Question 1

What do economists mean by an efficient tax?

Accepted Answer

A tax is efficient i

Question 2

Economic efficiency is achieved when there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and

Accepted Answer

A)  economic surplus plus consumer surplus equals producer surplus. 
B)  consumer surplus plus producer surplus is maximized. 
C)  economic surplus is minimized. 
D)  the difference between consumer surplus and producer surplus is maximized. 
A)  economic surplus plus consumer surplus equals producer surplus. 
B)  consumer surplus plus producer surplus is maximized. 
C)  economic surplus is minimized. 
D)  the difference between consumer surplus and producer surplus is maximized.

Question 3

Suppose an excise tax of $0.75 is imposed on every pack of cigarettes sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?

Accepted Answer

A)  The supply curve for cigarettes would shift to the left by $0.75. 
B)  The supply curve for cigarettes would shift to the left by less than $0.75. 
C)  The supply curve for cigarettes would shift to the left by more than $0.75. 
D)  The supply curve for cigarettes would shift to the right by $0.75. 
A)  The supply curve for cigarettes would shift to the left by $0.75. 
B)  The supply curve for cigarettes would shift to the left by less than $0.75. 
C)  The supply curve for cigarettes would shift to the left by more than $0.75. 
D)  The supply curve for cigarettes would shift to the right by $0.75.

Question 4

Figure 4-11   Figure 4-11 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00.
-Refer to Figure 4-11. What is the value of the deadweight loss after the imposition of the price floor?

Accepted Answer

A)  $600 
B)  $1,800 
C)  $2,700 
D)  $3,300 
A)  $600 
B)  $1,800 
C)  $2,700 
D)  $3,300

Question 5

Economists ________ that price controls are desirable.

Accepted Answer

A)  are in agreement 
B)  are reluctant to state 
C)  never believe 
D)  only recently agree 
A)  are in agreement 
B)  are reluctant to state 
C)  never believe 
D)  only recently agree

Question 6

Figure 4-17  
-Refer to Figure 4-17. Suppose the market is initially in equilibrium at price P1 and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax?

Accepted Answer

A)  The consumer will bear a greater share of the tax burden if the demand curve is D1. 
B)  The consumer's share of the tax burden is the same whether the demand curve is D1 or D2. 
C)  The consumer will bear a greater share of the tax burden if the demand curve is D2. 
D)  The consumer will bear the entire burden of the tax if the demand curve is D1 and the producer will bear the entire burden of the tax if the demand curve is D2. 
A)  The consumer will bear a greater share of the tax burden if the demand curve is D1. 
B)  The consumer's share of the tax burden is the same whether the demand curve is D1 or D2. 
C)  The consumer will bear a greater share of the tax burden if the demand curve is D2. 
D)  The consumer will bear the entire burden of the tax if the demand curve is D1 and the producer will bear the entire burden of the tax if the demand curve is D2.

Question 7

A consumer is willing to purchase a product up to the point where

Accepted Answer

A)  he spends all of his income. 
B)  the marginal benefit is equal to the price of the product. 
C)  the quantity demanded is equal to the quantity supplied. 
D)  he is indifferent between consuming and saving. 
A)  he spends all of his income. 
B)  the marginal benefit is equal to the price of the product. 
C)  the quantity demanded is equal to the quantity supplied. 
D)  he is indifferent between consuming and saving.

Question 8

Figure 4-3   Figure 4-3 shows Kendra's demand curve for ice-cream cones.
-Refer to Figure 4-3. If the market price is $3.00, what is the consumer surplus on the second ice cream cone?

Accepted Answer

A)  $0 
B)  $0.50 
C)  $3.00 
D)  $5.50 
A)  $0 
B)  $0.50 
C)  $3.00 
D)  $5.50

Question 9

Table 4-6
  
-The willingness of consumers to buy a product at different prices is shown on a

Accepted Answer

A)  demand curve. 
B)  supply curve. 
C)  production possibilities frontier. 
D)  marginal cost curve. 
A)  demand curve. 
B)  supply curve. 
C)  production possibilities frontier. 
D)  marginal cost curve.

Question 10

Table 4-3
  
-The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

Accepted Answer

A)  above; above 
B)  above; below 
C)  below; above 
D)  below; below 
A)  above; above 
B)  above; below 
C)  below; above 
D)  below; below

Question 11

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

Accepted Answer

A)  C 
B)  A + C 
C)  C + E 
D)  A + C + E 
A)  C 
B)  A + C 
C)  C + E 
D)  A + C + E

Question 12

Figure 4-3   Figure 4-3 shows Kendra's demand curve for ice-cream cones.
-Producer surplus is the difference between the highest price a firm is willing to accept for a product and the price it actually receives for the product.

Accepted Answer

A) True 
 B)False

Question 13

There will be no deadweight loss if the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 14

Figure 4-9   Figure 4-9 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.
-Refer to Figure 4-9. What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?

Accepted Answer

A)  B 
B)  B + C 
C)  B + E 
D)  E 
A)  B 
B)  B + C 
C)  B + E 
D)  E

Question 15

Figure 4-3   Figure 4-3 shows Kendra's demand curve for ice-cream cones.
-Refer to Figure 4-3. If the market price is $3.50, what is the maximum number of ice cream cones that Kendra will buy?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 16

If the government implements a price ceiling on insulin, this will

Accepted Answer

A)  increase the price consumers will pay for insulin. 
B)  decrease the quantity of insulin the manufacturers will be willing to supply. 
C)  have to be set above the market equilibrium price to be effective. 
D)  encourage manufacturers to produce and sell more of insulin to increase their profits. 
A)  increase the price consumers will pay for insulin. 
B)  decrease the quantity of insulin the manufacturers will be willing to supply. 
C)  have to be set above the market equilibrium price to be effective. 
D)  encourage manufacturers to produce and sell more of insulin to increase their profits.

Question 17

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

Accepted Answer

A)  producer surplus. 
B)  the substitution effect. 
C)  the income effect. 
D)  consumer surplus. 
A)  producer surplus. 
B)  the substitution effect. 
C)  the income effect. 
D)  consumer surplus.

Question 18

In the market for gasoline, an increase in the federal excise tax on gasoline would shift the supply curve up.

Accepted Answer

A) True 
 B)False

Question 19

Figure 4-7  
-Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. Which of the following is true?

Accepted Answer

A)  If the price of iced tea is $3, the output will be economically efficient but there will be a deadweight loss. 
B)  If the price of iced tea is $3, consumers will purchase more than the economically efficient output. 
C)  Both 10,000 and 30,000 are economically inefficient rates of output. 
D)  If the price of iced tea is $3, producers will sell 30,000 units of iced tea but this output will be economically inefficient. 
A)  If the price of iced tea is $3, the output will be economically efficient but there will be a deadweight loss. 
B)  If the price of iced tea is $3, consumers will purchase more than the economically efficient output. 
C)  Both 10,000 and 30,000 are economically inefficient rates of output. 
D)  If the price of iced tea is $3, producers will sell 30,000 units of iced tea but this output will be economically inefficient.

Question 20

Explain how both renters and landlords could be either winners or losers with the imposition of rent control.

Accepted Answer

With rent control, those renters who are

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

What do economists mean by an efficient tax?

Economic efficiency is achieved when there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and

Suppose an excise tax of $0.75 is imposed on every pack of cigarettes sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?

Economists ________ that price controls are desirable.

Figure 4-17 -Refer to Figure 4-17. Suppose the market is initially in equilibrium at price P1 and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax?

A consumer is willing to purchase a product up to the point where

Figure 4-3 Figure 4-3 shows Kendra's demand curve for ice-cream cones. -Refer to Figure 4-3. If the market price is $3.00, what is the consumer surplus on the second ice cream cone?

Table 4-6 -The willingness of consumers to buy a product at different prices is shown on a

Table 4-3 -The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

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

Figure 4-3 Figure 4-3 shows Kendra's demand curve for ice-cream cones. -Producer surplus is the difference between the highest price a firm is willing to accept for a product and the price it actually receives for the product.

There will be no deadweight loss if the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

Figure 4-3 Figure 4-3 shows Kendra's demand curve for ice-cream cones. -Refer to Figure 4-3. If the market price is $3.50, what is the maximum number of ice cream cones that Kendra will buy?

If the government implements a price ceiling on insulin, this will

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called

In the market for gasoline, an increase in the federal excise tax on gasoline would shift the supply curve up.

Figure 4-7 -Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. Which of the following is true?

Explain how both renters and landlords could be either winners or losers with the imposition of rent control.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Table 4-3 -The area the market supply curve and the market price is equal to the total amount of producer surplus in a market.