Study Midterm 2 Econ 201
11. Consumer surplus can be measured as the area between the demand curve and the equilibrium price. A. True B. False
A
12. Producer surplus is the amount a seller is paid minus the cost of production. A. True B. False
A
13. Suppose there is an increase in supply. Consumer surplus increases because: (1) consumer surplus received by existing buyers increases and (2) new buyers enter the market. A. True B. False
A
14. All else equal, an increase in demand will cause an increase in producer surplus. A. True B. False
A
3. When a binding price floor is imposed on a market for a good, some people who want to sell the good cannot do so. A. True B. False
A
31. A tax on a good causes the size of the market to shrink. A. True B. False
A
32. A tax on sellers usually causes buyers to pay more for the good and sellers to receive less than they did before the tax. A. True B. False
A
33. If the demand curve is very elastic and the supply curve is very inelastic, then the sellers will bear a larger burden of a tax, even if the tax is imposed on the buyers. A. True B. False
A
36. As the price elasticities of supply and demand increase, the deadweight loss from a tax increases. A. True B. False
A
38. As the size of a tax increases, the government's tax revenue rises, then falls. A. True B. False
A
1. A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied. A. True B. False
B
15. All else equal, an increase in demand will cause an increase in consumer surplus. A. True B. False
B
2. A binding price floor causes a shortage in the market. A. True B. False
B
29. A tax of $1 on sellers always increases the equilibrium price by $1. A. True B. False
B
30. Total surplus in a market does not change when the government imposes a tax because the loss of consumer surplus and producer surplus is equal to the gain of government revenue. A. True B. False
B
34. The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal. A. True B. False
B
35. If the size of a tax doubles, the deadweight loss doubles. A. True B. False
B
37. A tax on insulin is likely to cause a very large deadweight loss to society. A. True B. False
B
4. Binding price ceiling may not help all consumers, but it does not hurt any consumers. A. True B. False
B
40. Refer to Figure 5, in which a $8 tax is imposed. As a result of the tax, consumer surplus decreases by a. $65, producer surplus decreases by $85, tax revenue is $120, and deadweight loss is $30. b. $75, producer surplus decreases by $75, tax revenue is $120, and deadweight loss is $30. c. $80, producer surplus decreases by $80, tax revenue is $120, and deadweight loss is $40. d. $120, producer surplus decreases by $120, tax revenue is $200, and deadweight loss is $40.
C
39. A tax on the sellers of coffee will a. increase the price of coffee paid by buyers, increase the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. b. increase the price of coffee paid by buyers, increase the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee. c. increase the price of coffee paid by buyers, decrease the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. d. increase the price of coffee paid by buyers, decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
D
16. Refer to Figure 1. Assume demand increases, which increases the equilibrium price from $70 to $90. The increase in producer surplus due to new producers entering the market is: a. $50. b. $100. c. $150. d. $200.
a
24. Refer to Figure 3. Suppose the government imposes a price ceiling as shown in the figure below. What is the change in consumer and producer surplus (compare to equilibrium)? a. CS changes by D - C; PS changes by - D - E b. CS changes by - D - C; PS changes by D - E c. CS changes by - D - C; PS changes by B - E d. CS changes by D - C; PS changes by - B - E
a
26. If the cost of producing TVs decreases, then consumer surplus in the TV market will a. Increase. b. Decrease. c. remain constant. d. Increase for some buyers and decrease for other buyers.
a
42. Refer to Figure 6. As the figure is drawn, who sends the tax payment to the government? a. the buyers b. the sellers c. A portion of the tax payment is sent by the buyers and the remaining portion is sent by the sellers. d. The question of who sends the tax payment cannot be determined from the figure.
a
44. Refer to Figure 6. The effective price that sellers receive after the tax is imposed is a. $5. b. $6. c. $7. d. $8.
a
47. Refer to Figure 6. The burden of the tax on sellers is a. $1 per unit. b. $1.50 per unit. c. $2 per unit. d. $3 per unit.
a
48. Refer to Figure 6. How much tax revenue does this tax generate for the government? a. $150 b. $180 c. $250 d. $300
a
5. Refer to Table 1: Which of the following price ceilings would be binding in this market? a. $2 b. $3 c. $4 d. $5
a
50. The following diagram shows the demand and supply curves of a good. Suppose a $3 per-unit tax is placed on this good. a. With the tax, how much will buyers pay? How much will sellers receive? How many units will be sold? b. How much is the per-unit burden of the tax on buyers and sellers? c. How much is the loss of consumer surplus caused by the tax? How much is the loss of producer surplus? d. How much is the amount of deadweight loss caused by the tax?
a
53. The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities. a. True b. False
a
54. Refer to Figure 7. This market would benefit from a tax equal to $100 per unit. a. True b. False
a
57. Refer to Table 2. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially optimal outcome? a. $4 b. $5 c. $24 d. $22
a
62. Refer to Figure 8. At Q3 a. the marginal consumer values this product less than the social cost of producing it. b. every consumer values this product less than the social cost of producing it. c. the cost to society is equal to the value to society. d. the marginal consumer values this product more than the private cost.
a
64. Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. b. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. d. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.
a
9. Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding? a. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans b. The number of consumers buying soybeans increases. c. The number of farmers selling soybeans decreases. d. Consumers' income increases, and soybeans are a normal good.
a
17. Refer to Figure 1. Assume demand increases, which increases the equilibrium price from $70 to $90. The increase in producer surplus to producers already in the market is: a. $50. b. $100. c. $150. d. $200.
b
19. Suppose the demand for peaches decreases. What will happen to consumer surplus in the market for peaches? a. It increases. b. It may increase, decrease, or remain unchanged. c. It decreases. d. It remains unchanged.
b
21. Refer to Figure 2. At the equilibrium price, producer surplus is: a. $2000 b. $2,500 c. $1,000 d. $900
b
23. Refer to Figure 2. Assume demand increases, which causes the equilibrium price to increase from $50 to $70. The increase in producer surplus is: a. $2,500 b. $1,600 c. $900 d. $1,200
b
41. Both the supply and demand curves of a good are straight lines. A tax of $10 per unit is imposed on the good. The tax reduces the equilibrium quantity in the market by 200 units. The deadweight loss from the tax is: a. $2,000. b. $1,000. c. $500. d. $250.
b
51. Corrective taxes cause deadweight losses, reducing economic efficiency. a. True b. False
b
52. Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable. a. True b. False
b
55. Refer to Table 2. What is the equilibrium quantity of output in the market? a. 2 units b. 4 units c. 5 units d. 3 units
b
56. Refer to Table 2. What is the socially optimal quantity of output in this market? a. 4 units b. 3 units c. 5 units d. 6 units
b
58. Refer to Figure 8. The socially optimal quantity would be a. Q1. b. Q2. c. Q3. d. Q4.
b
60. Refer to Figure 8. If all external costs were internalized, then the market's output would be a. Q1. b. Q2. c. Q3. d. Q4.
b
61. Refer to Figure 8. This market a. has no need for government intervention. b. would be more efficient with a tax on the product. c. would be more efficient with a subsidy for the product. d. would maximize total well-being at Q3.
b
8. The government imposes a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding? a. Cellular phones become less popular. b. Traditional land line phones become more expensive. c. The components used to produce cellular phones become less expensive. d. Firms expect the price of cellular phones to fall in the future.
b
10. Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of consumers buying laptop computers decreases. c. The number of firms selling laptop computers decreases. d. Consumers' income decreases, and laptop computers are a normal good.
c
18. Coffee and tea are substitutes. Bad weather that adversely affects coffee bean harvest would a. increase consumer surplus in the market for coffee and decrease producer surplus in the market. b. increase consumer surplus in the market for coffee and increase producer surplus in the market. c. decrease consumer surplus in the market for coffee and increase producer surplus in the market. d. decrease consumer surplus in the market for coffee and decrease producer surplus in the market.
c
20. Refer to Figure 2. At the equilibrium price, consumer surplus is: a. $2000 b. $2,500 c. $1,000 d. $900
c
22. Refer to Figure 2. If the price decreases from $80 to $70 due to a shift in the supply curve, consumer surplus increases by: a. $250 b. $500 c. $750 d. $1000
c
46. Refer to Figure 6. The burden of the tax on buyers is a. $1 per unit. b. $1.50 per unit. c. $2 per unit. d. $3 per unit.
c
49. Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic. A tax of $1 per frame will increase the price paid by buyers of picture frames by a. less than $0.50. b. $0.50. c. between $0.50 and $1. d. $1.
c
59. Refer to Figure 8. Without government intervention, the quantity would be a. Q1. b. Q2. c. Q3. d. Q4.
c
63. Refer to Figure 8. This market is characterized by a. government intervention. b. a positive externality. c. a negative externality. d. a price control.
c
7. Refer to Table 1. Suppose the government imposes a price ceiling of $1 on this market. What will be the size of the shortage in this market? a. 0 units b. 2 units c. 8 units d. 10 units
c
25. Refer to Figure 4. If the government imposes of price ceiling of $50 in this market, the change in producer surplus is: a. $325 b. $200 c. $100 d. $300
d
43. Refer to Figure 6. The price that buyers pay after the tax is imposed is a. $5. b. $6. c. $7. d. $8
d
45. Refer to Figure 6. The amount of the tax per unit is a. $1. b. $1.50. c. $2. d. $3.
d
6. Refer to Table 1. Which of the following price floors would be binding in this market? a. $1 b. $2 c. $3 d. $4
d
