Question 1

The distance between the demand curve and the price the consumer has to pay for a product (given quantity demanded)is referred to as:

Accepted Answer

A) market surplus. 
B) market shortage. 
C) consumer surplus. 
D) producer surplus. 
A) market surplus. 
B) market shortage. 
C) consumer surplus. 
D) producer surplus. C

Question 2

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 effect of the tax is to raise equilibrium price from:

Accepted Answer

A) d to b. 
B) d to c. 
C) c to b. 
D) e to c. 
A) d to b. 
B) d to c. 
C) c to b. 
D) e to c. B

Question 3

Demonstrate graphically and explain verbally the cost to society of a tax of t per carton imposed on the sellers of cigarettes.

Accepted Answer

Imposing a tax will result in an upward shift of the supply curve from S₀ to S₁ in the diagram.The cost to society is represented by the loss of consumer and producer surplus that is not transferred to the government in the form of tax revenue.This deadweight loss is the area C + E in the diagram.Consumer surplus decreases from A + B + C to A and that producer surplus decreases from D + E + F to F.Areas B and D are collected as government revenue and are assumed to benefit society.

Question 4

The problems created by price controls become greatest as time goes by when:

Accepted Answer

A) supply becomes more inelastic and demand becomes more elastic. 
B) demand becomes more in elastic and supply becomes more elastic. 
C) demand and supply become more elastic. 
D) demand and supply become more inelastic. 
A) supply becomes more inelastic and demand becomes more elastic. 
B) demand becomes more in elastic and supply becomes more elastic. 
C) demand and supply become more elastic. 
D) demand and supply become more inelastic.

Question 5

How are price ceilings similar to taxes? How are they different?

Accepted Answer

The two are similar in that they both cr

Question 6

If price is lowered by law from the market equilibrium value of $5 to a lower value of $4:

Accepted Answer

A) both producer surplus and consumer surplus will increase. 
B) consumer surplus will decrease and there will be some total surplus lost. 
C) producer surplus will decrease and there will be some total surplus lost. 
D) there will be lost surplus, as both producer surplus and consumer surplus decrease. 
A) both producer surplus and consumer surplus will increase. 
B) consumer surplus will decrease and there will be some total surplus lost. 
C) producer surplus will decrease and there will be some total surplus lost. 
D) there will be lost surplus, as both producer surplus and consumer surplus decrease.

Question 7

Refer to the graph shown. With an effective price floor at $8, the effect is an implicit tax on:

Accepted Answer

A) suppliers equal to $50. 
B) suppliers equal to $30. 
C) consumers equal to $50. 
D) consumers equal to $30. 
A) suppliers equal to $50. 
B) suppliers equal to $30. 
C) consumers equal to $50. 
D) consumers equal to $30.

Question 8

Refer to the graph shown. When the market is in equilibrium, consumer surplus is area:

Accepted Answer

A) A. 
B) F. 
C) A plus area F. 
D) F plus area E. 
A) A. 
B) F. 
C) A plus area F. 
D) F plus area E.

Question 9

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 producer surplus of this tax is equal to the area:

Accepted Answer

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

Question 10

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 11

If the minimum that the Smith family would be willing to sell their house for is $185,000, but they in fact sell it for $210,000, they will receive:

Accepted Answer

A) producer surplus in the amount of $210,000. 
B) producer surplus in the amount of $25,000. 
C) consumer surplus in the amount of $210,000. 
D) consumer surplus in the amount of $25,000. 
A) producer surplus in the amount of $210,000. 
B) producer surplus in the amount of $25,000. 
C) consumer surplus in the amount of $210,000. 
D) consumer surplus in the amount of $25,000.

Question 12

Refer to the following graph.   With an effective price ceiling at $3, the effect is an implicit tax on:

Accepted Answer

A) suppliers equal to $60. 
B) suppliers equal to $80. 
C) consumers equal to $60. 
D) consumers equal to $80. 
A) suppliers equal to $60. 
B) suppliers equal to $80. 
C) consumers equal to $60. 
D) consumers equal to $80.

Question 13

Demonstrate graphically and explain verbally how the problem of price controls differs in the short-run and the long run.

Accepted Answer

The diagram: @#IMG-DLM& The explanation
The initia

Question 14

Refer to the graph shown. With an effective price ceiling at Pc, the effect is an implicit tax on:

Accepted Answer

A) suppliers of area C and a subsidy to consumers of that area. 
B) suppliers of area D and a subsidy to consumers of that area. 
C) consumers of area C and a subsidy to suppliers of that area. 
D) consumers of area D and a subsidy to suppliers of that area. 
A) suppliers of area C and a subsidy to consumers of that area. 
B) suppliers of area D and a subsidy to consumers of that area. 
C) consumers of area C and a subsidy to suppliers of that area. 
D) consumers of area D and a subsidy to suppliers of that area.

Question 15

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 16

Refer to the graph shown. An effective price floor at Pf imposes a deadweight loss shown by:

Accepted Answer

A) rectangles B and C. 
B) rectangles A and D. 
C) triangles E and F. 
D) rectangle B and triangle E. 
A) rectangles B and C. 
B) rectangles A and D. 
C) triangles E and F. 
D) rectangle B and triangle E.

Question 17

Those with more inelastic demands will bear a larger burden of a tax because they:

Accepted Answer

A) have more buying power. 
B) have more income. 
C) will switch to other products with a tax. 
D) have fewer substitutes for that good. 
A) have more buying power. 
B) have more income. 
C) will switch to other products with a tax. 
D) have fewer substitutes for that good.

Question 18

Suppose people freely choose to spend 40 percent of their income on healthcare, but then the government decides to tax 40 of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

Accepted Answer

A) Taxing income results in deadweight loss, and purchasing healthcare on one's own doesn't result in deadweight loss. 
B) Taxing income results in less deadweight loss because government knows better what healthcare coverage is good for society. 
C) There is no difference because the goods are purchased in the market in either case. 
D) There is no difference because the total spending remains the same and the healthcare purchased remains the same. 
A) Taxing income results in deadweight loss, and purchasing healthcare on one's own doesn't result in deadweight loss. 
B) Taxing income results in less deadweight loss because government knows better what healthcare coverage is good for society. 
C) There is no difference because the goods are purchased in the market in either case. 
D) There is no difference because the total spending remains the same and the healthcare purchased remains the same.

Question 19

Demonstrate graphically and explain verbally that the buyers bear the entire burden of a tax when demand is perfectly inelastic.

Accepted Answer

As shown in the diagram above,

Question 20

What is the deadweight loss of taxation? What causes deadweight loss?

Accepted Answer

Deadweight loss from taxation

Exam 7: Taxation and Government Intervention

The distance between the demand curve and the price the consumer has to pay for a product (given quantity demanded)is referred to as:

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 effect of the tax is to raise equilibrium price from:

Demonstrate graphically and explain verbally the cost to society of a tax of t per carton imposed on the sellers of cigarettes.

The problems created by price controls become greatest as time goes by when:

How are price ceilings similar to taxes? How are they different?

If price is lowered by law from the market equilibrium value of $5 to a lower value of $4:

Refer to the graph shown. With an effective price floor at $8, the effect is an implicit tax on:

Refer to the graph shown. When the market is in equilibrium, consumer surplus is area:

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 producer surplus of this tax is equal to the area:

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:

If the minimum that the Smith family would be willing to sell their house for is $185,000, but they in fact sell it for $210,000, they will receive:

Refer to the following graph. With an effective price ceiling at $3, the effect is an implicit tax on:

Demonstrate graphically and explain verbally how the problem of price controls differs in the short-run and the long run.

Refer to the graph shown. With an effective price ceiling at Pc, the effect is an implicit tax on:

Total producer surplus is measured as the area:

Refer to the graph shown. An effective price floor at Pf imposes a deadweight loss shown by:

Those with more inelastic demands will bear a larger burden of a tax because they:

Suppose people freely choose to spend 40 percent of their income on healthcare, but then the government decides to tax 40 of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

Demonstrate graphically and explain verbally that the buyers bear the entire burden of a tax when demand is perfectly inelastic.

What is the deadweight loss of taxation? What causes deadweight loss?

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

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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 effect of the tax is to raise equilibrium price 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 producer surplus of this tax is equal to the area:

Refer to the graph shown. An effective price floor at P_f imposes a deadweight loss shown by: