ECON 213 Quiz 5 Market Outcomes and Tax Incidence solutions complete answers

ECON 213 Quiz 5 Market Outcomes and Tax Incidence solutions complete answers 

 

If the demand for bread is more elastic than the supply of bread, which group will bear more of the incidence of a tax on bread?

 

The price–quantity combination found where the supply and demand curves intersect is a unique combination that is efficient because:

 

Butter and margarine are substitute goods. A tax on butter will have what effect on the market for margarine?

 

The revenue generated from a tax equals the:

 

A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ tax revenue from that tax.

 

Taxes almost always cause producer prices to decrease. How much they decrease depends on:

 

A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ who is legally responsible for paying the tax.

 
 

A tax on consumers of a good would shift the __________ curve down and cause the price paid by consumers to __________.

 

A tax on consumers would cause the __________ curve(s) to shift to the __________.

 

Question 1 Taxing goods with very inelastic demand generates less deadweight loss than taxing goods with very elastic demand because:

Question 2 When looking at a graph, the area under the demand curve and above market price is defined as:

Question 3 If a tax is imposed on a good with a perfectly inelastic supply, the burden of the tax will be borne:

Question 4 Consumers will lose no consumer surplus due to a tax if demand in their market is perfectly elastic because:

Question 5 The deadweight loss from a tax is likely to be less with a good that has:

Question 6 At very low tax rates:

Question 7 Producers bear the entire incidence of a tax when:

Question 8 Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer AND consumer surplus (i.e., social welfare) in this market?

Question 9 When a tax is imposed on some good, what happens to the amount of the good bought and sold?

Question 10 Ireland’s tax on plastic shopping bags successfully reduced consumer use of these bags because the:

Question 11 A tax creates no deadweight loss only when either supply or demand is:

Question 12 A good with a __________ generates no deadweight loss when taxed.

Question 13 Taxes will almost always cause consumer prices to increase. How much they increase depends on:

Question 14 When the price of a good increases and all else is held constant:

Question 15 How successful would a $1 excise tax on each Little Caesar’s pizza be in generating revenue if Little Caesar’s is the only pizza chain that is taxed?

Question 16 When supply is perfectly elastic, the supply curve is:

Question 17 A tax on milk would likely cause an increase in the:

Question 18 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pewas the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QTunits are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.

 

What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

Question 19 All else being held constant, an increase in the price of a good would necessarily:

Question 20 In a market where supply and demand are both somewhat elastic, but demand is more elastic than supply, consumers will bear less of the burden of a tax because:

 

Question 1 All else held constant, a decrease in the price of a good would necessarily:

Question 2 If a tax causes the supply curve to shift, we know that the tax is paid out of pocket by:

Question 3 Holding all else constant, when the price of a good increases:

Question 4 Deadweight loss is defined as:

Question 5 A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ deadweight loss from that tax.

Question 6 Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?

Question 7 If a tax is imposed on a good with a perfectly elastic demand, the burden of the tax will be borne:

Question 8 The difference between the price consumers pay and the price sellers receive after a tax is imposed is equal to the:

Question 9 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pewas the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QTunits are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.

 

Which areas represent the amount of producer surplus lost due to the tax?

Question 10 In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

Question 11 A tax on apples would cause apple growers to suffer because:

Question 12 Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

Question 13 The incidence of a tax reflects:

Question 14 Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

Question 15 The difference between the willingness to sell a good and the price a producer receives is also known as:

Question 16 A tax creates no deadweight loss only when either supply or demand is:

Question 17 The deadweight loss from a tax is likely to be less with a good that has:

Question 18 Compared to producers, consumers will lose the greater amount of surplus from a tax if:

Question 19 Producer surplus is defined as the:

Question 20 Social welfare is measured as the sum of:

 

Question 1

The luxury tax of 1990 produced far less tax revenue than projected because:

Question 2

Goods that are necessities are very likely to have:

Question 3

Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

Question 4

Producers will lose no producer surplus due to a tax if:

Question 5

Consumer surplus plus producer surplus equals:

Question 6

All taxes create some deadweight loss, unless:

Question 7

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

Question 8

Consumers will lose no consumer surplus due to a tax if:

Question 9

The maximum amount of tax revenue is generated when the good being taxed has a:

Question 10

If a tax causes the supply curve to shift, we know that the tax is paid out of pocket by:

Question 11

A tax creates no deadweight loss only when either supply or demand is:

Question 12

When the price of a good decreases and all else is held constant:

Question 13

In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

Question 14

When a tax is imposed on some good, what usually happens to consumer and producer surplus?

Question 15

Social welfare (i.e., the sum of producer and consumer surplus) is maximized when:

Question 16

MJM Products, Inc., designs and sells flannel jackets. The company is willing to sell a men’s flannel jacket for as little as $45. Its main competitor is RL Outriggers, which is willing to sell the same men’s flannel jacket for as little as $40. The current market price of that type of jacket is $57. What is the total producer surplus for the two firms?

Question 17

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.

Which areas represent the amount of producer surplus lost due to the tax?

Question 18

A tax on milk would likely cause a decrease in the:

Question 19

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause a(n):

Question 20

Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

 

Question 1 A tax on milk would likely cause a decrease in the price of:

Question 2 Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?

Question 3 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What areas represent the total lost consumer and producer surplus (i.e., social welfare) as a result of the tax?

Question 4 Explain what happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left).

Question 5 Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. How much is total consumer surplus in this market?

Question 6 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent producer surplus before the tax is imposed?

Question 7 Producers will lose no producer surplus due to a tax if:

Question 8 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

Question 9 Consumers will lose no consumer surplus due to a tax if:

Question 10 When a tax is imposed on some good, what usually happens to consumer and producer surplus?

Question 11 In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

Question 12 Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer AND consumer surplus (i.e., social welfare) in this market?

Question 13 Consumers will lose no consumer surplus due to a tax if demand in their market is perfectly elastic because:

Question 14 If the government wanted to raise taxes while generating the least amount of deadweight loss, it should raise taxes on a good with a:

Question 15 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent the revenue collected from this tax?

Question 16 Compared to producers, consumers will lose the greater amount of surplus from a tax if:

Question 17 After a tax is imposed, the price paid by consumers _________ and the price received by producers _________.

Question 18 The per­unit dollar amount of a tax times the quantity sold after the tax is imposed equals:

Question 19 When the price of a good decreases and all else is held constant:

Question 20 Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

 

Question 1 If a tax is imposed on a good with a perfectly elastic demand, the burden of the tax will be borne:

Question 2 In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

Question 3 The difference between the willingness to sell a good and the price a producer receives is also known as:

Question 4 The difference between the price consumers pay and the price sellers receive after a tax is imposed is equal to the:

Question 5 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent producer surplus before the tax is imposed?

Question 6 Taxes will almost always cause consumer prices to increase. How much they increase depends on:

Question 7 As a tax rate grows larger and larger, eventually:

Question 8 Holding all else constant, when the price of a good increases:

Question 9 At very low tax rates:

Question 10 Excise taxes are taxes that are:

Question 11 Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

Question 12 The difference between the willingness to pay for a good and the amount that is paid to get it is also known as:

Question 13 When a tax is imposed, consumer surplus and producer surplus are reallocated to:

Question 14 When looking at a graph, the area above the supply curve and below market price is defined as:

Question 15 The incidence of a tax reflects:

Question 16 A tax on apples would cause the price paid by consumers to __________ and the price received by producers to __________.

Question 17 The cost to society created by distortions in the market as a result of a tax is also known as:

Question 18 The elasticities of supply and demand are important in determining the distribution of tax burden because they:

Question 19 Producers will lose no producer surplus due to a tax if supply in their market is perfectly elastic because:

Question 20 Which of the following statements is concerned with equity rather than efficiency?

 

Version 2

Question 1 Consumers will lose no consumer surplus due to a tax if:

Question 2 A tax on apples would cause consumers to suffer because:

Question 3 Holding all else constant, when the price of a good increases:

Question 4 Producer surplus is depicted by the area:

Question 5 The deadweight loss from a tax is likely to be greater with a good that has:

Question 6 In a market where supply and demand are both somewhat elastic, but supply is more elastic than demand, producers will bear less of the burden of a tax because:

Question 7 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the amount of the tax, as measured along the y axis?

Question 8 Compared to consumers, producers will lose the lesser amount of surplus from a tax if:

Question 9 When a tax is imposed on some good, what usually happens to consumer and producer surplus?

Question 10 A tax that is applied to one specific good or service is a(n):

Question 11 Consumers will lose no consumer surplus due to a tax if demand in their market is perfectly elastic because:

Question 12 When a tax is imposed on some good, what happens to the amount of the good bought and sold?

Question 13 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent the revenue collected from this tax?

Question 14 Consumer surplus plus producer surplus equals:

Question 15 Social welfare is measured as the sum of:

Question 16 In most cases, taxes reduce economic efficiency because:

Question 17 Which of the following statements is concerned with equity rather than efficiency?

Question 18 If a tax is imposed on a good where both supply and demand are somewhat elastic, but supply is more elastic than demand, the burden of the tax will be borne:

Question 19 The cost to society created by distortions in the market as a result of a tax is also known as:

Question 20 Of the following items, which is (are) most important in determining the distribution of tax burden?

 

Use the following information to answer the questions that follow.
The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.
Which areas represent the amount of consumer surplus lost due to the tax

If a tax is imposed on a good with a perfectly elastic supply, the burden of the tax will be borne

Compared to producers, consumers will lose the lesser amount of surplus from a tax if

Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill

Deadweight loss is defined as

For any type of tax the government imposes

Holding all else constant, when the price of a good decreases

When a good with equally elastic demand and supply is taxed, the incidence of the tax is borne:

Producer surplus is depicted by the area:

Consumer surplus is the difference between

When supply is perfectly inelastic, the supply curve is

Taxing goods with very elastic supply generates more deadweight loss than taxing goods with very inelastic supply because

Producers will lose no producer surplus due to a tax if:

The difference between the willingness to pay for a good and the amount that is paid to get it is also known as

The incidence of a tax is determined by

A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ deadweight loss from that tax

The deadweight loss from a tax is equal to one half of:

When supply is perfectly elastic, the supply curve is:

Of the following items, which is (are) most important in determining the distribution of tax burden?

Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

 

Consumer surplus is the difference between: 

Holding all else constant, when the price of a good increases

Producer surplus is defined as the

All else held constant, a decrease in the price of a good would necessarily

When the price of a good increases and all else is held constant

When looking at a supply and demand graph, you would find producer surplus

A market has reached an efficient outcome when

Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent consumer surplus before the tax is imposed?

Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent the amount of producer surplus lost due to the tax?

Use the following information to answer the questions that follow. 

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

Use the following information to answer the questions that follow. 

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market after the tax is imposed?

Use the following information to answer the questions that follow. 

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the amount of the tax, as measured along the y axis?

A tax on apples would cause apple growers to suffer because

In most cases, taxes reduce economic efficiency because

It is said that taxes drive a wedge between prices. This statement is true because taxes cause

A tax on apples would cause the price paid by consumers to __________ and the price received by producers to __________.

A tax on producers would cause the __________ curve(s) to shift to the __________.

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause a(n):

The elasticities of supply and demand are important in determining the distribution of tax burden because they:

All taxes create some deadweight loss, unless

 

1.  The costs or benefits of a market activity that affect a third party are called:

         a.  externalities.

         b.  public goods.

         c.  club goods.

         d.  internal costs.

         e.  common-resource goods.

2. The personal decisions of consumers and firms are based on:

         a.  external costs.

         b.  social cost.

         c.  internal costs.

         d.  third-party costs.

         e.  public-good costs.

3. Refer to the accompanying table, where Q represents the quantity produced, internal cost and social cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

Q
Internal Cost
Social Cost
P
100
$40
$60
$80
200
$50
$70
$70
300
$60
$80
$60
400
$70
$90
$50
500
$80
$100
$40
600
$90
$110
$30
         The external cost is equal to _________ per unit.

         a.  $60

         b.  $70

         c.  $20

         d.  $50

         e.  $30

4.  Consider a market with a negative externality. The market will tend to ___________ the good because the market participants tend to ignore the __________ of their decision.

         a.  overproduce; external benefit

         b.  under-produce; external benefit

         c.  overproduce; external cost

         d.  under-produce; external cost

         e.  overproduce; internal benefit

Refer to the accompanying figure to answer the next three questions.

 

5.  At the market equilibrium, price is equal to _________ units of the good are produced.

         a.  $18 and 70

         b.  $14 and 70

         c.  $12 and 50

         d.  $14 and 50

         e.  $18 and 50

    6.  The figure best illustrates what type of market?

         a.  The good produced creates a positive externality.

         b.  The good produced creates a negative externality.

         c.  The good produced is a club good.

         d.  The good produced is a public good.

         e.  Firms in this industry have been given a subsidy to encourage more production.

    7.  To achieve the social optimum, the government could set a tax equal to __________ per unit sold.

         a.  $6

         b.  $4

         c.  $2

         d.  $3

         e.  $5

8.  Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?

         a.  $15

         b.  $20

         c.  $5

         d.  $25

         e.  $35

    9.  Muddy’s Bakery and Lilly’s Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.50. Muddy’s is willing to sell a cupcake for as little as $1.65; Lilly’s is willing to sell a cupcake for as little as $1.75. What is the total producer surplus for the two firms?

         a.  $0.75

         b.  $1.60

         c.  $0.85

         d.  $2.50

         e.  $3.40

10.  Explain what happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left).

         a.  Producer surplus declines and consumer surplus is unchanged.

         b.  Consumer surplus declines and producer surplus is unchanged.

         c.  Consumer surplus declines and producer surplus declines.

         d.  Consumer surplus is unchanged and producer surplus is unchanged.

         e.  Producer surplus increases and consumer surplus increases.

  11.  Social welfare is measured as the sum of:

         a.  tax revenue and deadweight loss.

         b.  deadweight loss and consumer surplus.

         c.  producer surplus and tax revenue.

         d.  consumer surplus and tax revenue.

         e.  consumer surplus and producer surplus.

12.  Which of the following statements is concerned with efficiency rather than equity?

         a.  It is not fair to tax the income earned by the wealthy at higher rates than the poor.

         b.  Excise taxes on tobacco products affect low-income families the most and should be reduced.

         c.  Our income tax system should be more progressive than it is now.

         d.  Taxes cause distortions in markets and reduce social welfare.

         e.  The best type of income tax is a flat tax because it treats everyone the same.

13.  Which of the following is an accurate statement about the consequence of nonbinding price ceilings?

         a.  They prevent the seller from receiving the equilibrium price.

         b.  They require the seller to advertise the product at the equilibrium price.

         c.  They create a surplus in the legal market.

         d.  They do not change the quantity of goods bought or sold in the legal market.

         e.  They increase the quantity demanded of the good in question.

Refer to the accompanying figure to answer the next two questions.

 

  14.  The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity demanded change?

         a.  It would increase by 12,000 units.

         b.  It would decrease by 30,500 units.

         c.  It would decrease by 12,000 units.

         d.  It would increase by 30,500 units.

         e.  It would increase by 30,000 units.

15. The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity supplied change?

         a.  It would increase by 32,000 units.

         b.  It would decrease by 18,000 units.

         c.  It would decrease by 30,500 units.

         d.  It would decrease by 30,000 units.

         e.  It would decrease by 32,000 units.

16.    Suppose you live in a community with no price controls. What do you expect will happen if your town borders a community where there is a nonbinding price ceiling on most products?

         a.  Legal market prices will rise in the community with a binding price ceiling.

         b.  Legal market prices will fall in the community with a binding price ceiling.

         c.  The price and the quantity sold in the community without a nonbinding price ceiling will be the same as the price and quantity in the community with a nonbinding price ceiling.

         d.  There will be more shortages in the community with a binding price ceiling.

         e.  The black market in the community with a binding price ceiling will not be strong because consumers will simply purchase the product in the community that has no price ceiling.

17.    If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the price over time?

         a.  The black market price will rise over time as the supply curve becomes more elastic and the demand curve becomes more inelastic.

         b.  The black market price will fall over time as both the supply and demand curves become more inelastic.

         c.  The black market price will rise over time as the demand curve becomes more elastic and the supply curve becomes more inelastic.

         d.  The black market price will fall over time as both the supply and demand curves become more elastic.

         e.  The black market price will not change over time.

18.  At a price of $5/hour, Bob wants to hire three workers. When the price rises to $7/hour, Bob wants to hire only two workers. Bob’s price elasticity of demand for workers is:

         a.  −0.83

         b.  −1.20

         c.  −0.33

         d.  −0.40

         e.  −0.10

19.  Jane says that she will always spend $20 a week on lattes. Jane’s demand for lattes is price:

         a.  inelastic.

         b.  elastic.

         c.  perfectly inelastic.

         d.  perfectly elastic.

         e.  unitary elastic.

20.  When the price of softballs is high, a ___________ in price will raise total revenue. When the price is low, the seller should ___________ the price to increase total revenue.

         a.  decrease; raise

         b.  rise; raise

         c.  decrease; decrease

         d.  rise; decrease

         e.  decrease; not change

21.  Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?

         a.  tea and coffee

         b.  soda and water

         c.  spaghetti and ravioli

         d.  tennis shoes and flip flops

         e.  coffee and cream

 

Consumer surplus is the difference between:  

All else being held constant, an increase in the price of a good would necessarily:  

The difference between the willingness to sell a good and the price a producer receives is also known as:  

When the price of a good decreases and all else is held constant:  

Producer surplus is depicted by the area:

When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

Producers will lose no producer surplus due to a tax if: 

The luxury tax of 1990 produced far less tax revenue than projected because:  

Positive externalities exist because: 

The personal decisions of consumers and firms are based on:  

Externalities are minimized if:  

For a market to work efficiently:  

The air is a:  

If government regulation forces firms in an industry to internalize the externality, then the:  

An external cost is best defined as the cost of an activity paid for by:  

Which of the following characteristics best defines a club good?  

The social optimum occurs where price is __________ and quantity is __________.

Which of the following is true?

1.     social costs = internal costs – external costs

2.     social costs = internal costs + external costs

3.     internal costs = social costs + external costs

4.     external costs = social costs + internal costs

5.     internal costs – social costs = external costs

Which of the following is true of a positive externality?

1.     Some costs are borne by a third party.

2.     The government can use taxes to move the market to the social optimum.

3.     There are no internal benefits.

4.     Some benefits accrue to a third party.

5.     Its existence always requires corrective measures by the government

To achieve the social optimum, the government could set a tax equal to __________ per unit sold. 

Which of the following is the best example of a common-resource good?

1.     a fireworks display

2.     a lighthouse

3.     cable television

4.     fish in a lake

5.     the production of gasoline

Which of the curves depicts economies of scale? hw7 Q1

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:

The accompanying graph represents the __________ for a firm

Marginal product is the change in:  

The change in total cost given a change in output is also known as:

An explicit cost for a business that manufactures bicycles would be the:  

Lauren owns a bakery. Her total costs are $150,000 per year, and her variable costs are $85,000. This means that her fixed costs are:

Which of the following is the best example of a variable cost in the short run?  

Another term for factors of production is:  

Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should be:

Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. Steve’s average variable cost was __________ per bike.

Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 6 employees; with 6 employees, her bakery can produce 9 wedding cakes per day. If she hired a seventh employee, she’d be able to produce 12 wedding cakes per day. Therefore, the marginal product of the seventh employee is __________ wedding cakes.

In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

A firm’s economic profit is always less than its accounting profit because:

 

1. Opportunity cost is the ______________ alternative forfeited when a choice is made.

a.        least-valued

b.       highest-valued

c.        most recently considered

d.       most convenient

e.        first

 

2. You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

 A) resources are scarce.

 B) the real cost of something is what you must give up to get it.

 C) “How much” is a decision at the margin.

 D) there are gains from trade.

 

3. Positive economics:

 A) describes opinions and perspectives on how the world should work.

 B) is based on opinion polls.

 C) describes how the world does work

 D) is the same as normative economics.

 

4. Economists use models to explain real-life situations because:

 A) such models tend to be exactly what is occurring in each situation.

 B) assumptions found in such models tend to make the problem more difficult.

 C) simplifications and assumptions often yield answers that can help to explain the more difficult real-life situations

 D) they do not; real-life situations are not relevant to the building of models.

 

5. Bob can hire someone to paint his house for $2,000, or he can do it himself at no out-of-pocket cost.  It will take him 5 days.  Bob earns $500 a day when he works outside the home.  Which option has the greater economic cost?

a.        hiring a painter

b.       painting the house himself 

c.        they are the same cost

d.       not enough information to decide—one needs to know the marginal cost

6. When one producer has a comparative advantage in production,

a.        she can produce more output than someone else using the same quantity of resources.

b.       she can produce a good at a lower opportunity cost than someone else.

c.        she will not benefit from trade with other producers.

d.       she is unable to reach her production possibilities frontier (PPF).

e.        she will only trade with others who have the same comparative advantage.

 

7. The slope of a production possibilities frontier

a.  has no economic relevance or meaning.

b.  is always constant.

c.  is always varying.   

d.  measures the opportunity cost of producing one more unit of a good

8. Increases in resources or improvements in technology will tend to cause a society's production possibility frontier to:

 A) shift inward to the left.

 B) shift outward to the right

 C) remain unchanged.

 D) become vertical.

 

 

 

9. Which point(s) in the PPF above are unattainable?

a)       Point A because it is outside the production possibilities frontier

b)       All the points because the production of each has an opportunity cost.

c)       None of the points because they all are feasible.

d)       Points B, C, and D because they are on the production possibilities frontier.

e)       Point E because it is inside the production possibilities frontier.

 

10. Michael and Angelo are both artists who can create sculptures or paint paintings each day. The following table describes their maximum outputs per day. Does either person have an absolute advantage?

 

 
Sculptures
Paintings
Michael
10
5
Angelo
6
2
 

a.        Yes, Michael has an absolute advantage in both sculptures and paintings

b.       Yes, Angelo has an absolute advantage in both sculptures and paintings.

c.        Yes, Michael has an absolute advantage in paintings, and Angelo has an absolute advantage in sculptures.

d.       Yes, Michael has an absolute advantage in sculptures, and Angelo has an absolute advantage in paintings.

e.        No, neither has an absolute advantage.

 

11. Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. What is Angelo’s opportunity cost of a sculpture? 

 
Sculptures
Paintings
Michael
10
5
Angelo
6
2
 

1/2 painting
1/3 painting
3 paintings
1/3 sculpture
6/10 sculpture
 

12. The accompanying figure depicts the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. If Jim and Pam were to specialize and trade, at what exchange rate would they find some quantity of trade to be mutually beneficial?

 

a.        3 pizzas for 1 stromboli

b.       1 pizza for 1 stromboli

c.        10 pizzas for 2 stromboli

d.       1 pizza for 1/2 stromboli

e.        1 pizza for 1/4 of a stromboli

Figure: Production Possibility Frontier Curve for Tealand

 

 

13. (Figure: Production Possibility Frontier for Tealand) In the figure, Tealand is producing at point C on its production possibility frontier. What is the opportunity cost in Tealand of increasing the production of tea from 20 million cups to 30 million cups?

 A. 10 million cups of tea

 B. 5 million scones

 C. 10 million scones

 D. The answer is impossible to determine from the information given.

 

14. Consider the production possibilities frontier below.  Which line(s) represents a change in technology for producing good A?

 

 

a.        1

b.       2

c.        both

d.       neither

 

 

15. Consider the production possibilities frontier below. Which line(s) represents a change in the economy’s resources?

 

 

 

a.        1

b.       2

c.        both

d.       neither

16. Use the accompanying diagram to answer the question.

 

 

An increase in the number of buyers would cause the demand curve to:

a. shift from D to D2.

b. remain at D.

c. shift from D to D1.

d. shift from D1 to D.

e. shift from D1 to D2.

 

Figure: Demand and Supply of Gasoline

 

 

 

17. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of gasoline are:

 A.$2.00 and 450 gallons.

 B. $1.50 and 400 gallons.

 C. $2.00 and 200 gallons.

 D. $2.50 and 300 gallons

 

18. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than ________ will create pressure for the price to ________.

 A. $2.00; fall

 B. $2.50; rise

 C. $3.00; rise

 D. $2.50; fall

 

19. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. A factor that may have changed supply from S1 to S2 is:

 A. better technology in the production of gasoline

 B. increased demand.

 C. lower labor productivity in gasoline production.

 D. increased prices of substitutes for gasoline.

 

20.      “In 2008, air travel decreased substantially despite significant reductions in ticket prices.” If this information is correct, it indicates that the law of demand did not apply to air travel in 2008.

 A. True

 B. False

 

21. A supply curve is:

a.        downward sloping because suppliers prefer lower costs

b.       upward sloping because suppliers prefer lower costs

c.        upward sloping because suppliers will offer for sale more at a higher price

d.       downward sloping because suppliers will offer more for sale at a higher price

 

 

22. The demand curve shift shown in the figure above was caused by a(n):

 

a.        increase in the input cost of the good.

b.       increase in the price of a substitute of the good.

c.        decrease in the number of firms selling the good.

d.       decrease in the number of buyers in the market for the good.

e.        expectation that the future price of this good will be higher than it currently is.

 

 

 

23. According to the diagram above, if the price is at $10, there is a:

a. shortage of 15 units.

b. surplus of 15 units

c. shortage of 30 units.

d. surplus of 30 units.

e. surplus of 22 units.

 

24. When both supply and demand shift to the left,

a. the equilibrium price will always rise.

b. the equilibrium price will always fall.

c. the equilibrium quantity will always fall.

d. the equilibrium quantity will always rise.

e. the equilibrium quantity is indeterminate.

 

25. According to the figure below, at the price of $5:

 

 

a. the equilibrium quantity is 500.

b. the quantity demanded is 500.

c. the demand is 500.

d. there is a surplus.

e. there is a shortage.

 

26. When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is:

a.        perfectly inelastic.

b.       inelastic.

c.        unitary elastic.

d.       elastic.

e.        perfectly inelastic.

 

27. What good is most likely to have an income elasticity of demand equal to 0.3?

a.        medication

b.       take-out dinner

c.        used clothing

d.       laptop

e.        a download on iTunes

 

28. Demand for Coca-Cola is _____ price elastic than cola products in general.

a.        More

b.       less

c.        equally

 

29. Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

a. Demand for jelly will increase along with the price.

b. Demand for jelly will decrease along with the price

c. The supply of jelly will increase and the price will decrease.

d. Both the supply and demand for jelly will increase along with the price.

e. The supply of jelly will decrease and the price will increase.

 

30. Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases,

a. we would see the demand curve for Coke shift to the right.

b. we would see the demand curve for Coke shift to the left.

c. we would see no change in the demand for Coke.

d. we would see the demand curve for Pepsi shift to the right.

e. we would see the demand curve for Pepsi shift to the left.

 

31. Technological advances have resulted in lower prices for digital cameras.  What is the impact of this on the market for traditional (non-digital) cameras?

a.  The demand curve for traditional cameras shifts to the right.

b.  The supply curve for traditional cameras shifts to the right.

c.  The demand curve for traditional cameras shifts to the left.

d.  The supply curve for traditional cameras shifts to the left.

 

32. A recent news story reported that ice cream producers will increase the supply of ice cream during the summer. Summer is traditionally a time of increased demand for ice cream. How would an economist expect the price and quantity of ice cream to change from the spring to the summer given knowledge of these two changes in the market for ice cream?

A.       An increase in the price and quantity.

B.       An increase in the price and an unpredictable change in the quantity.

C.       An unknown change in both the price and quantity.

D.       An unknown change in the price and an increase in the quantity.

 

33. Suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,

A) sellers bear the entire burden of the tax.

B) buyers bear the entire burden of the tax. 

C) the tax burden will be shared equally between buyers and sellers.

D) buyers share the burden of the tax with government. 

 

34. If demand is more elastic than supply then:

A) sellers bear more of the burden of the tax. 

B) buyers bear more of the burden of the tax.

C) the tax burden will be shared equally between buyers and sellers.

D) buyers share the burden of the tax with government. 

 

35. In 1990 the U.S. government imposed a special sales tax on yachts with a price of at least $100,000. The tax was repealed in 1993 since it generated far less revenue than expected and led to significant job losses in the yacht building industry. The sales tax was unsuccessful because:

a)       the supply and the demand for yachts were relatively elastic.

b)       the supply and the demand for yachts were relatively inelastic.

c)        the tax rate was too low.

d)       yachts are a necessity.

 

36. Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

A) demand

B) supply

C) production possibilities

D) marginal cost

 

Use this information for questions 36.1-36.3. Alfred has a willingness to pay for one car of $35,000.  The second car offers him a marginal benefit of $25,000.  A third car is worth $10,000, and his willingness to pay for a fourth is 0.  The market price for the car is $24,999.

 

36.1 Alfred’s willingness to pay for the marginal car is falling.  This pattern is called

a. opportunity cost

b. diminishing marginal utility

c. price effect

d. consumer surplus

 

36.2. At the market price, Alfred would buy ___ cars.

a. 0

b. 1

c. 2

d. 3

e. 4

 

36.3 At this market price, his consumer surplus is

a. 35,000

b. 24,999

c. 1

d. 10,002

 

 

Figure 4-6 above shows the demand and supply curves for the almond market.  The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. 

 

37.  Refer to Figure 4-6. What area represents consumer surplus prior to the imposition of the price floor?

A) A + B + E

B) A + B + C

C) A + B + C + D + E

D) E + F

 

38. Refer to Figure 4-6. What area represents consumer surplus after the imposition of the price floor?

A) A + B + E

B) A + B 

C) A + B + E + F

D) A

 

39. The costs of a market activity paid for by an individual NOT engaged in the market activity are:

a.        external costs.

b.       internal costs.

c.        free-rider costs.

d.       social costs.

e.        common costs.

 

40. The total costs of a market activity paid for by individuals in the market as well as individuals not engaged in the market activity are:

a.        external costs.

b.       internal costs.

c.        free-rider costs.

d.       social costs.

e.        common costs.

 

41. A firm’s willingness to supply their product in the short run is represented on a graph by:

a.        the market supply curve.

b.       the entire marginal cost (MC) curve.

c.        the marginal revenue (MR) curve.

d.       the part of the marginal cost (MC) curve above minimum average total cost (ATC).

e.        the part of the marginal cost (MC) curve above minimum average variable cost (AVC).

 

42. Rachel quit her job as a chef making $30,000 per year to start her own restaurant in New York City. The first year, Rachel's restaurant earned $120,000 in revenue. Rachel pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food and other supplies.  She paid $10,000 for rent and utilities, instead of earning 10% on that money in a bank CD. What is Rachel's economic profit for the year?

A) $0

B) $9,000

C) $40,000

D) $80,000

 

43. What directly drives the entry and exit of firms?

a. Revenues

b. Costs

c. Profits and losses

d. Marginal product of labor

 

44.      The law of diminishing returns states that

a) dividing the tasks to be performed through division of labor will increase the marginal product of labor.

b) the long-run average cost of production falls as output increases.

c)  adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline.

d) producing more output by adding more of a variable input will eventually cause the marginal cost of production to decline.

e)  adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the fixed input to decline.

 

 

45. According to the accompanying figure, if a firm is producing a quantity of 100 and charging a price of $10,

a.        the firm should continue to produce 100 units but raise the price to $13 to maximize profits.

b.       the firm should increase production to 150 units but raise the price to $25 to maximize profits.

c.        the firm should continue to produce 100 units but raise the price to $25 to maximize profits.

d.       the firm should increase production to 100 units and raise the price to $13 to maximize profits.

e.        the firm is already maximizing profits and should not change the price or quantity produced.

 

46. Which of the following is not a characteristic of a perfectly competitive market structure?

A) There are a very large number of firms that are small compared to the market.

B) All firms sell identical products.

C) There are no restrictions to entry by new firms.

D) There are restrictions on exit of firms. 

 

47. Both individual buyers and sellers in perfect competition

A) can influence the market price by their own individual actions.

B) can influence the market price by joining with a few of their competitors. 

C) have to take the market price as a given. 

D) have the market price dictated to them by government. 

 

48. In economics, we assume that firms make decisions in order to:

a.  maximize revenues.

b.  minimize cost

c.  maximize profit.

d.  maximize production

e.  maximize the marginal product of labor

 

49. A firm reflected in the following graph expanded its scale of production and found that its average costs did not change.  Which of the curves shown would reflect this situation?

 

 

a.        LRATC1 and LRATC2

b.       LRATC3

c.        LRATC2

d.       LRATC1

e.        LRATC1 and LRATC3

 

50. A firm’s economic profit will always be less than its accounting profit because:

a.        accounting profit considers explicit costs, which economic profit does not.

b.       economic profit considers implicit costs, which accounting profit does not

c.        economic profit is always zero, no matter what kind of firm it is.

d.       accounting profit considers implicit costs, which economic profit does not.

e.        accounting profit is always positive, no matter what kind of firm it is.

 

51. Competitive markets exist when:

a. there are so many buyers and sellers that each has only a small impact on the market price and the market output

b. there are more buyers than sellers, giving the buyers market power.

c. there are more sellers than buyers, giving the sellers market power.

d. accounting profits become zero because of price wars.

e. prices are so low that everyone who wants the good or service gets the good or service.

 

52. According to the figure below, this firm’s short-run supply curve is represented by:

 

a.     the average total cost (ATC) curve above $20.

b.     the marginal cost (MC) curve above $15.

c.     the marginal cost (MC) curve above $8.

d.     the marginal cost (MC) curve above $20.

 

Figure: Long-Run Average Cost

 

 

53. Look at the figure Long-Run Average Cost. This firm has ________ in the output region from 0 to A.

A.       decreasing returns to scale

B.        constant returns to scale

C.       increasing returns to scale

D.       negative costs of production

 

54.      (Figure: Long-Run Average Cost) Look at the figure Long-Run Average Cost. This firm has ________ in the output region from B to C.

A.       constant returns to scale

B.        decreasing returns to scale

C.       increasing returns to scale

D.       falling marginal cost

 

 

55. According to the figure, when this firm is producing at the profit-maximizing price and quantity, its total revenue is:

a.     $1,000

b.     $1,950

c.     $2,500

d.     $3,750

e.     $5,000

 

56. Which statement about firms’ economic profits is true?

a. Monopolists and perfectly competitive firms can earn profit in the short run only.

b. Monopolists can earn profit in the long run; perfectly competitive can earn profit in the short run only. -.-

c. Monopolists and perfectly competitive firms can earn profit in the long run only.

d. All firms always earn profit, else they would exit the market.

 

    1.  Consumer surplus is defined as the:

         a.  difference between the willingness to pay for a good and the willingness to sell it.

         b.  total revenue earned from producing and selling some good.

         c.  difference between the willingness to pay for a good and the price paid to get it.

         d.  quantity of units that consumers want to buy at the market price.

         e.  difference between the price the seller receives and the willingness to sell it.

    2.  Consumer surplus is the difference between:

         a.  supply and demand.

         b.  the price the producer receives and the willingness to sell a good.

         c.  the willingness to pay for a good and the willingness to sell a good.

         d.  the willingness to pay for a good and the amount that is paid to get it.

         e.  the price paid for a good and the amount of the good produced.

    3.  The difference between the willingness to pay for a good and the amount that is paid to get it is also known as:

         a.  consumer expenditure.

         b.  surplus spending.

         c.  consumer benefit.

         d.  producer profit.

         e.  consumer surplus.

    4.  All else being held constant, an increase in the price of a good would necessarily:

         a.  increase social welfare.

         b.  decrease producer surplus.

         c.  decrease consumer surplus.

         d.  increase consumer surplus.

         e.  increase the supply of the good.

    5.  Holding all else constant, when the price of a good increases:

         a.  consumer surplus increases.

         b.  producer surplus decreases.

         c.  both producer surplus and consumer surplus increase.

         d.  both consumer surplus and producer surplus decrease.

         e.  consumer surplus decreases.

    6.  Holding all else constant, when the price of a good decreases:

         a.  producer surplus increases.

         b.  consumer surplus increases.

         c.  both consumer surplus and producer surplus increase.

         d.  consumer surplus decreases.

         e.  both consumer surplus and producer surplus decrease.

    7.  Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?

         a.  $15

         b.  $20

         c.  $5

         d.  $25

         e.  $35

    8.  Jamal is willing to pay $85 for a new jacket that sells for $70. Eddie is willing to pay $65 for that same jacket. What is the total consumer surplus for Jamal and Eddie? 

         a.  $30

         b.  $15

         c.  $20

         d.  $25

         e.  $155

    9.  Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. How much is total consumer surplus in this market?

         a.  $2.25

         b.  $3.00

         c.  $0.75

         d.  $5.25

         e.  $15.25

  10.  Producer surplus is the difference between:

         a.  supply and demand.

         b.  the price the producer receives and the willingness to sell a good.

         c.  the willingness to pay for a good and the willingness to sell a good.

         d.  the willingness to pay for a good and the amount that is paid to get it.

         e.  the price paid for a good and the amount of the good produced.

  11.  Producer surplus is defined as the:

         a.  difference between the willingness to pay for a good and the willingness to sell it.

         b.  difference between the price the seller receives and the willingness to sell it.

         c.  difference between the willingness to pay for a good and the price paid to get it.

         d.  quantity of units that consumers want to buy at the market price.

         e.  total revenue earned from producing and selling some good.

  12.  The difference between the willingness to sell a good and the price a producer receives is also known as:

         a.  producer profit.

         b.  producer surplus.

         c.  consumer waste.

         d.  tax revenue.

         e.  producer benefit.

  13.  All else held constant, a decrease in the price of a good would necessarily:

         a.  increase social welfare.

         b.  decrease producer surplus.

         c.  decrease consumer surplus.

         d.  increase demand for the good.

         e.  increase producer surplus.

  14.  When the price of a good increases and all else is held constant:

         a.  both consumer surplus and producer surplus decrease.

         b.  both consumer surplus and producer surplus increase.

         c.  consumer surplus decreases.

         d.  producer surplus decreases.

         e.  producer surplus increases.

  15.  When the price of a good decreases and all else is held constant:

         a.  producer surplus increases.

         b.  both consumer surplus and producer surplus decrease.

         c.  both consumer surplus and producer surplus increase.

         d.  producer surplus decreases.

         e.  consumer surplus decreases.

  16.  MJM Products, Inc., designs and sells flannel jackets. The company is willing to sell a men’s flannel jacket for as little as $45. Its main competitor is RL Outriggers, which is willing to sell the same men’s flannel jacket for as little as $40. The current market price of that type of jacket is $57. What is the total producer surplus for the two firms?

         a.  $95

         b.  $12

         c.  $17

         d.  $29

         e.  $5

  17.  Muddy’s Bakery and Lilly’s Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.50. Muddy’s is willing to sell a cupcake for as little as $1.65; Lilly’s is willing to sell a cupcake for as little as $1.75. What is the total producer surplus for the two firms?

         a.  $0.75

         b.  $1.60

         c.  $0.85

         d.  $2.50

         e.  $3.40

  18.  Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer surplus in this market?

         a.  $0.15

         b.  $8.15

         c.  $0.85

         d.  $1.00

         e.  $1.85

  19.  When looking at a supply and demand graph, you would find consumer surplus:

         a.  above the demand curve and below the supply curve.

         b.  below the demand curve and above market price.

         c.  to the right of equilibrium quantity and above market price.

         d.  above the demand curve and above the supply curve.

         e.  below market price and above the supply curve.

  20.  When looking at a graph, the area under the demand curve and above market price is defined as:

         a.  tax revenue.

         b.  spending surplus.

         c.  consumer benefit.

         d.  producer surplus.

         e.  consumer surplus.

  21.  Explain what happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left).

         a.  Producer surplus declines and consumer surplus is unchanged.

         b.  Consumer surplus declines and producer surplus is unchanged.

         c.  Consumer surplus declines and producer surplus declines.

         d.  Consumer surplus is unchanged and producer surplus is unchanged.

         e.  Producer surplus increases and consumer surplus increases.

  22.  When looking at a supply and demand graph, you would find producer surplus:

         a.  above the demand curve and below the supply curve.

         b.  below the demand curve and above market price.

         c.  to the right of equilibrium quantity and above market price.

         d.  above the demand curve and above the supply curve.

         e.  below market price and above the supply curve.

  23.  When looking at a graph, the area above the supply curve and below market price is defined as:

         a.  consumer surplus.

         b.  producer surplus.

         c.  producer benefit.

         d.  business profit.

         e.  tax revenue.

  24.  Producer surplus is depicted by the area:

         a.  above market price and below the supply curve.

         b.  between the supply curve and the demand curve.

         c.  below market price and above the supply curve.

         d.  above market price and below the demand curve.

         e.  above the demand curve and below the supply curve.

  25.  Social welfare (i.e., the sum of producer and consumer surplus) is maximized when:

         a.  the government taxes most goods and services.

         b.  very few consumers and producers exist within a market.

         c.  the market reaches its equilibrium price and quantity.

         d.  supply and demand are perfectly inelastic.

         e.  the government imposes price controls.

  26.  Social welfare is measured as the sum of:

         a.  tax revenue and deadweight loss.

         b.  deadweight loss and consumer surplus.

         c.  producer surplus and tax revenue.

         d.  consumer surplus and tax revenue.

         e.  consumer surplus and producer surplus.

  27.  Consumer surplus plus producer surplus equals:

         a.  deadweight loss.

         b.  economic profit.

         c.  social welfare.

         d.  tax revenue.

         e.  market distortions.

  28.  Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer AND consumer surplus (i.e., social welfare) in this market?

         a.  $7.10

         b.  $5.25

         c.  $1.85

         d.  $23.40

         e.  $4.50

  29.  A market has reached an efficient outcome when:

         a.  producers are able to produce and sell as much as they like.

         b.  total surplus is minimized.

         c.  producer surplus is greater than consumer surplus.

         d.  consumers are able to purchase as much as they like.

         e.  total surplus is maximized.

  30.  The price–quantity combination found where the supply and demand curves intersect is a unique combination that is efficient because:

         a.  producers can sell as much as they want.

         b.  total surplus is maximized.

         c.  tax revenue is sufficient to pay for government services.

         d.  consumers can buy as much as they want.

         e.  new products are being introduced.

  31.  Which of the following statements is concerned with efficiency rather than equity?

         a.  It is not fair to tax the income earned by the wealthy at higher rates than the poor.

         b.  Excise taxes on tobacco products affect low-income families the most and should be reduced.

         c.  Our income tax system should be more progressive than it is now.

         d.  Taxes cause distortions in markets and reduce social welfare.

         e.  The best type of income tax is a flat tax because it treats everyone the same.

  32.  Which of the following statements is concerned with efficiency rather than equity?

         a.  Sales taxes on food are regressive and should be eliminated.

         b.  Income taxes should be raised on low-income families so that everyone pays.

         c.  The United States should implement a wealth tax on upper-income households.

         d.  Excise taxes tend to raise prices for consumers.

         e.  The overall tax system in the United States should be much more progressive.

  33.  Questions about the equity of a tax are concerned mostly with:

         a.  efficiency.

         b.  tax revenue.

         c.  fairness.

         d.  deadweight loss.

         e.  elasticity.

  34.  Which of the following statements is concerned with equity rather than efficiency?

         a.  Almost all taxes create some amount of deadweight loss.

         b.  Excise taxes tend to raise prices for consumers and reduce sales for firms.

         c.  Tax rates on the wealthy are too low and should be raised.

         d.  The incidence of a tax does not depend on who actually pays it.

         e.  Taxes generate revenues that governments spend on services.

  35.  Which of the following statements is concerned with equity rather than efficiency?

         a.  Imposing a tax on a good reduces the incentive to buy that good.

         b.  The burden of a sales tax is typically shared by consumers and stores.

         c.  Deadweight loss is the lost social welfare from a tax.

         d.  Tax rates on middle-class households are too high and should be reduced.

         e.  Taxes cause producers and consumers to lose surplus.

  36.  A tax on apples would cause consumers to suffer because:

         a.  consumer surplus would increase.

         b.  the price of apples would increase and fewer apples would be purchased.

         c.  revenues for apple growers would decrease.

         d.  the government would collect revenue from the tax.

         e.  producer surplus would decrease.

Use the following information to answer the next fifteen questions.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.

 

  37.  Which areas represent consumer surplus before the tax is imposed?

         a.  A + B + F

         b.  A

         c.  C + G + E

         d.  B + C

         e.  F + G

  38.  Which areas represent consumer surplus after the tax is imposed?

         a.  A

         b.  A + B

         c.  A + B + F

         d.  F + G

         e.  B + C + F

  39.  Which areas represent the amount of consumer surplus lost due to the tax?

         a.  A + F

         b.  B + C

         c.  A

         d.  A + B + F

         e.  B + F

  40.  Which areas represent producer surplus before the tax is imposed?

         a.  F + G

         b.  E + C + G

         c.  A + B + C + E

         d.  B + C + F + G

         e.  E

  41.  Which areas represent producer surplus after the tax is imposed?

         a.  E + C + G

         b.  E + C

         c.  E + G

         d.  F + G

         e.  E

  42.  Which areas represent the amount of producer surplus lost due to the tax?

         a.  G

         b.  A + B + C + E

         c.  C

         d.  C + G

         e.  B + F

  43.  What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

         a.  A + B + C + E + F + G

         b.  A + C

         c.  A + B + C + E

         d.  F + G

         e.  B + C + F + G

  44.  What is the total amount of producer and consumer surplus (i.e., social welfare) in this market after the tax is imposed?

         a.  A + B + C + E + F + G

         b.  A + E

         c.  A + B + C + E

         d.  F + G

         e.  B + C + F + G

  45.  What areas represent the total lost consumer and producer surplus (i.e., social welfare) as a result of the tax?

         a.  A + B + C + E + F + G

         b.  A + C

         c.  A + B + C + E

         d.  F + G

         e.  B + C + F + G

  46.  What areas represent the total cost to society, in terms of lost social welfare, created as a result of the tax?

         a.  B + C + F + G

         b.  A + B + F

         c.  C + E + G

         d.  A + B + C + E

         e.  F + G

  47.  Which areas represent the revenue collected from this tax?

         a.  A + B + F

         b.  B + C

         c.  F + G

         d.  E

         e.  A + E

  48.  Which party is responsible for paying this tax out of pocket?

         a.  consumers

         b.  producers

         c.  both consumers and producers

         d.  some consumers and some producers, but not all consumers and producers

         e.  some consumers and no producers

  49.  What is the amount of the tax, as measured along the y axis?

         a.  PC + PS

         b.  Pe – PS

         c.  PC – PS

         d.  PC – P*

         e.  Pe + PS

  50.  What areas represent the total tax revenue created as a result of the tax?

         a.  A + C

         b.  A + E

         c.  B + C

         d.  A + E + F + G

         e.  A + B + C + D + E + F + G

  51.  What areas represent the deadweight loss created as a result of the tax?

         a.  A + B + C + E + F + G

         b.  A + C

         c.  A + B + C + E

         d.  F + G

         e.  B + C + F + G

  52.  A tax on consumers would cause the ________ curve(s) to shift to the ________.

         a.  demand; right

         b.  supply; left

         c.  supply and demand; left

         d.  supply and demand; right

         e.  demand; left

  53.  A tax on apples would cause apple growers to suffer because:

         a.  consumer surplus would decrease.

         b.  the government would collect revenue from the tax.

         c.  consumers would pay higher prices.

         d.  producer surplus would increase.

         e.  revenues and profits from growing apples would decrease.

  54.  In most cases, taxes reduce economic efficiency because:

         a.  they lower prices for consumers and cause firms to suffer.

         b.  they increase firms’ profits at the expense of consumers.

         c.  taxes are perceived as unfair by some taxpayers.

         d.  the government often spends tax revenues on programs that some voters don’t like.

         e.  they reduce consumer surplus and producer surplus.

  55.  It is said that taxes drive a wedge between prices. This statement is true because taxes cause:

         a.  both consumer and producer prices to increase.

         b.  the consumer price to increase but leave producer prices unchanged.

         c.  both consumer and producer prices to decrease.

         d.  the consumer price to decrease and the producer price to increase.

         e.  the consumer price to increase and the producer price to decrease.

  56.  The difference between the price consumers pay and the price sellers receive after a tax is imposed is equal to the:

         a.  loss of social welfare from the tax.

         b.  dollar amount of the tax.

         c.  deadweight loss from the tax.

         d.  revenue from the tax.

         e.  lost profit from the tax.

  57.  When a tax is imposed on some good, what tends to happen to consumer prices and producer prices?

         a.  Consumer prices decrease and producer prices increase.

         b.  Consumer prices increase and producer prices decrease.

         c.  Consumer prices increase and producer prices increase.

         d.  Consumer prices decrease and producer prices increase.

         e.  Consumer prices and producer prices converge at the same point.

  58.  After a tax is imposed, the price paid by consumers ________ and the price received by producers ________.

         a.  increases; increases

         b.  increases; decreases

         c.  decreases; increases

         d.  decreases; decreases

         e.  is unaffected; is unaffected

  59.  A tax on apples would cause the price paid by consumers to ________ and the price received by producers to ________.

         a.  increase; increase

         b.  increase; decrease

         c.  decrease; increase, then decrease

         d.  decrease; decrease

         e.  increase, then decrease; increase

  60.  Excise taxes are taxes that are:

         a.  applied to all goods and activities.

         b.  usually applied to inferior goods.

         c.  usually applied to income and capital gains.

         d.  never applied to goods or activities.

         e.  applied to a particular good or activity.

  61.  A tax that is applied to one specific good or service is a(n):

         a.  sales tax.

         b.  general local option sales tax.

         c.  property tax.

         d.  excise tax.

         e.  wealth tax.

  62.  A tax on consumers of a good would shift the ________ curve down and cause the price paid by consumers to ________.

         a.  supply; increase

         b.  demand; decrease, then return to its original level

         c.  supply; decrease

         d.  demand; increase

         e.  supply; increase, then return to its original level

  63.  If a tax causes the supply curve to shift, we know that the tax is paid out of pocket by:

         a.  consumers.

         b.  producers.

         c.  the government.

         d.  both producers and consumers.

         e.  consumer, producers, and the government.

  64.  A tax on producers would cause the ________ curve(s) to shift to the ________.

         a.  demand; left

         b.  supply and demand; left

         c.  supply; left

         d.  supply; right

         e.  supply and demand; right

  65.  A tax on milk would likely cause an increase in the:

         a.  price consumers pay for milk.

         b.  price producers receive for milk.

         c.  amount of milk sold.

         d.  revenues earned from selling milk.

         e.  profits earned by selling milk.

  66.  A tax on milk would likely cause a decrease in the:

         a.  price consumers pay for milk.

         b.  price of products made from milk.

         c.  amount of milk sold.

         d.  revenues from the milk tax.

         e.  deadweight loss from the milk tax.

  67.  The incidence of a tax reflects:

         a.  who pays the tax out of pocket.

         b.  how much tax revenue the tax generates.

         c.  who bears the burden of the tax.

         d.  how the tax revenue from the tax is spent.

         e.  government efficiency in providing goods and services.

  68.  When a tax is imposed on some good, what happens to the amount of the good bought and sold?

         a.  It increases.

         b.  It decreases.

         c.  It decreases, but only if the tax is imposed on producers.

         d.  It decreases, but only if the tax is imposed on consumers.

         e.  It increases, but only if the tax is imposed on consumers.

  69.  The incidence of a tax is unrelated to:

         a.  how responsive producers are to the tax.

         b.  how responsive consumers are to the tax.

         c.  the elasticity of supply.

         d.  the elasticity of demand.

         e.  who pays the tax out of pocket.

  70.  When a tax is imposed on some good, what usually happens to consumer and producer surplus?

         a.  They both increase.

         b.  They both fall to zero.

         c.  They both decrease.

         d.  Consumer surplus increases and producer surplus decreases.

         e.  Consumer surplus decreases and producer surplus increases.

  71.  Excise taxes are popular sources of revenue for governments because:

         a.  they have very high levels of deadweight loss.

         b.  they are easy to understand.

         c.  consumers are rarely aware that they are paying them.

         d.  they are very stable sources of revenue.

         e.  they require very little paperwork.

  72.  Taxes will almost always cause consumer prices to increase. How much they increase depends on:

         a.  how often the government collects the tax.

         b.  the amount of the tax.

         c.  who pays the tax out of pocket.

         d.  who is legally obligated to pay the tax.

         e.  the elasticities of supply and demand.

  73.  Taxes almost always cause producer prices to decrease. How much they decrease depends on:

         a.  the elasticities of supply and demand.

         b.  the amount of the tax.

         c.  who is legally obligated to pay the tax.

         d.  who pays the tax out of pocket.

         e.  how often the government collects the tax.

  74.  When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

         a.  additional revenues for firms.

         b.  lower prices for consumers.

         c.  more units of output bought and sold.

         d.  increased social welfare.

         e.  tax revenue and deadweight loss.

  75.  When a tax is imposed, consumer surplus and producer surplus are reallocated to:

         a.  social welfare.

         b.  tax revenue and deadweight loss.

         c.  tax revenue.

         d.  deadweight loss.

         e.  government spending on public services.

  76.  For any type of tax the government imposes:

         a.  supply plus demand equals market price.

         b.  tax revenue plus deadweight loss equals total lost social welfare.

         c.  tax revenue plus market price equals deadweight loss.

         d.  deadweight loss plus economic distortion equals tax revenue.

         e.  total lost social welfare plus tax revenue equals deadweight loss.

  77.  The revenue generated from a tax equals the:

         a.  amount of the good sold times the original price of the good.

         b.  amount of the tax times the quantity sold after the tax is imposed.

         c.  total social welfare lost as a result of the tax.

         d.  deadweight loss from the tax.

         e.  total consumer and producer surplus before the tax.

  78.  The per-unit dollar amount of a tax times the quantity sold after the tax is imposed equals:

         a.  consumer surplus.

         b.  deadweight loss.

         c.  the tax revenue.

         d.  producer surplus.

         e.  social welfare.

  79.  Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

         a.  $250 million.

         b.  $45 million.

         c.  $205 million.

         d.  $295 million.

         e.  $75 million.

  80.  In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the:

         a.  deadweight loss from a tax will be less than it is in the short run.

         b.  deadweight loss will be zero.

         c.  government will likely reduce tax rates.

         d.  tax revenue will be lower than it is in the short run.

         e.  tax revenue will be higher than it is in the short run.

  81.  Deadweight loss is defined as:

         a.  the cost to society created by distortions in the market.

         b.  how much revenue a tax generates.

         c.  who pays a tax out of pocket.

         d.  the dollar cost of a tax per unit of sales.

         e.  the benefit from additional government spending.

  82.  The cost to society created by distortions in the market as a result of a tax is also known as:

         a.  social distortion.

         b.  fiscal externality.

         c.  deadweight loss.

         d.  fiduciary imbalance.

         e.  budget deficit.

  83.  If the government wanted to raise taxes while generating the least amount of deadweight loss, it should raise taxes on a good with a:

         a.  very elastic demand.

         b.  very elastic supply.

         c.  somewhat elastic supply.

         d.  somewhat elastic demand.

         e.  perfectly inelastic demand.

  84.  The net cost to society from the imposition of a tax is also known as:

         a.  tax revenue.

         b.  consumer surplus.

         c.  producer surplus.

         d.  deadweight loss.

         e.  social welfare.

  85.  The deadweight loss from a tax is likely to be less with a good that has:

         a.  few complements.

         b.  many substitutes.

         c.  few substitutes.

         d.  an elastic demand.

         e.  an elastic supply.

  86.  A tax creates no deadweight loss only when either supply or demand is:

         a.  somewhat elastic.

         b.  perfectly elastic.

         c.  perfectly inelastic.

         d.  increasing.

         e.  decreasing.

  87.  The deadweight loss from a tax is likely to be greater with a good that has:

         a.  few complements.

         b.  many substitutes.

         c.  few substitutes.

         d.  an inelastic demand.

         e.  an inelastic supply.

  88.  Assume that a $0.10/pound tax on apples raises $100 million in revenue but causes a $125 million loss of consumer and producer surplus. From this information, we know that the deadweight loss from the tax is:

         a.  $225 million.

         b.  $100 million.

         c.  $125 million.

         d.  $25 million.

         e.  $1.25 million.

  89.  In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the:

         a.  revenue generated from the tax will increase.

         b.  deadweight loss from a tax will be less than it is in the short run.

         c.  deadweight loss from a tax will be zero.

         d.  deadweight loss from a tax will be greater than it is in the short run.

         e.  government will likely reduce tax rates.

  90.  The deadweight loss from a tax is equal to one half of:

         a.  the tax revenue multiplied by consumer surplus.

         b.  producer surplus multiplied by consumer surplus.

         c.  the decrease in quantity sold multiplied by the tax revenue.

         d.  the amount of the tax multiplied by the decrease in quantity sold.

         e.  the amount of the tax multiplied by consumer surplus.

  91.  A tax on milk would likely cause a decrease in the price of:

         a.  ice cream.

         b.  cheese.

         c.  soymilk.

         d.  nondairy creamer.

         e.  breakfast cereal.

  92.  Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

         a.  Demand for jelly will increase along with the price.

         b.  Demand for jelly will decrease along with the price.

         c.  The supply of jelly will increase and the price will decrease.

         d.  Both the supply and demand for jelly will increase along with the price.

         e.  The supply of jelly will decrease and the price will increase.

  93.  Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause a(n):

         a.  decrease in deadweight loss in the market for gasoline and an increase in the price of ethanol.

         b.  increase in deadweight loss in the market for gasoline and a decrease in demand for ethanol.

         c.  increase in deadweight loss in the market for gasoline and an increase in the price of ethanol.

         d.  decrease in deadweight loss in the market for gasoline and an increase in demand for ethanol.

         e.  increase in deadweight loss in the market for gasoline and a decrease in the price of ethanol.

  94.  Butter and margarine are substitute goods. A tax on butter will have what effect on the market for margarine?

         a.  The supply of margarine will increase, causing its price to fall.

         b.  The demand for margarine will increase, causing its price to rise.

         c.  The demand for margarine will decrease, causing its price to fall.

         d.  Both the supply and demand of margarine will decrease, causing price to fall.

         e.  The supply of margarine will decrease, causing price to rise.

  95.  Compared to producers, consumers will lose the greater amount of surplus from a tax if:

         a.  demand is more elastic than supply.

         b.  supply and demand are equally elastic.

         c.  demand is perfectly elastic.

         d.  demand is less elastic than supply.

         e.  supply is perfectly inelastic.

  96.  Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

         a.  demand is more elastic than supply.

         b.  supply and demand are equally elastic.

         c.  demand is perfectly inelastic.

         d.  demand is less elastic than supply.

         e.  supply is perfectly elastic.

  97.  Compared to consumers, producers will lose the greater amount of surplus from a tax if:

         a.  supply and demand are equally elastic.

         b.  supply is less elastic than demand.

         c.  supply is more elastic than demand.

         d.  demand is perfectly inelastic.

         e.  supply is perfectly elastic.

  98.  Compared to consumers, producers will lose the lesser amount of surplus from a tax if:

         a.  supply and demand are equally elastic.

         b.  supply is less elastic than demand.

         c.  supply is more elastic than demand.

         d.  demand is perfectly inelastic.

         e.  supply is perfectly elastic.

  99.  The elasticities of supply and demand are important in determining the distribution of tax burden because they:

         a.  measure how much consumers are willing to pay or how much firms must receive in order to produce.

         b.  reflect who actually pays the tax out of pocket.

         c.  measure how responsive producers and consumers are to a change in price.

         d.  reflect how much tax revenue is collected from the tax.

         e.  determine who is legally responsible for remitting funds to the government.

 100.  Of the following items, which is (are) most important in determining the distribution of tax burden?

         a.  who is legally responsible for paying the tax

         b.  the elasticities of supply and demand

         c.  the desired level of tax revenue

         d.  whether the tax is on income, wealth, sales, or imports

         e.  the dollar amount of the tax

 101.  All taxes create some deadweight loss except those on goods:

         a.  with a very low demand.

         b.  that can be resold for a higher price.

         c.  that everyone likes to consume.

         d.  with a perfectly inelastic demand or supply.

         e.  with a very elastic demand or supply.

 102.  If a tax is imposed on a good where both supply and demand are somewhat elastic, but supply is more elastic than demand, the burden of the tax will be borne:

         a.  by consumers and producers equally.

         b.  by consumers alone.

         c.  by producers alone.

         d.  mostly by consumers but partially by producers.

         e.  mostly by producers but partially by consumers.

 103.  All taxes create some deadweight loss, unless:

         a.  the tax is very small.

         b.  the tax is paid by consumers, not producers.

         c.  the government does not tell anyone that it has created a tax.

         d.  either supply or demand is perfectly inelastic.

         e.  the tax is very large.

 104.  In a market where supply and demand are both somewhat elastic, but supply is more elastic than demand, producers will bear less of the burden of a tax because:

         a.  consumers have a greater ability to change their behavior in response to the tax than producers do.

         b.  producers are more likely to be responsible for paying the tax out of pocket.

         c.  both parties have equal ability to change their behavior in response to the tax.

         d.  consumers will experience higher prices as a result of the tax.

         e.  producers have a greater ability to change their behavior in response to the tax than consumers do.

 105.  In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

         a.  producers will simply raise the price of their output in response to the tax.

         b.  consumers will buy less of the good in question once the tax is imposed.

         c.  the tax is more likely to be paid out of pocket by producers.

         d.  the government doesn’t care who pays the tax as long as the revenue is collected.

         e.  both have equal ability to change their behavior in response to the tax.

 106.  In a market where supply and demand are both somewhat elastic, but demand is more elastic than supply, consumers will bear less of the burden of a tax because:

         a.  consumers have a greater ability to change their behavior in response to the tax than producers do.

         b.  producers are more likely to be responsible for paying the tax out of pocket.

         c.  both parties have equal ability to change their behavior in response to the tax.

         d.  consumers will experience lower prices as a result of the tax.

         e.  producers have a greater ability to change their behavior in response to the tax than consumers do.

 107.  The incidence of a tax is determined by:

         a.  the relative elasticities of supply and demand.

         b.  who pays the tax out of pocket.

         c.  whether the supply curve or demand curve shifts as a result of the tax.

         d.  how much tax revenue it generates.

         e.  how much paperwork there is to complete.

 108.  When a good with equally elastic demand and supply is taxed, the incidence of the tax is borne:

         a.  entirely by consumers.

         b.  entirely by producers.

         c.  by both consumers and producers.

         d.  mostly by consumers.

         e.  mostly by producers.

 109.  If a tax is imposed on a good with equally elastic supply and demand, the burden of the tax will be borne:

         a.  by consumers and producers equally.

         b.  by consumers alone.

         c.  by producers alone.

         d.  mostly by consumers but partially by producers.

         e.  mostly by producers but partially by consumers.

 110.  A(n) _________ in the elasticity of supply or demand in a market for a good that is taxed would tend to _________ deadweight loss from that tax.

         a.  decrease; increase

         b.  increase; decrease

         c.  increase; have no effect on

         d.  decrease; have no effect on

         e.  increase; increase

 111.  A(n) _________ in the elasticity of supply or demand in a market for a good that is taxed would tend to _________ tax revenue from that tax.

         a.  decrease; have no effect on

         b.  decrease; decrease

         c.  increase; have no effect on

         d.  increase; decrease

         e.  increase; increase

 112.  A(n) _________ in the elasticity of supply or demand in a market for a good that is taxed would tend to _________ who is legally responsible for paying the tax.

         a.  decrease; broaden

         b.  decrease; have no effect on

         c.  increase; broaden

         d.  increase; narrow

         e.  increase; have no effect on

 113.  If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of the tax will be borne:

         a.  by consumers and producers equally.

         b.  by consumers alone.

         c.  by producers alone.

         d.  mostly by consumers but partially by producers.

         e.  mostly by producers but partially by consumers.

 114.  When demand is perfectly inelastic, the demand curve is:

         a.  horizontal.

         b.  vertical.

         c.  upward sloping.

         d.  downward sloping

         e.  U-shaped.

 115.  When demand is perfectly elastic, the demand curve is:

         a.  vertical.

         b.  upward sloping.

         c.  U-shaped.

         d.  horizontal.

         e.  downward sloping.

 116.  The maximum amount of tax revenue is generated when the good being taxed has a:

         a.  somewhat elastic demand.

         b.  perfectly elastic demand.

         c.  somewhat inelastic demand.

         d.  perfectly inelastic demand.

         e.  decreasing demand over time.

 117.  If a tax is imposed on a good with a perfectly inelastic demand, the burden of the tax will be borne:

         a.  by both consumers and producers equally.

         b.  by consumers alone.

         c.  by producers alone.

         d.  mostly by consumers but partially by producers.

         e.  mostly by producers but partially by consumers.

 118.  Consumers will lose no consumer surplus due to a tax if:

         a.  demand is somewhat elastic.

         b.  supply is perfectly elastic.

         c.  supply is somewhat elastic.

         d.  demand is perfectly elastic.

         e.  demand is perfectly inelastic.

 119.  If a tax is imposed on a good with a perfectly elastic demand, the burden of the tax will be borne:

         a.  by both consumers and producers equally.

         b.  by consumers alone.

         c.  by producers alone.

         d.  mostly by consumers but partially by producers.

         e.  mostly by producers but partially by consumers.

 120.  Taxing goods with very inelastic demand generates less deadweight loss than taxing goods with very elastic demand because:

         a.  the change in consumer behavior is smaller.

         b.  the amount of the tax is larger.

         c.  consumers have to pay these taxes out of pocket.

         d.  the government does not bother collecting the revenue.

         e.  the change in consumer behavior is greater.

 121.  Taxing a good with very elastic demand generates more deadweight loss than taxing a good with very inelastic demand because:

         a.  the amount of the tax is larger.

         b.  the change in consumer behavior is greater.

         c.  consumers have to pay these taxes out of pocket.

         d.  the change in consumer behavior is smaller.

         e.  the government does not bother collecting the revenue.

 122.  When a good with a perfectly inelastic demand is taxed, the incidence of the tax is borne:

         a.  entirely by producers.

         b.  by consumers and producers equally.

         c.  entirely by consumers.

         d.  mostly by consumers.

         e.  mostly by producers.

 123.  Goods that are necessities are very likely to have:

         a.  highly elastic demand.

         b.  highly elastic supply.

         c.  highly inelastic demand.

         d.  very low demand.

         e.  very low supply.

 124.  Consumers will lose no consumer surplus due to a tax if demand in their market is perfectly elastic because:

         a.  consumers can effortlessly change their behavior in response to the tax.

         b.  firms will decide not to pay the tax to the government.

         c.  the government will decide to tax something else.

         d.  the amount of the tax is relatively low.

         e.  producers can effortlessly change their behavior in response to the tax.

 125.  Ireland’s tax on plastic shopping bags successfully reduced consumer use of these bags because the:

         a.  demand for plastic bags is very inelastic.

         b.  grocery stores in Ireland refused to collect the tax.

         c.  demand for plastic bags is very elastic.

         d.  supply of plastic bags is very inelastic.

         e.  demand for plastic bags was increasing.

 126.  If the demand for bread is more elastic than the supply of bread, which group will bear more of the incidence of a tax on bread?

         a.  consumers

         b.  the government

         c.  neither consumers nor producers

         d.  producers

         e.  both consumers and producers equally

 127.  When supply is perfectly inelastic, the supply curve is:

         a.  horizontal.

         b.  vertical.

         c.  upward sloping.

         d.  downward sloping

         e.  U-shaped.

 128.  If a tax is imposed on a good with a perfectly inelastic supply, the burden of the tax will be borne:

         a.  by both consumers and producers equally.

         b.  by consumers alone.

         c.  by producers alone.

         d.  mostly by consumers but partially by producers.

         e.  mostly by producers but partially by consumers.

 129.  Producers will lose no producer surplus due to a tax if:

         a.  supply is somewhat elastic.

         b.  demand is somewhat elastic.

         c.  supply is perfectly elastic.

         d.  demand is perfectly elastic.

         e.  supply is perfectly inelastic.

 130.  Producers bear the entire incidence of a tax when:

         a.  supply is perfectly inelastic.

         b.  demand is perfectly elastic.

         c.  supply is perfectly elastic.

         d.  demand and supply are equally elastic.

         e.  demand is perfectly inelastic.

 131.  When supply is perfectly elastic, the supply curve is:

         a.  vertical.

         b.  upward sloping.

         c.  U-shaped.

         d.  horizontal.

         e.  downward sloping.

 132.  A good with a ________ generates no deadweight loss when taxed.

         a.  perfectly elastic supply

         b.  perfectly inelastic supply

         c.  somewhat elastic supply

         d.  somewhat inelastic supply

         e.  slowly increasing supply

 133.  Taxing goods with very elastic supply generates more deadweight loss than taxing goods with very inelastic supply because:

         a.  the amount of the tax is larger.

         b.  the change in producer behavior is greater.

         c.  producers have to pay these taxes out of pocket.

         d.  the change in producer behavior is smaller.

         e.  the government does not bother collecting the revenue.

 134.  Taxing goods with very inelastic supply generates less deadweight loss than taxing goods with very elastic supply because:

         a.  producers have to pay these taxes out of pocket.

         b.  the amount of the tax is larger.

         c.  the change in producer behavior is smaller.

         d.  the government does not bother collecting the revenue.

         e.  the change in producer behavior is greater.

 135.  If a tax is imposed on a good with a perfectly elastic supply, the burden of the tax will be borne:

         a.  by both consumers and producers equally.

         b.  by consumers alone.

         c.  by producers alone.

         d.  mostly by consumers but partially by producers.

         e.  mostly by producers but partially by consumers.

 136.  Producers will lose no producer surplus due to a tax if supply in their market is perfectly elastic because:

         a.  consumers can effortlessly change their behavior in response to the tax.

         b.  firms will decide not to pay the tax to the government.

         c.  the government will decide to tax something else.

         d.  the amount of the tax is relatively low.

         e.  producers can effortlessly change their behavior in response to the tax.

 137.  The benefit to society from the imposition of a tax is the:

         a.  lost consumer surplus.

         b.  deadweight loss.

         c.  tax revenue.

         d.  lost producer surplus.

         e.  the reduction in social welfare.

 138.  How successful would a $1 excise tax on each Little Caesar’s pizza be in generating revenue if Little Caesar’s is the only pizza chain that is taxed?

         a.  Many people like Little Caesar’s, so demand is inelastic and the tax revenue generated will be large.

         b.  You can get pizza at many other place, which makes the demand for Little Caesar’s relatively elastic and, as a result, the tax revenue collected will be small.

         c.  The supply of Little Caesar’s pizza is perfectly inelastic, so this tax would not generate any revenue.

         d.  The demand for Little Caesar’s pizza is perfectly elastic, so the tax will not generate any revenue.

         e.  The supply of Little Caesar’s pizza is perfectly elastic, so this tax will generate the maximum amount of revenue.

 139.  As a tax rate grows larger and larger, eventually:

         a.  supply can outweigh demand.

         b.  willingness to pay can outweigh deadweight loss.

         c.  demand can outweigh supply.

         d.  deadweight loss can outweigh tax revenue.

         e.  tax revenue can outweigh willingness to sell.

 140.  At very low tax rates:

         a.  supply is much larger than demand.

         b.  willingness to pay is much larger than deadweight loss.

         c.  demand is much larger than supply.

         d.  tax revenue is much larger than deadweight loss.

         e.  tax revenue is much larger than willingness to sell.

 141.  The luxury tax of 1990 produced far less tax revenue than projected because:

         a.  the government made the mistake of announcing the tax.

         b.  the tax was too low.

         c.  the supply of luxury goods is highly inelastic.

         d.  there are very few consumers of luxury goods.

         e.  the demand for luxury goods is highly elastic.

 

branch of economics that studies how the allocation of resources affects economic well-being

maximum price a consumer will pay for a good

the difference between the willingness to pay for a good and the price that is paid to get it

minimum price a seller will accept to sell a good or service

difference between the willingness to sell a good and the price that the seller receives

sum of consumer surplus and producer surplus

An outcome is efficient when an allocation of resources maximizes the total surplus

the fairness of the distribution of benefits within the society

taxes levied on a particular good or service

burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually levied on

the decrease in economic activity cause by market disortions

When a tax is imposed on some good, what happens to the amount of the good bought and sold?

The benefit to society from the imposition of a tax is the:

Excise taxes are taxes that are:

After a tax is imposed, the price paid by consumers _________ and the price received by producers _________.

A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ deadweight loss from that tax.

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the:

Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer AND consumer surplus (i.e., social welfare) in this market?

Which areas represent the amount of producer surplus lost due to the tax?

The difference between the price consumers pay and the price sellers receive after a tax is imposed is equal to the:

If a tax is imposed on a good with a perfectly inelastic demand, the burden of the tax will be borne:

Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

What areas represent the total lost consumer and producer surplus (i.e., social welfare) as a result of the tax?

When looking at a graph, the area under the demand curve and above market price is defined as:

If a tax is imposed on a good where both supply and demand are somewhat elastic, but supply is more elastic than demand, the burden of the tax will be borne:

In most cases, taxes reduce economic efficiency because:

A tax that is applied to one specific good or service is a(n):

Taxing goods with very elastic supply generates more deadweight loss than taxing goods with very inelastic supply because:

Ireland's tax on plastic shopping bags successfully reduced consumer use of these bags because the:

The deadweight loss from a tax is likely to be less with a good that has:

In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

When a good with a perfectly inelastic demand is taxed, the incidence of the tax is borne:

In a market where supply and demand are both somewhat elastic, but demand is more elastic than supply, consumers will bear less of the burden of a tax because:

Producers bear the entire incidence of a tax when:

The incidence of a tax is determined by:

Explain what happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left).

Taxing goods with very inelastic demand generates less deadweight loss than taxing goods with very elastic demand because:

Taxing goods with very inelastic supply generates less deadweight loss than taxing goods with very elastic supply because:

A tax creates no deadweight loss only when either supply or demand is:

If the government wanted to raise taxes while generating the least amount of deadweight loss, it should raise taxes on a good with a:

A tax on producers would cause the __________ curve(s) to shift to the __________.

A tax on apples would cause apple growers to suffer because:

A tax on milk would likely cause a decrease in the price of:

When the price of a good increases and all else is held constant:

If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of the tax will be borne:

Questions about the equity of a tax are concerned mostly with:

A tax on milk would likely cause an increase in the:

Holding all else constant, when the price of a good increases:

The difference between the willingness to pay for a good and the amount that is paid to get it is also known as:

All taxes create some deadweight loss, unless:

Social welfare (i.e., the sum of producer and consumer surplus) is maximized when:

It is said that taxes drive a wedge between prices. This statement is true because taxes cause:

When demand is perfectly inelastic, the demand curve is:

 

If the market price of a product is between the minimum average variable cost (AVC) and minimum average total cost (ATC) of a firm, that firm will...

When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

You share a house with two people . You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of ______; for the other roommate it is an example of _____.

An example of price discrimination is when:

Monopolistically competitive firms that are earning zero economic profit would most likely:

If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to _____ and the equilibrium quantity to _____.

The change in total cost given a change in output is also known as:

What is necessary for price discrimination to occur

Kim owns a cupcake shop in Newport, CA. The market for cupcakes is very competitive. At Kim's current production level, her marginal cost is $25 and her marginal revenue is $29. To maximize profits, Kim should?

Accounting profit is equal to:

Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

Total revenue minus total cost is equal to:

What is an example of a good that is non rival

A tax on apples would cause consumers to suffer because:

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of:

If a monopolistically competitive firm is incurring losses, then at the profit maximizing output amount:

In 1996 Victoria's Secret shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with high prices for those same items. What is the firm's motivation for practicing price discrimination, despite knowing that if their customers' found out, the company could potentially experience a loss in sales?

If Tommy's Tank Tops is a perfectly competitive firm and is currently making a positive economic profits of $1,000:

Charlie's Churros is a perfectly competitive firm that sells desserts in Houston, Texas. Charlie's Churros currently is taking in $40,000 in revenues, and has $15,000 in explicit costs and $25,000 in implicit costs. Charlie's Churro's economic profits are:

Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:

Compared to producers, consumers will lose the greater amount of surplus from a tax if:

You can tell a firm is operating in a market that is in long run competitive equilibrium if:

When talking about economic profits in a perfectly competitive market, the difference between the long run and the short run is that, in the short run, firms:

When a negative externality is not internalized, then the equilibrium price of the good purchased is too___ and the equilibrium quantity produced is too ___.

Consumer surplus is defined as the:

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should:

A tax on apples would cause apple growers to suffer because:

Both monopolies and competitive firms:

If a firm's average total costs decrease as it increases its scale of production, the firm is experiencing:

Which of the following is a question that a firm must answer in the long run but not in the short run?

Fast food restaurants are a good illustration of:

If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should:

The incidence of a tax is determined by:

It is unrealistic to regulate a natural monopoly at marginal cost pricing because:

Two government created barriers to entry are:

Compared to consumers, producers will lose the greater amount of surplus from a tax if:

In competitive markets:

The fast food, bottled water, and cereal markets are all examples of:

When demand is perfectly inelastic, the demand curve is:

The government imposes a tax on sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, you would expect:

Nathan owns a coffee roasting company. He buys raw coffee beans, roasts them, grinds them, and sells them to stores. He recently moved into a larger factory so that he can sell coffee to more stores. How would Nathan know if he is experiencing constant returns to scale from increasing the size of his factory?

If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of tax will be borne:

If a firm hires another worker and her marginal product of labor is zero, we know that the firm's total output is:

To maximize profits, a monopolist chooses the quantity where:

If Nicole's Knick Knacks is a perfectly competitive firm and is making zero economic profits:

Despite creating maximum market efficiency, perfect price discrimination is often disliked by consumers because it transfers the gains in trade from:

 

a study of how the allocation of resources affects economic well-being.

the net gain of ALL buyers determined by the difference between the willingness to pay or reservation price and THE price paid to get it.

the total amount of consumer surplus in a market is the area below the demand curve and above the market price.

area under the demand curve out to the quantity demanded at the given price (triangle of consumer surplus and the rectangle below it)

the net gain of ALL sellers determined by the difference between the lowest price firms would be willing accept and the price they actually receive.

the sum of consumer surplus and producer surplus

the reduction in economic surplus resulting from a market not being in competitive equilibrium

the fairness of the distribution of benefits within the society

taxes levied on a particular good or service

the burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually levied on.

The difference between willingness to pay for a good and the amount that is paid to get it is also known as

Producer surplus is the difference between

When looking at a supply and demand graph, you would find consumer surplus where?

social welfare is maximized when

A market has reached an efficient outcome when

A tax that is applied to one specific good or service is a

If a tax causes the supply curve to shift, we know that the tax is paid out of pocket by