Exam 4: Economic Efficiency, Government Price Setting, and Taxes

Figure 4-5 Figure 4-5 shows the market for apartments in Bay City.Recently,the government imposed a rent ceiling at R₀. -Refer to Figure 4-5.What area represents the deadweight loss after the imposition of the ceiling?

Economists have shown that the burden of a tax is

If the government implements a binding price ceiling on insulin,this will have all of the following effects on the market for insulin except

Figure 4-4 -Refer to Figure 4-4.The figure above represents the market for iced tea.Assume that this is a competitive market.If the price of iced tea is $3

Consumer surplus in a market for a product would be equal to the area under the demand curve if

What is consumer surplus? Why would policy makers be interested in consumer surplus?

When the marginal benefit equals the marginal cost of the last unit sold in a competitive market,

If a tax is imposed on a product,the buyer will always bear the entire burden of the tax.

Using a supply and demand graph,illustrate the effect of an increase in the federal cigarette tax of $1.00 per pack,where the entire tax burden falls on the consumer.Assume the equilibrium price before the tax is $5.00 per pack and the equilibrium quantity is 30 million packs. After the implementation of the tax,what are the equilibrium price and equilibrium quantity?

The division of the burden of a tax between buyers and sellers in a market is called tax incidence.

"Taxes are what we pay for a civilized society." This statement was made by

The difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called

Figure 4-2 -Refer to Figure 4-2.What area represents producer surplus at a price of P₁?

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones. -Refer to Figure 4-1.If the market price is $3.50,what is Kendra's consumer surplus?

Table 4-6 -Refer to Table 4-6.The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion.The equilibrium price and quantity for Aunt Maud's lotion are $20 and 30 thousand units.What is the value of producer surplus?

The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss.

Using a supply and demand graph,illustrate the market for rent-controlled apartments with the following data: Equilibrium rent without rent control: $1,500 Rent with rent control: $700 Quantity of apartments demanded with rent control: 50,000 Quantity of apartments supplied with rent control: 20,000 What is the value of the initial shortage of apartments with rent control? Now assume rent control leads to a reduction in the supply of apartments,and the new quantity supplied is now 15,000.Illustrate this on your graph. What is the value of the shortage of apartments following the decrease in supply?

What is deadweight loss? When is deadweight loss equal to zero?

Employers withhold several taxes from employees ' paychecks,one of which is FICA.Congress requires employers to pay half of the FICA tax and workers to pay the other half.Does this mean that the burden of the FICA tax falls evenly on employers and employees? Briefly explain.

Table 4-3 -Refer to Table 4-3.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing.If the price of polo shirts decreases from $15 to $10