Question 1

Total producer surplus is measured as the area:

Accepted Answer

A)  between the demand curve and the supply curve. 
B)  above the supply curve. 
C)  beneath the demand curve and above the market price. 
D)  beneath the market price and above the supply curve. 
A)  between the demand curve and the supply curve. 
B)  above the supply curve. 
C)  beneath the demand curve and above the market price. 
D)  beneath the market price and above the supply curve.

Question 2

A price floor will create the largest surplus when:

Accepted Answer

A)  both supply and demand are inelastic. 
B)  both supply and demand are elastic. 
C)  supply is elastic and demand is inelastic. 
D)  supply is inelastic and demand is elastic. 
A)  both supply and demand are inelastic. 
B)  both supply and demand are elastic. 
C)  supply is elastic and demand is inelastic. 
D)  supply is inelastic and demand is elastic.

Question 3

Graphically, deadweight loss is shown by the:

Accepted Answer

A)  welfare loss rectangle. 
B)  welfare loss triangle. 
C)  tax revenue rectangle. 
D)  consumer surplus loss triangle. 
A)  welfare loss rectangle. 
B)  welfare loss triangle. 
C)  tax revenue rectangle. 
D)  consumer surplus loss triangle.

Question 4

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. In equilibrium, producer surplus is equal to:

Accepted Answer

A)  1,500. 
B)  2,500. 
C)  3,500. 
D)  5,000. 
A)  1,500. 
B)  2,500. 
C)  3,500. 
D)  5,000.

Question 5

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, producer surplus will fall from:

Accepted Answer

A)  2,500 to 1,600. 
B)  5,000 to 3,200. 
C)  3,200 to 1,600. 
D)  5,000 to 2,500. 
A)  2,500 to 1,600. 
B)  5,000 to 3,200. 
C)  3,200 to 1,600. 
D)  5,000 to 2,500.

Question 6

A local government is considering a 10 percent tax on items A, B, and C. They want to tax only those goods for which the burden of the tax is lowest on suppliers. They know that the elasticity of supply of all the suppliers in question is about equal and have observed that when the price of A, B, and C rose 10 percent, total sales receipts for A and B rose 2 percent but declined 2 percent for C. From this information, they should:

Accepted Answer

A)  tax A and B but not C. 
B)  tax A, B, and C equally. 
C)  tax C but not A and B. 
D)  You need to know the volume of sales to determine the answer. 
A)  tax A and B but not C. 
B)  tax A, B, and C equally. 
C)  tax C but not A and B. 
D)  You need to know the volume of sales to determine the answer.

Question 7

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The lost consumer surplus of this tax is equal to the area:

Accepted Answer

A)  cdjh. 
B)  deij. 
C)  hji. 
D)  cehi. 
A)  cdjh. 
B)  deij. 
C)  hji. 
D)  cehi.

Question 8

An excise tax is imposed on smartphones. If the elasticity of demand is 2 and the elasticity of supply is 1, we can predict that:

Accepted Answer

A)  consumers will bear the full tax burden. 
B)  sellers will bear the full tax burden. 
C)  consumers will bear 2/3 of the tax burden. 
D)  sellers will bear 2/3 of the tax burden. 
A)  consumers will bear the full tax burden. 
B)  sellers will bear the full tax burden. 
C)  consumers will bear 2/3 of the tax burden. 
D)  sellers will bear 2/3 of the tax burden.

Question 9

A price ceiling is, in essence, an implicit tax on producers and an implicit subsidy to consumers.

Accepted Answer

A) True 
 B)False

Question 10

If elasticity of demand is 1 and elasticity of supply is 0, what percentage of a 10 percent tax will be borne by consumers?

Accepted Answer

A)  100 percent. 
B)  50 percent. 
C)  10 percent. 
D)  0 percent. 
A)  100 percent. 
B)  50 percent. 
C)  10 percent. 
D)  0 percent.

Question 11

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to:

Accepted Answer

A)  raise the price consumers pay from $3 to $4. 
B)  lower the price consumers pay from $3 to $2. 
C)  raise the price sellers keep after paying the tax. 
D)  lower the price sellers keep after paying the tax. 
A)  raise the price consumers pay from $3 to $4. 
B)  lower the price consumers pay from $3 to $2. 
C)  raise the price sellers keep after paying the tax. 
D)  lower the price sellers keep after paying the tax.

Question 12

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. In equilibrium, producer surplus is equal to:

Accepted Answer

A)  40. 
B)  80. 
C)  120. 
D)  160. 
A)  40. 
B)  80. 
C)  120. 
D)  160.

Question 13

When the market is in equilibrium, total surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the graph shown. If the price of this product fell from $5.00 to $2.50 (because of a price ceiling or a shift in demand), producer surplus would fall from:

Accepted Answer

A)  2,000 to 500. 
B)  1,000 to 500. 
C)  1,000 to 250. 
D)  500 to 250. 
A)  2,000 to 500. 
B)  1,000 to 500. 
C)  1,000 to 250. 
D)  500 to 250.

Question 15

Refer to the graph shown. With an effective price ceiling at $3, the quantity supplied:

Accepted Answer

A)  falls from 70 to 40. 
B)  falls from 40 to 20. 
C)  increases from 40 to 70. 
D)  increases from 20 to 40. 
A)  falls from 70 to 40. 
B)  falls from 40 to 20. 
C)  increases from 40 to 70. 
D)  increases from 20 to 40.

Question 16

If the government's goal is to alter people's behavior through taxation, taxing goods with relatively elastic demand and supply would be most effective.

Accepted Answer

A) True 
 B)False

Question 17

Refer to the graph shown. Initially, the market is in equilibrium where the demand curve intersects S0. In the initial equilibrium, consumer surplus is equal to:

Accepted Answer

A)  750. 
B)  1,500. 
C)  2,250. 
D)  3,000. 
A)  750. 
B)  1,500. 
C)  2,250. 
D)  3,000.

Question 18

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, consumer surplus will fall from:

Accepted Answer

A)  80 to 45. 
B)  160 to 90. 
C)  90 to 45. 
D)  160 to 80. 
A)  80 to 45. 
B)  160 to 90. 
C)  90 to 45. 
D)  160 to 80.

Question 19

Refer to the graph shown. If the price of this product fell from $10 to $8, producer surplus would fall from:

Accepted Answer

A)  250 to 180. 
B)  750 to 540. 
C)  750 to 270. 
D)  1,000 to 540. 
A)  250 to 180. 
B)  750 to 540. 
C)  750 to 270. 
D)  1,000 to 540.

Question 20

Refer to the graph shown. Initial market equilibrium is at the intersection of the demand curve and S0. When government imposes a per-unit tax, supply shifts from S0 to S1. The deadweight loss associated with this tax is represented by area:

Accepted Answer

A)  GHI. 
B)  HJI. 
C)  CDGH. 
D)  ABIJ. 
A)  GHI. 
B)  HJI. 
C)  CDGH. 
D)  ABIJ.

Exam 7: Taxation and Government Intervention

Total producer surplus is measured as the area:

A price floor will create the largest surplus when:

Graphically, deadweight loss is shown by the:

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. In equilibrium, producer surplus is equal to:

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, producer surplus will fall from:

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The lost consumer surplus of this tax is equal to the area:

An excise tax is imposed on smartphones. If the elasticity of demand is 2 and the elasticity of supply is 1, we can predict that:

A price ceiling is, in essence, an implicit tax on producers and an implicit subsidy to consumers.

If elasticity of demand is 1 and elasticity of supply is 0, what percentage of a 10 percent tax will be borne by consumers?

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to:

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. In equilibrium, producer surplus is equal to:

When the market is in equilibrium, total surplus is maximized.

Refer to the graph shown. If the price of this product fell from $5.00 to $2.50 (because of a price ceiling or a shift in demand), producer surplus would fall from:

Refer to the graph shown. With an effective price ceiling at $3, the quantity supplied:

If the government's goal is to alter people's behavior through taxation, taxing goods with relatively elastic demand and supply would be most effective.

Refer to the graph shown. Initially, the market is in equilibrium where the demand curve intersects S0. In the initial equilibrium, consumer surplus is equal to:

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, consumer surplus will fall from:

Refer to the graph shown. If the price of this product fell from $10 to $8, producer surplus would fall from:

Refer to the graph shown. Initial market equilibrium is at the intersection of the demand curve and S0. When government imposes a per-unit tax, supply shifts from S0 to S1. The deadweight loss associated with this tax is represented by area:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Filters

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The lost consumer surplus of this tax is equal to the area:

Refer to the graph shown. Initially, the market is in equilibrium where the demand curve intersects S₀. In the initial equilibrium, consumer surplus is equal to:

Refer to the graph shown. Initial market equilibrium is at the intersection of the demand curve and S₀. When government imposes a per-unit tax, supply shifts from S₀ to S₁. The deadweight loss associated with this tax is represented by area: