Question 1

The deadweight loss from a tax is the reduction in producer and consumer surplus minus the tax revenue transferred to the government.

Accepted Answer

A) True 
 B)False

Question 2

Welfare economics is the study of how​ the allocation of resources affects economic well-being.

Accepted Answer

A) ​the allocation of resources affects economic well-being. 
B) ​price controls work. 
C) ​the government helps poor people. 
D) ​to produce greater equality. 
A) ​the allocation of resources affects economic well-being. 
B) ​price controls work. 
C) ​the government helps poor people. 
D) ​to produce greater equality.

Question 3

​Exhibit 7-6  
-Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P1, buyers lose consumer surplus equal to area:​

Accepted Answer

A) ​C + D + F. 
B) ​B + C + E + F. 
C) ​E + F. 
D) ​B + E. 
A) ​C + D + F. 
B) ​B + C + E + F. 
C) ​E + F. 
D) ​B + E.

Question 4

Ceteris paribus, explain why it is that when a lower ceiling price is imposed below equilibrium price, a greater deadweight loss results.

Accepted Answer

When a lower price ceiling is imposed be

Question 5

The more elastic the supply curve, the ____ will be the effect of a tax on the quantity exchanged and the ____ will be the welfare cost.​

Accepted Answer

A) ​greater; greater. 
B) ​greater; smaller. 
C) ​smaller; greater. 
D) ​smaller; smaller. 
A) ​greater; greater. 
B) ​greater; smaller. 
C) ​smaller; greater. 
D) ​smaller; smaller.

Question 6

The difference between the amount a consumer is willing to pay and the amount they actually must pay for a good is called the:

Accepted Answer

A) ​price elasticity of demand. 
B) ​substitution effect. 
C) ​consumer surplus. 
D) ​income elasticity of demand. 
A) ​price elasticity of demand. 
B) ​substitution effect. 
C) ​consumer surplus. 
D) ​income elasticity of demand.

Question 7

​Exhibit 7-13  
-Refer to Exhibit 7-13. The deadweight loss occurs because the program:

Accepted Answer

A) ​produces the efficient level of output at Q1. 
B) ​decreases the output to less than the efficient level of output. 
C) ​increases the output beyond the efficient level of output. 
D) ​the cost to government is less than the gains in producer and consumer surpluses. 
A) ​produces the efficient level of output at Q1. 
B) ​decreases the output to less than the efficient level of output. 
C) ​increases the output beyond the efficient level of output. 
D) ​the cost to government is less than the gains in producer and consumer surpluses.

Question 8

Lydia enjoys going to the theater to see Broadway musicals. The following demand schedule shows Lydia's willingness to pay for theater tickets in a year. ​
 
If the price of tickets to Broadway musicals equals $50, Lydia's consumer surplus will be:​

Accepted Answer

A) ​$350. 
B) ​$300. 
C) ​$250. 
D) ​$100. 
A) ​$350. 
B) ​$300. 
C) ​$250. 
D) ​$100.

Question 9

​Exhibit 7-6  
-Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P1, sellers lose producer surplus equal to area ____, but gain producer surplus equal to area ____.

Accepted Answer

A) ​E + F; B 
B) ​F; C 
C) ​F; B 
D) ​E; C 
A) ​E + F; B 
B) ​F; C 
C) ​F; B 
D) ​E; C

Question 10

Which of the following is true about consumer surplus?​

Accepted Answer

A) ​Consumer surplus is how much more consumers have to pay than they are willing to pay. 
B) ​Consumer surplus is shown graphically as the area under the demand curve but above the supply curve. 
C) ​An increase in the market price due to a decrease in supply will increase consumer surplus. 
D) ​A decrease in market price due to an increase in supply will increase consumer surplus. 
A) ​Consumer surplus is how much more consumers have to pay than they are willing to pay. 
B) ​Consumer surplus is shown graphically as the area under the demand curve but above the supply curve. 
C) ​An increase in the market price due to a decrease in supply will increase consumer surplus. 
D) ​A decrease in market price due to an increase in supply will increase consumer surplus.

Question 11

After a tax is imposed,​

Accepted Answer

A) ​consumers pay a higher price. 
B) ​consumers lose consumer surplus. 
C) ​producers lose producer surplus. 
D) ​all of the above are true. 
A) ​consumers pay a higher price. 
B) ​consumers lose consumer surplus. 
C) ​producers lose producer surplus. 
D) ​all of the above are true.

Question 12

A tax would not impose a welfare cost only if:​

Accepted Answer

A) ​the quantity exchanged did not change as a result. 
B) ​supply was perfectly elastic. 
C) ​supply was unit elastic. 
D) ​the demand curve was perfectly elastic. 
A) ​the quantity exchanged did not change as a result. 
B) ​supply was perfectly elastic. 
C) ​supply was unit elastic. 
D) ​the demand curve was perfectly elastic.

Question 13

​Exhibit 7-6  
-Refer to Exhibit 7-6. If the market price equals P2, producer surplus can be identified in the diagram as area:​

Accepted Answer

A) ​A + B + E. 
B) ​B + E. 
C) ​D. 
D) ​C + D+ F. 
A) ​A + B + E. 
B) ​B + E. 
C) ​D. 
D) ​C + D+ F.

Question 14

Which of the following is true?​

Accepted Answer

A) ​A lower price will increase your consumer surplus by the amount you were buying originally, times the reduction in the price. 
B) ​A lower price will leave unchanged your consumer surplus for each of the units you were already consuming, but will increase consumer surplus from increased purchases at the lower price. 
C) ​A lower price will decrease your producer surplus for each of the units you were producing, but will not change producer surplus by changing the quantity sold. 
D) ​None of the above is true. 
A) ​A lower price will increase your consumer surplus by the amount you were buying originally, times the reduction in the price. 
B) ​A lower price will leave unchanged your consumer surplus for each of the units you were already consuming, but will increase consumer surplus from increased purchases at the lower price. 
C) ​A lower price will decrease your producer surplus for each of the units you were producing, but will not change producer surplus by changing the quantity sold. 
D) ​None of the above is true.

Question 15

​Exhibit 7-11  
-Refer to Exhibit 7-11. The producer surplus before the price ceiling is area:

Accepted Answer

A) ​f 
B) ​a + b + d + f 
C) ​d 
D) ​d + e + f 
A) ​f 
B) ​a + b + d + f 
C) ​d 
D) ​d + e + f

Question 16

​Exhibit 7-11  
-Refer to Exhibit 7-11. If area d is larger than area ____, the consumer is better off from the price ceiling.

Accepted Answer

A) ​a 
B) ​c + e 
C) ​c 
D) ​a + b + d 
A) ​a 
B) ​c + e 
C) ​c 
D) ​a + b + d

Question 17

Marginal willingness to pay

Accepted Answer

A) ​rises as greater quantities are consumed. 
B) ​falls as greater quantities are consumed. 
C) ​stays the same as greater quantities are consumed. 
D) ​none of the above 
A) ​rises as greater quantities are consumed. 
B) ​falls as greater quantities are consumed. 
C) ​stays the same as greater quantities are consumed. 
D) ​none of the above

Question 18

If a customer had to pay a $5 entry charge to get into a roller coaster theme park, and then pay $2 per ride, she would get less consumer surplus than if she was able to pay $2 per ride with no entry charge.

Accepted Answer

A) True 
 B)False

Question 19

​Exhibit 7-12  
-Refer to Exhibit 7-12. When the price floor is implemented, the price changes to ____ and the output bought by consumers changes to ____.

Accepted Answer

A) ​P1; Q1 
B) ​P2; Q1 
C) ​P2; Q2 
D) ​P1; Qs 
A) ​P1; Q1 
B) ​P2; Q1 
C) ​P2; Q2 
D) ​P1; Qs

Question 20

Other things equal, a price floor will reduce consumer surplus, but it will increase producer surplus if the government buys up any surplus at the price floor.
​

Accepted Answer

A) True 
 B)False

Exam 7: Market Efficiency and Welfare

The deadweight loss from a tax is the reduction in producer and consumer surplus minus the tax revenue transferred to the government.

Welfare economics is the study of how​ the allocation of resources affects economic well-being.

​Exhibit 7-6 -Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P1, buyers lose consumer surplus equal to area:​

Ceteris paribus, explain why it is that when a lower ceiling price is imposed below equilibrium price, a greater deadweight loss results.

The more elastic the supply curve, the ____ will be the effect of a tax on the quantity exchanged and the ____ will be the welfare cost.​

The difference between the amount a consumer is willing to pay and the amount they actually must pay for a good is called the:

​Exhibit 7-13 -Refer to Exhibit 7-13. The deadweight loss occurs because the program:

Lydia enjoys going to the theater to see Broadway musicals. The following demand schedule shows Lydia's willingness to pay for theater tickets in a year. ​ If the price of tickets to Broadway musicals equals $50, Lydia's consumer surplus will be:​

​Exhibit 7-6 -Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P1, sellers lose producer surplus equal to area ____, but gain producer surplus equal to area ____.

Which of the following is true about consumer surplus?​

After a tax is imposed,​

A tax would not impose a welfare cost only if:​

​Exhibit 7-6 -Refer to Exhibit 7-6. If the market price equals P2, producer surplus can be identified in the diagram as area:​

Which of the following is true?​

​Exhibit 7-11 -Refer to Exhibit 7-11. The producer surplus before the price ceiling is area:

​Exhibit 7-11 -Refer to Exhibit 7-11. If area d is larger than area ____, the consumer is better off from the price ceiling.

Marginal willingness to pay

If a customer had to pay a $5 entry charge to get into a roller coaster theme park, and then pay $2 per ride, she would get less consumer surplus than if she was able to pay $2 per ride with no entry charge.

​Exhibit 7-12 -Refer to Exhibit 7-12. When the price floor is implemented, the price changes to ____ and the output bought by consumers changes to ____.

Other things equal, a price floor will reduce consumer surplus, but it will increase producer surplus if the government buys up any surplus at the price floor. ​

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

Welfare economics is the study of how the allocation of resources affects economic well-being.

Exhibit 7-6 -Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P₁, buyers lose consumer surplus equal to area:

The more elastic the supply curve, the will be the effect of a tax on the quantity exchanged and the will be the welfare cost.

Exhibit 7-13 -Refer to Exhibit 7-13. The deadweight loss occurs because the program:

Lydia enjoys going to the theater to see Broadway musicals. The following demand schedule shows Lydia's willingness to pay for theater tickets in a year. If the price of tickets to Broadway musicals equals $50, Lydia's consumer surplus will be:

Exhibit 7-6 -Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P₁, sellers lose producer surplus equal to area , but gain producer surplus equal to area .

Which of the following is true about consumer surplus?

After a tax is imposed,

A tax would not impose a welfare cost only if:

Exhibit 7-6 -Refer to Exhibit 7-6. If the market price equals P₂, producer surplus can be identified in the diagram as area:

Which of the following is true?

Exhibit 7-11 -Refer to Exhibit 7-11. The producer surplus before the price ceiling is area:

Exhibit 7-11 -Refer to Exhibit 7-11. If area d is larger than area ____, the consumer is better off from the price ceiling.

Exhibit 7-12 -Refer to Exhibit 7-12. When the price floor is implemented, the price changes to and the output bought by consumers changes to .

Other things equal, a price floor will reduce consumer surplus, but it will increase producer surplus if the government buys up any surplus at the price floor.