Micro Exam 2
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1 tax is levied on each gallon of gas. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is:
$0.75 paid by consumers, $0.25 paid by producers
Vonda and Aleiyah are shopping together at the mall for new jeans. Vonda is willing to pay $90 and Aleiyah is willing to pay $50 for a pair of jeans. What is the gain in total consumer surplus when the price decreases from $59 to $40?
$29
Mark and Rasheed are @ the bookstore buying new calculators for the semester. Mark is willing to pay $75 and Rasheed is willing to pay $100 for a graphing calculator. The price for a calculator at the bookstore is $65. How much is total consumer surplus?
$45
Which of the following statements is false?
When the marginal product of labor is upward sloping, the marginal cost curve is upward sloping
Producers may supply an inefficiently low quality of a good if the government imposes:
a binding price ceiling
Producers may supply a good with an inefficiently high quality if the government imposes:
a binding price floor
A tax leads to ________ in consumer surplus and ________ in producer surplus.
a decrease; a decrease
A factor of production whose quantity cannot be changed during the short run is:
a fixed factor of production
A price control is:
a legal restriction on how high or low a price in a market may go
In the long run:
all inputs are variable
Diminishing marginal returns occur when:
an additional variable factor adds less to total output than the previous unit
The deadweight loss from an excise tax is largest if demand:
and supply are both elastic
Consumer surplus is represented by the area _____ the demand curve and ____ the market price
below; above
Pollution has ________ and ________.
benefits; costs
If the government imposes a excise tax in a market in which the demand curve is perfectly inelasitic, the burden of the tax will fall completely on the ____, and the deadweight loss will equal _______.
consumers; zero
Oscar owns a meat processing plant whose unpleasant odors waft across the city. Because the production of processed meat provides a negative externality to the community, at the market equilibrium quantity, the marginal social:
cost of processed meat exceeds the market price.
Along a given demand curve, an increase in the price of a good will cause consumer surplus to:
decrease
Along a given demand curve, the increase in the price of a good will:
decrease consumer surplus
Along the supply curve for brownies, a decrease in the price of brownies will:
decrease producer surplus
Marginal cost ____ over the range of increasing marginal returns and _____ over the range of diminishing marginal returns
decreases; increases
When Caroline's dress factory hires two workers, the total product is 50 dresses. When she hires three workers, total product is 48, and when she hires four workers, total product is 46. The marginal product of the third and fourth workers is:
decreasing and negative
If an excise tax is imposed on wine and collected from the consumers, the ___ will shift ___ by the amount of the tax
demand; downward
An excise tax is a tax charged on:
each unit of a good or service that is sold
Accounting profit differs from economic profit because:
economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.
Anna is willing to sell her 20-year-old boat, but not for less than $2,300. For Anna, the cost of selling this boat is ____ $2,300.
equal to
accountants use only ____ costs in their computations of cost
explicit
Equilibrium in the market for peanut butter is disturbed by an increase in the price of peanuts. Producer surplus in the peanut butter market:
may change, but we cannot determine the change without more information
The burden of a tax that is imposed on a good is said to fall completely on the consumers if the:
price paid by consumers for the good increases by the amount of the tax
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes does not change:
producers are paying all of the tax
If the government imposes an excise tax in a market in which the supply curve is perfectly inelastic, the burden of the tax will fall completely on the ________ and the deadweight loss will equal ________.
producers; zero
Rent controls usually set a price ceiling below the equilibrium price and therefore:
quantity demanded exceeds the quantity supplied
The incidence of a tax:
refers to how much of the tax is actually paid by consumers and producers
Which of the following is a reason for governments imposing or maintaining price controls?
some consumers and producers can benefit from price controls
In the short run:
some inputs are fixed and some inputs are variable
If the government were to intervene in the market by lowering the price below the equilibrium price of a good, which of the following would NOT occur?
the outcome would be efficient
The burden of a tax imposed on a good falls at least partially on consumers if:
the price paid by consumers for the good increases
The socially optimal quantity of pollution is:
the quantity whose marginal social cost is equal to the marginal social benefit
A firm's marginal cost is:
the slope of the total cost curve.
A fixed input is one:
whose quantity cannot be changed in the short run
The total product curve:
will become flatter as output increases if there are diminishing returns to the variable input
If the price of a good rises, then producer surplus:
will increase
When there is a bountiful harvest of grapefruit, total consumer surplus in the grapefruit market:
will increase
If two firms are identical in all respects except that one has more capital than another, the total product curve for the firm with more capital:
will lie above the total product curve for the firm with less capital
All of the following are examples of an external cost EXCEPT:
zoning restrictions on your property
Which of the following is not an example of an activity that generates an externality?
Bob's Service Station donates a car to charity.
Marginal cost can be calculated as:
Change in TC / Change in Q, where TC is total cost and Q is output; Change in VC / Change in Q, where VC is variable cost and Q is output; and as the slop of the total cost curve
Suppose the demand for good X is perfectly inelastic and a tax is levied on the producers of each unit. Which of the following is a result of this tax?
Consumers pay the entire tax, and there is no deadweight loss because the equilibrium quantity of good X remains constant.
Which situation would most likely cause a decrease in consumer surplus in the toy market?
The cost of shipping increases because of higher oil prices.
Which of the following statements about the effects of an excise tax is INCORRECT?
The lower the elasticity of supply relative to the elasticity of demand, the lower the burden of the tax borne by suppliers
A price ceiling is:
a maximum price sellers are allowed to charge for a good or service
Which of the following is an example of an excise tax?
a tax of $0.41 per gallon of gas
An input whose quantity can be changed in the short run is:
a variable input
Producers surplus is represented by the area ____ the supply curve and ______ the price
above; below
Profit computed using explicit costs as the only measure of costs is:
accounting profit
If the demand curve is downward sloping and supply is perfectly elastic, then the burden of an excise tax is:
borne entirely by consumers
Ashley bought a new pair of jeans. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these jeans!" This best represents the concept of:
consumer surplus
When the government imposes an excise tax in a market:
consumer surplus falls, producer surplus falls, and a deadweight loss is created
If the government feels that a price in the market is too high for _____, it can impose a ______
consumers; price ceiling
When marginal cost is BELOW average variable cost, average variable cost must be:
falling
A tax:
generates tax revenue and creates deadweight loss
Suppose the government imposes a $4 per month excise tax on cable TV. If the demand for cable TV is perfectly inelastic and the supply curve is elastic, then the price of cable TV will:
increase by exactly $4
If Marie Marionettes is operating under conditions of diminishing marginal product, the marginal costs will be:
increasing
An externality is said to exist when:
individual actions are affected by external forces like the loss of U.S. jobs because of competition from abroad
The persistent unwanted surplus that results from a price floor creates inefficiencies that include all of the following EXCEPT:
inefficiently low quality
If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall on goods for which the supply is ____ and the demand is ______
inelastic; inelastic
A negative externality:
is an uncompensated cost imposed by an individual or firm on others
The demand for food is very inelastic, so if a tax is levied on the consumers of food, the tax incidence:
is typically on consumers more than producers
The elasticity of demand for Gala apples is relatively elastic, so if a tax is levied on the consumers of Gala apples, the tax incidence:
is typically on producers more than consumers
A binding price ceiling is designed to:
keep prices low
West African cotton farmers are very upset about the subsidies the U.S. government pays to American cotton farmers. One reason for this could be that subsidized cotton from the United States:
leads to cotton surpluses in the U.S. and lower prices for West African farmers
If an increase in output results in a decrease in average total cost, the corresponding marginal cost is:
less than average total cost
Given any upward-sloping supply curve for a good, the more inelastic the demand curve, the _____ equilibrium output will fall and the ______ will be the deadweight loss when the government imposes an excise tax
less; larger
Given any downward-sloping demand curve for a good, the more inelastic the supply curve, the ___ equilibrium output will fall and the ____ will be the deadweight loss when the government imposes an excise tax
less; smaller
To be binding, a price ceiling must be set at a price:
lower than the equilibrium price
The ____ is the increase in output that is produced when hiring an additional worker
marginal product
When a firm experiences diminishing marginal returns:
marginal product is falling but is likely to be still positive
Suppose the marginal cost curve in the short run first decreases, then reaches a minimum, and then increases. If we are at an output where marginal cost is decreasing, then:
marginal product must be increasing and average variable cost must be decreasing
Suppose the marginal cost curve in the short run first decreases, then reaches a minimum, and then increases. If we are at an output where marginal cost is decreasing, then:
marginal product must be increasing and average variable cost must be decreasing.
Given any downward-sloping demand curve for a good, the more price-elastic the supply curve, the ________ equilibrium output will fall and the ________ will be the deadweight loss when the government imposes an excise tax.
more; larger
Given any downward-sloping demand curve for a good, the more price-elastic the supply curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes and excise tax
more;larger
The government decides to impose a price ceiling on a good because it thinks the market-determined price is "too high." If it imposes the price ceiling above the equilibrium price:
neither producers nor consumers will change their behavior
In economics, the short run is defined as:
period in which some inputs are considered to be fixed in quantity.
The total cost curve is:
positively sloped
A minimum price set above the equilibrium price is a:
price floor
The burden of a tax that is imposed on a good is said to fall completely on the producers if the:
price paid by consumers does not change
A tax system achieves equity when:
the "right" people actually bear the burden of taxes
The total producer surplus for a good can be calculated in all EXCEPT one of the following ways. Which is the exception?
the area below the supply curve for the good up to the quantity of the goods sold
The total consumer surplus for good X can be calculated in all EXCEPT one of the following ways. Which is the exception?
the area bounded by the demand curve for X and the two axes
Suppose the U.S. removes the current sugar quotas and the market price of sugar drops. In the candy bar market, we would expect:
the consumer surplus to increase
Consumer surplus for an individual buyer is equal to:
the consumer's willingness to pay for the good minus the price of the good
If an excise tax is imposed on automobiles and collected from consumers,
the demand curve will shift downward by the amount of the tax
Maximum total surplus in the market for chocolate occurs when:
the market is in equilibrium
We can measure total producer surplus for good X as:
the sum of the individual producer surpluses for all buyers of X
When a market is efficient:
there is no way to make some people better off without making other people worse off
If total surplus rises, which of the following must have occurred?
there was an increase in demand or an increase in supply
Average total cost is:
total cost divided by the output
Profit is the difference between ___ and ____.
total revenues; total costs
When the minimum wage increases:
unemployment among unskilled workers increases
When Caroline's dress factory hires two workers, the total product is 50 dresses. When she hires three workers, total product is 60, and when she hires four workers, total product is 75. The slope of the marginal product curve when two to four workers are hired is:
upward sloping
Diminishing returns to an input occur:
when some inputs are fixed and some are variable
