyers benefit, and some buyers are harmed
When a binding price ceiling is imposed on a market to benefit buyers
buyer is indifferent between buying the good and not buying it
When a buyer's willingness to pay for a good is equal to the price of the good, the
both buyers and sellers of the good are made worse off.
When a good is taxed,
sellers of the good will bear most of the burden of the tax.
When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,
buyers of the good will bear most of the burden of the tax.
When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
and the effective price received by sellers both decrease
When a tax is placed on the sellers of cell phones, the size of the cell phone market
Total surplus = Value to sellers - Cost to sellers
Which of the following equations is not valid?
Prices ensure an equal distribution of goods and services among consumers
Which of the following is not a function of prices in a market system?
a smaller quantity of the good is bought and sold
Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective
Honduras has begun to import coffee into the country
Suppose that Honduras opens its markets to international trade. As a result of this, the domestic price of coffee decreases. We can conclude that
U.S. producers benefit from higher software prices, increasing producer surplus in the market.
Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,
equilibrium quantity of the good always decreases.
When a tax is imposed on a good, the
regardless of how the tax is levied.
When a tax is levied on a good, the buyers and sellers of the good share the burde
more, and sellers receive less than they did before the tax
When a tax is placed on the sellers of a product, buyers pay
how much a buyer values a good
A consumer's willingness to pay directly measures
both supply and demand are inelastic
A decrease in supply will cause the largest increase in price when
elastic demand and elastic supply
A decrease in the size of a tax is most likely to increase tax revenue in a market with
Time horizon
A key determinant of the price elasticity of supply is the
sellers of mopeds receive $200 less per moped than they were receiving before the tax.
If the government passes a law requiring sellers of mopeds to send $200 to the government for every moped they sell, then
decrease, and the price received by sellers will increase
If the government removes a tax on a good, then the price paid by buyers will
increase
If the government removes a tax on a good, then the quantity of the good sold will
inelastic
If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
may increase, decrease, or remain the same.
If the size of a tax increases, tax revenue
price adjusts until quantity demanded equals quantity supplied
In a competitive market free of government regulation
price
In a free, competitive market, what is the rationing mechanism?
who would be the first to leave the market if the price were any higher
In a market, the marginal buyer is the buyer
FALSE
In general, demand curves for necessities tend to be price elastic.
how much buyers and sellers respond to changes in market conditions
In general, elasticity is a measure of
tax revenue.
The government's benefit from a tax can be measured by
infant-industry argument.
"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the
Total surplus decreases.
What happens to the total surplus in a market when the government imposes a tax?
the number of firms in a market tends to be more variable over long periods of time than over short periods of time
A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?
value of everything she must give up to produce a good
A seller's opportunity cost measures the
the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased
A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that
sellers' costs
A supply curve can be used to measure producer surplus because it reflects
an imported good and it raises the domestic price of the good above the world price
A tariff is a tax placed on
Both b) and c) are correct.
A tax a. lowers the price buyers pay and raises the price sellers receive. b. raises the price buyers pay and lowers the price sellers receive. c. places a wedge between the price buyers pay and the price sellers receive. Correctd. Both b) and c) are correct.
decreases the size of the coffee mug market
A tax on the sellers of coffee mugs
an upside-down U.
According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like
inelastic demand and inelastic supply.
An increase in the size of a tax is most likely to increase tax revenue in a market with
increase, and the revenue generated from the tax to decrease
As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to
height of the triangle that represents the deadweight loss doubles
Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, th
The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon.
Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?
England has a comparative advantage over other countries and England will export wine
Assume, for England, that the domestic price of wine without international trade is lower than the world price of wine. This suggests that, in the production of wine,
other countries have a comparative advantage over Mexico and Mexico will import beets.
Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,
value the good more than price
At the equilibrium price of a good, the good will be purchased by those buyers who
whose cost is less than price
At the equilibrium price of a good, the good will be sold by those sellers
whose cost is less than price.
At the equilibrium price of a good, the good will be sold by those sellers
$8
Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?
supply of the product is more elastic than the demand for the product.
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the
the gains from trade are based on comparative advantage.
Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Congressman Smith's reasoning is that he ignores the fact that
is the amount a consumer is willing to pay minus the amount the consumer actually pays
Consumer surplus
value to buyers minus the amount paid by buyers
Consumer surplus equals the
area below the demand curve and above the price.
Consumer surplus in a market can be represented by the
amount a consumer is willing to pay minus the amount the consumer actually pays
Consumer surplus is the
foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding.
Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that
Total surplus
Economists typically measure efficiency using
confirmation of the virtues of free trade.
Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as
true
Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
the equilibrium price is below the price ceiling
If a price ceiling is not binding, then
decrease in quantity demanded
If a tax is levied on the sellers of a product, then there will be a(n)
buyers do not respond much to a change in price
If demand is price inelastic, then
decrease by less than $0.25
If the government levies a $0.25 tax per MP3 music file downloaded on buyers of MP3 music files, then the price received by sellers of MP3 music files would
increase by less than $1,000
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would
decrease by less than $500
If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would
can generate inequities of their own
Price controls
amount received by sellers minus the cost to sellers
Producer surplus equals the
benefits to sellers of participating in a market
Producer surplus measures the
a maximum rent that landlords may charge tenants
Rent-control laws dictate
demand for the product is more elastic than the supply of the product.
Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the
The effective price received by sellers is $0.40 per bottle less than it was before the tax
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 decease in the price of unsliced bread, which people consider as a substitute for sliced bread
Suppose the government has imposed a price ceiling on sliced sandwich bread. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?
price no longer serves as a rationing device
When a binding price ceiling is imposed on a market
decreased consumer surplus in the steel market and increased total surplus in the incense market.
The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that Aquilonia's new free-trade policy has
higher in the steel market, lower in the rice market, and unchanged in the TV market
The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing rice, exporting steel, and neither importing nor exporting TVs. We can conclude that producer surplus in Aquilonia is now
maximizes the combined welfare of buyers and sellers
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
both the size of the deadweight loss from a tax and the tax incidence.
The price elasticities of supply and demand affect
TRUE
The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price
A. quantity demanded responds to a change in price
The price elasticity of demand measures how much
A. the quantity supplied responds to changes in the price of the good
The price elasticity of supply measures how much
sellers are to a change in price
The price elasticity of supply measures how responsive
positively related.
The size of a tax and the deadweight loss that results from the tax are
elasticities of both supply and demand.
The size of the deadweight loss generated from a tax is affected by the
unilateral approach and the multilateral approach.
The two basic approaches that a country can take as a means to achieve free trade are the
causes quantity demanded to exceed quantity supplied
To say that a price ceiling is binding is to say that the price ceiling
All of the above are correct.
Total surplus A. is the sum of consumer and producer surplus. B. can be used to measure a market's efficiency. C. is the value to buyers minus the cost to sellers. D. All of the above are correct.