Quiz 9: The Analysis of Competitive Markets
Business
Q 1Q 1
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:
A) $5.00.
B) $15.00.
C) $22.50.
D) $40.00.
Free
Multiple Choice
D
Q 2Q 2
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:
A) $5.00.
B) $10.00.
C) $15.00.
D) $20.00.
E) $40.00.
Free
Multiple Choice
D
Q 3Q 3
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer surplus is:
A) $30.
B) $70.
C) $400.
D) $800.
E) $1200.
Free
Multiple Choice
D
Q 4Q 4
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the market is in equilibrium, total producer surplus is:
A) $30.
B) $70.
C) $400.
D) $800.
E) $1200.
Free
Multiple Choice
Q 5Q 5
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;
A) $0.
B) $100.
C) $800.
D) $1200.
E) $2000.
Free
Multiple Choice
Q 6Q 6
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, how many widgets will be sold?
A) 20
B) 30
C) 40
D) 50
E) 60
Free
Multiple Choice
Q 7Q 7
Figure 9.1.1
-Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, consumer surplus will:
A) fall by $200.
B) fall by $300.
C) remain the same.
D) rise by $200.
E) rise by $300.
Free
Multiple Choice
Q 8Q 8
Figure 9.1.1
-Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:
A) fall by $200.
B) fall by $300.
C) remain the same.
D) rise by $200.
E) rise by $300.
Free
Multiple Choice
Q 9Q 9
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, the resulting deadweight loss will be:
A) $0.
B) $20.
C) $30.
D) $300.
E) $600.
Free
Multiple Choice
Q 10Q 10
Figure 9.1.1
-Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, total consumer and producer surplus will be:
A) $30.
B) $400.
C) $600.
D) $900.
E) $1200.
Free
Multiple Choice
Q 11Q 11
Consumer surplus measures:
A) the extra amount that a consumer must pay to obtain a marginal unit of a good or service.
B) the excess demand that consumers have when a price ceiling holds prices below their equilibrium.
C) the benefit that consumers receive from a good or service beyond what they pay.
D) gain or loss to consumers from price fixing.
Free
Multiple Choice
Q 12Q 12
When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to ________ and the quantity demanded to ________.
A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall
Free
Multiple Choice
Q 13Q 13
Producer surplus is measured as the:
A) area under the demand curve above market price.
B) entire area under the supply curve.
C) area under the demand curve above the supply curve.
D) area above the supply curve up to the market price.
Free
Multiple Choice
Q 14Q 14
In an unregulated, competitive market, consumer surplus exists because some:
A) sellers are willing to take a lower price than the equilibrium price.
B) consumers are willing to pay more than the equilibrium price.
C) sellers will only sell at prices above equilibrium price (or actual price).
D) consumers are willing to make purchases only if the price is below the actual price.
Free
Multiple Choice
Q 15Q 15
In an unregulated, competitive market producer surplus exists because some:
A) consumers are willing to pay more than the equilibrium price.
B) producers are willing to take more than the equilibrium price.
C) producers are willing to sell at less than the equilibrium price.
D) consumers are willing to purchase, but only at prices below equilibrium price.
Free
Multiple Choice
Q 16Q 16
Deadweight loss refers to:
A) losses in consumer surplus associated with excess government regulations.
B) situations where market prices fail to capture all of the costs and benefits of a policy.
C) net losses in total surplus.
D) losses due to the policies of labor unions.
Free
Multiple Choice
Q 17Q 17
In the 1970s, the federal government imposed price controls on natural gas. Which of the following statements is true?
A) These price controls caused a chronic excess supply of natural gas.
B) Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium.
C) Producers gained from the price controls because producer surplus was larger than it would have been under free market equilibrium.
D) This episode of price controls was unusual, because it resulted in no deadweight loss to society.
Free
Multiple Choice
Q 18Q 18
An effective price ceiling causes a loss of:
A) producer surplus for certain and possibly consumer surplus as well.
B) consumer surplus only.
C) producer surplus only.
D) consumer surplus for certain and possibly producer surplus as well.
E) neither producer nor consumer surplus.
Free
Multiple Choice
Q 19Q 19
Price ceilings can result in a net loss in consumer surplus when the ________ curve is ________.
A) demand; very elastic
B) demand; very inelastic
C) supply; very inelastic
D) None of the above; price ceilings always increase consumer surplus
Free
Multiple Choice
Q 20Q 20
Producer surplus for the whole market can be thought of as:
A) total profit.
B) variable operating profit plus factor rents.
C) total profit minus factor rents earned by lower cost firms.
D) total profit plus factor rents earned by lower cost firms.
Free
Multiple Choice
Q 21Q 21
Figure 9.1.2
-Refer to Figure 9.1.2 above. At price 0E and quantity Q*, consumer surplus is the area:
A) 0FCQ*.
B) AFC.
C) EFC.
D) AEC.
E) none of the above
Free
Multiple Choice
Q 22Q 22
Figure 9.1.2
-Refer to Figure 9.1.2 above. At price 0E and quantity Q*, producer surplus is the area:
A) 0ACQ*.
B) 0ECQ*.
C) 0FCQ*.
D) EFC.
E) none of the above
Free
Multiple Choice
Q 23Q 23
Figure 9.1.2
-Refer to Figure 9.1.2 above. At price 0E and quantity Q*, the deadweight loss is:
A) 0ACQ*.
B) 0ECQ*.
C) 0FCQ*.
D) EFC.
E) none of the above
Free
Multiple Choice
Q 24Q 24
Figure 9.1.2
-Refer to Figure 9.1.2 above. At price 0H and quantity Q1, consumer surplus is the area:
A) EDGF.
B) 0FGQ1.
C) HFGB.
D) EFC.
E) none of the above
Free
Multiple Choice
Q 25Q 25
Figure 9.1.2
-Refer to Figure 9.1.2 above. At price 0H and quantity Q1, producer surplus is the area:
A) 0ABQ1.
B) 0EDQ1.
C) AHB.
D) 0FGQ1.
E) none of the above
Free
Multiple Choice
Q 26Q 26
Figure 9.1.2
-Refer to Figure 9.1.2 above. At price 0H and quantity Q1, the deadweight loss is:
A) DGC.
B) BDC.
C) BGC.
D) 0FGQ1.
E) none of the above
Free
Multiple Choice
Q 27Q 27
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 100th unit is:
A) $0.50.
B) $0.75.
C) $1.50.
D) $2.00.
E) $2.75.
Free
Multiple Choice
Q 28Q 28
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the market is in equilibrium, the producer surplus earned by the seller of the 100th unit is:
A) $0.50.
B) $0.75.
C) $1.50.
D) $2.00.
E) $2.75.
Free
Multiple Choice
Q 29Q 29
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer surplus is:
A) $1.
B) $3.
C) $200.
D) $400.
E) $600.
Free
Multiple Choice
Q 30Q 30
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the market is in equilibrium, total producer surplus is:
A) $2.
B) $3.
C) $200.
D) $400.
E) $600.
Free
Multiple Choice
Q 31Q 31
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer and producer surplus is:
A) $0.
B) $4.
C) $5.
D) $600.
E) $800.
Free
Multiple Choice
Q 32Q 32
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold?
A) 200
B) 300
C) 400
D) 600
E) 800
Free
Multiple Choice
Q 33Q 33
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, consumer surplus will
A) fall by $50.
B) fall by $150.
C) remain the same.
D) rise by $50.
E) rise by $150.
Free
Multiple Choice
Q 34Q 34
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, producer surplus will:
A) fall by $150.
B) fall by $300.
C) remain the same.
D) rise by $150.
E) rise by $300.
Free
Multiple Choice
Q 35Q 35
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be:
A) $1.50.
B) $200.
C) $150.
D) $300.
E) $600.
Free
Multiple Choice
Q 36Q 36
Figure 9.1.3
-Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be:
A) $1.50.
B) $300.
C) $450.
D) $500.
E) $600.
Free
Multiple Choice
Q 37Q 37
Price ceilings:
A) cause quantity to be higher than in the market equilibrium.
B) always increase consumer surplus.
C) may decrease consumer surplus if demand is sufficiently elastic.
D) may decrease consumer surplus if demand is sufficiently inelastic.
E) always decrease consumer surplus.
Free
Multiple Choice
Q 38Q 38
Consider the following statements when answering this question: I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers.
II) Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Free
Multiple Choice
Q 39Q 39
Consider the following statements when answering this question: I. Employers are always hurt by minimum wage laws.
II) Workers always benefit from minimum wage laws.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Free
Multiple Choice
Q 40Q 40
Consider the following statements when answering this question: I. Overall, the sick will always gain from a price ceiling on prescription drugs.
II) The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Free
Multiple Choice
Q 41Q 41
The consumer's gain from the imposition of a price ceiling is higher when:
A) the own price elasticity of market demand is high and the price elasticity of market supply is high.
B) the own price elasticity of market demand is high and the price elasticity of market supply is low.
C) the own price elasticity of market demand is low and the price elasticity of market supply is high.
D) the own price elasticity of market demand is low and the price elasticity of market supply is low.
Free
Multiple Choice
Q 42Q 42
Under a binding price ceiling, what does the change in consumer surplus represent?
A) The gain in surplus for those buyers who can still purchase the product at the lower price.
B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
Free
Multiple Choice
Q 43Q 43
Under a binding price ceiling, what does the change in producer surplus represent?
A) The gain in surplus for those sellers who are still willing to supply the product at the lower price.
B) The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price.
C) The gain in surplus associated with the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
Free
Multiple Choice
Q 44Q 44
Suppose a competitive market is in equilibrium at price P' and quantity Q'. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?
A) Both PS and CS increase.
B) CS increases and PS decreases.
C) CS increases and PS remains the same.
D) Both CS and PS decrease.
Free
Multiple Choice
Q 45Q 45
The market demand curve for a popular teen magazine is given by Q = 80 - 10P where P is the magazine price in dollars per issue and Q is the weekly magazine circulation in units of 10,000. If the circulation is 400,000 per week at the current price, what is the consumer surplus for a teen reader with maximum willingness to pay of $3 per issue?
A) $2.00
B) $1.00
C) Zero
D) -$1.00
Free
Multiple Choice
Q 46Q 46
The utilities commission in a city is currently examining pay telephone service in the city. The commission has been asked to evaluate a proposal by a city council member to place a $0.10 price ceiling on local pay phone service. The staff economist at the utilities commission estimates the demand and supply curves for pay telephone service as follows:
QD = 1600 - 2400P
QS = 200 + 3200P,
where P = price of a pay telephone call, and Q = number of pay telephone calls per month.
a. Determine the equilibrium price and quantity that will prevail without the price ceiling.
b. Analyze the quantity that will be available with the price ceiling (in the long-run).
c. The city council realizes that the telephone company could curtail pay phone service in response to the ceiling. To prevent this, the council plans to impose a requirement that the telephone company must maintain the current number of pay phones. In light of this additional restriction, what will be the likely impact of the price ceiling?
Free
Essay
Q 47Q 47
In an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows:
Supply P = 4 + 0.116Q
Demand P = 25 - 0.10Q,
where P represents unit price in dollars and Q represents number of units sold each year. Calculate the annual value of aggregate consumer surplus.
Free
Essay
Q 48Q 48
The elected officials in a west coast university town are concerned about the "exploitative" rents being charged to college students. The town council is contemplating the imposition of a $350 per month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as:
QD = 5600 - 8P QS = 500 + 4P,
where P = monthly rent, and Q = number of apartments available for rent. For purposes of this analysis, apartments can be treated as identical.
a. Calculate the equilibrium price and quantity that would prevail without the price ceiling. Calculate producer and consumer surplus at this equilibrium (sketch a diagram showing both).
b. What quantity will eventually be available if the rent ceiling is imposed? Calculate any gains or losses in consumer and/or producer surplus.
c. Does the proposed rent ceiling result in net welfare gains? Would you advise the town council to implement the policy?
Free
Essay
Q 49Q 49
In an unregulated competitive market, supply and demand have been estimated as follows:
Demand P = 25 - 0.10Q Supply P = 4 + 0.116Q,
where P represents unit price in dollars, and Q represents number of units sold per year.
a. Calculate annual aggregate consumer surplus.
b. Calculate annual aggregate producer surplus.
c. Define what producer surplus means.
Free
Essay
Q 50Q 50
In a competitive market, the following supply and demand equations are given:
Supply P = 5 + 0.36Q
Demand P = 100 - 0.04Q,
where P represents price per unit in dollars, and Q represents rate of sales in units per year.
a. Determine the equilibrium price and sales rate.
b. Determine the deadweight loss that would result if the government were to impose a price ceiling of 40 dollars per unit.
Free
Essay
Q 51Q 51
The demand and supply functions for basic cable TV in the local market are given as: Calculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. Are all consumers better off? Are producers better off?
Free
Essay
Q 52Q 52
The demand and supply functions for oil on the world market are given as: and Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off?
Free
Essay
Q 53Q 53
Figure 9.2.1
-Refer to Figure 9.2.1 above. When the minimum imposed price is P2,
A) the quantity supplied is Q2 and the quantity demanded is Q3, so a surplus develops.
B) the quantity supplied is Q3, which results in a deadweight loss.
C) the quantity supplied remains at Q0, so only quantity demanded falls to Q3.
D) the resulting surplus in the market is transferred to consumers.
Free
Multiple Choice
Q 54Q 54
Figure 9.2.1
-Refer to Figure 9.2.1 above. When the minimum imposed price is P2, area A is:
A) a transfer of consumer surplus to producer surplus.
B) a deadweight loss associated with the higher than equilibrium price.
C) the revenue that producers lose as a result of the imposed price.
D) all of the above
Free
Multiple Choice
Q 55Q 55
Figure 9.2.1
-Refer to Figure 9.2.1 above. When the minimum imposed price is P2, area C in the figure is best interpreted as:
A) the gain associated with the increase in price that producers receive.
B) the loss in producer surplus as a result of the decrease in quantity supplied.
C) a portion of the consumer surplus passed on to producers.
D) the loss in surplus associated with the cost of the additional resulting production.
Free
Multiple Choice
Q 56Q 56
Figure 9.2.1
-Refer to Figure 9.2.1 above. When the minimum imposed price is P2, areas B + C are:
A) the deadweight loss to consumers as a result of the price control.
B) the deadweight loss to producers as a result of the price control.
C) the deadweight loss to both producers and consumers as a result of the price control.
D) gains transferred from consumers to producers.
Free
Multiple Choice
Q 57Q 57
Figure 9.2.1
-Refer to Figure 9.2.1 above. The result of the minimum imposed price:
A) increases the number of producers and increases the number of consumers in the market.
B) increases the number of producers and decreases the number of consumers in the market.
C) decreases the number of producers and increases the number of consumers in the market.
D) decreases the number of producers and decreases the number of consumers in the market.
Free
Multiple Choice
Q 58Q 58
Figure 9.2.1
-Refer to Figure 9.2.1 above. After the minimum P2 is imposed,
A) some consumers are better off and all producers are worse off.
B) some consumers and some producers are better off.
C) no consumers are better off but some producers are better off.
D) no consumers are better off and all producers are better off.
Free
Multiple Choice
Q 59Q 59
Governments may successfully intervene in competitive markets in order to achieve economic efficiency:
A) at no time; competitive markets are always efficient without government intervention.
B) to increase the incidence of positive externalities.
C) in cases of positive externalities only.
D) in cases of negative externalities only.
E) in cases of both positive and negative externalities.
Free
Multiple Choice
Q 60Q 60
Government intervention can increase total welfare when:
A) there are costs or benefits that are external to the market.
B) consumers do not have perfect information about product quality.
C) a high price makes the product unaffordable for most consumers.
D) all of the above
E) A and B only
Free
Multiple Choice
Q 61Q 61
Which of the following policies could lead to a deadweight loss?
A) Price ceilings
B) Price floors
C) Policies prohibiting human cloning
D) all of the above
E) A and B only
Free
Multiple Choice
Q 62Q 62
Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is:
A) efficient as the quantity of drugs traded is the same as under a free market.
B) efficient as the price of drugs paid by the government is the same as under a free market.
C) efficient as consumer surplus is maximized.
D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
E) likely to be inefficient as drug producers have a captive buyer.
Free
Multiple Choice
Q 63Q 63
For national security reasons a government decides that all of its base metal industry should not be located in the same geographical region, as it presently is. The government decides to allocate production quotas to firms in different parts of the country, but does not restrict in any way the transactions between consumers and base metal producers. This scheme is:
A) efficient as consumers still buy from whoever they like.
B) efficient as those consumers who value base metals the most can purchase them.
C) likely to be inefficient as some of the industry's output is not produced by the firms with the lowest cost.
D) likely to be inefficient as the scheme will require subsidies to work.
E) efficient as learning by doing effects will be strongest in the firms set up in new geographical regions.
Free
Multiple Choice
Q 64Q 64
Consider the following statements when answering this question: I. Waiting lists for kidney transplants have been caused by a 1984 congressional law forbidding humans to sell their kidneys.
II) Randomly choosing citizens to serve on juries is an efficient mechanism for selecting jurors.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Free
Multiple Choice
Q 65Q 65
When the market price is held above the competitive level, the deadweight loss is composed of:
A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.
Free
Multiple Choice
Q 66Q 66
A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as:
A) an imperfectly competitive market.
B) a market failure.
C) a deadweight loss.
D) a disequilibrium.
Free
Multiple Choice
Q 67Q 67
Use the following statements to answer this question: I. When the market price is held above the competitive price level, it is possible for the loss in consumer surplus to be fully captured by producers.
II) When the market price is held above the competitive level, there is no deadweight loss because producer gains exactly equal consumer losses.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
Free
Multiple Choice
Q 68Q 68
Suppose the market supply curve is upward sloping and market demand is perfectly inelastic. If the market price is held above the equilibrium level, which of the following statements about the resulting outcome is not true?
A) The decrease in consumer surplus is fully captured by the producers.
B) There will be an excess quantity supplied.
C) Quantity demanded will remain the same.
D) Quantity demanded will decline.
Free
Multiple Choice
Q 69Q 69
The market supply curve for music downloads is Q = 135(P-1) where Q is millions of downloads and P is the price in dollars per track. If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per track?
A) $5.4 million
B) $8.1 million
C) $10.8 million
D) $27 million
Free
Multiple Choice
Q 70Q 70
Figure 9.3.1
-Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?
A) 20
B) 30
C) 40
D) 50
E) 60
Free
Multiple Choice
Q 71Q 71
Figure 9.3.1
-Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $40, consumer surplus will:
A) fall by $50.
B) fall by $350.
C) remain the same.
D) rise by $50.
E) rise by $350.
Free
Multiple Choice
Q 72Q 72
Figure 9.3.1
-Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:
A) fall by $275.
B) fall by $500.
C) remain the same.
D) rise by $275.
E) rise by $500.
Free
Multiple Choice
Q 73Q 73
Figure 9.3.1
-Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, the resulting deadweight loss will be:
A) $15.
B) 10 widgets.
C) $1,050.
D) $1,200.
E) $2,400.
Free
Multiple Choice
Q 74Q 74
Figure 9.3.1
-Refer to Figure 9.3.1. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will be:
A) $15.
B) 30 widgets.
C) $1,050.
D) $1,200.
E) $1,350.
Free
Multiple Choice
Q 75Q 75
Figure 9.3.2
-Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?
A) 200
B) 300
C) 400
D) 600
E) 800
Free
Multiple Choice
Q 76Q 76
Figure 9.3.2
-Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, consumer surplus will:
A) fall by $50.
B) fall by $150.
C) remain the same.
D) rise by $50.
E) rise by $150.
Free
Multiple Choice
Q 77Q 77
Figure 9.3.2
-Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus will:
A) fall by $50.
B) fall by $100.
C) remain the same.
D) rise by $50.
E) rise by $100.
Free
Multiple Choice
Q 78Q 78
Figure 9.3.2
-Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, the resulting deadweight loss will be:
A) $1.50.
B) 200 pounds of berries.
C) $150.
D) $250.
E) $300.
Free
Multiple Choice
Q 79Q 79
Figure 9.3.2
-Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:
A) $150.
B) $300.
C) $450.
D) $500.
E) $600.
Free
Multiple Choice
Q 80Q 80
Which of the following is NOT true about price floors?
A) Consumer surplus is always lower than it would be in the competitive equilibrium.
B) Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium.
C) Producer surplus could be negative as the result of a price floor.
D) Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost.
E) The total producer surplus depends on how producers respond to the price floor in determining their output level.
Free
Multiple Choice
Q 81Q 81
Eliminating price supports for all U.S. agricultural producers will hurt the farmers who cultivate products that have:
A) a high own price elasticity of demand and a high price elasticity of market supply.
B) a high own price elasticity of demand and a low price elasticity of market supply.
C) a low own price elasticity of demand and a high price elasticity of market supply.
D) a low own price elasticity of demand and a low price elasticity of market supply.
Free
Multiple Choice
Q 82Q 82
One way to remove the excess labor supply problem from a minimum wage policy is to have the government hire all unemployed workers at the minimum wage. What is the key drawback of this version of a minimum wage policy?
A) The deadweight loss may increase substantially.
B) The cost to the government may be very large.
C) Consumer surplus losses increase further.
D) A and B are correct.
E) B and C are correct.
Free
Multiple Choice
Q 83Q 83
A minimum wage policy induces an:
A) excess demand for labor.
B) excess supply of labor.
C) efficient market outcome.
D) elastic labor supply response.
Free
Multiple Choice
Q 84Q 84
The market supply function is P = 10 + Q and the market demand function is P = 70 - 2Q. What is the change in consumer surplus associated with a minimum floor price of $30?
A) Zero
B) -$100
C) -$30
D) -$55
Free
Multiple Choice
Q 85Q 85
The market supply function is P = 10 + Q and the market demand function is P = 70 - 2Q. What is the change in consumer surplus associated with a minimum floor price of $40?
A) -$25
B) -$150
C) -$175
D) -$200
Free
Multiple Choice
Q 86Q 86
The demand and supply functions for pizza in the local market are: and Calculate consumer and producer surplus in this market. If the minimum wage is increased by $2 per hour, the new market supply curve becomes: Calculate the loss in consumer and producer surplus in the pizza market due to this change.
Free
Essay
Q 87Q 87
The market demand and supply functions for pork are: To help pork producers, the U.S. Congress is considering legislation that would put a price floor at $2.25 per unit. If this price floor is implemented, how many units of pork will the government be forced to buy to keep the price at $2.25? How much will the government spend in total? How much does producer surplus increase?
Free
Essay
Q 88Q 88
The market demand and supply functions for milk are: If a price floor of $1.75 is implemented, calculate the change in producer surplus. How many surplus units of milk are being produced? If the government purchases all the excess units at $1.75, calculate the milk expenditures by government? Does the increase in producer surplus due to the price floor exceed government spending on excess milk?
Free
Essay
Q 89Q 89
The market for semiskilled labor can be represented by the following supply and demand curves:
LD = 32000 - 4000W LS = 8000 + 6000W,
where L = millions of person hours per year, and
W = the wage in dollars per hour.
a. Calculate the equilibrium price and quantity that would exist under a free market. What impact does a minimum wage of $3.35 per hour have on the market?
b. The government is contemplating an increase in the minimum wage to $5.00 per hour. Calculate the impact of the new minimum wage on the quantity of labor supplied and demanded.
c. Calculate producer surplus (laborers' surplus) before and after the proposed change. Comment on the net effect of the proposed change upon workers as a whole and on individual workers. How does this price floor differ from an agricultural support price?
d. Is the policy efficient from an economist's viewpoint?
Free
Essay
Q 90Q 90
Consider a competitive market with supply and demand curves expressed as:
Supply P = 5 + 0.036Q Demand P = 50 - 0.04Q,
where P represents unit price in dollars and Q represents sales rate in units per day.
a. Determine the equilibrium price and sales rate.
b. If this were the labor market for low skilled workers, what would be the loss in consumer surplus (purchaser surplus) when the minimum wage is set at $40 per day (an eight hour day)?
c. What is the loss or gain in producer surplus (seller surplus) in part b. above?
Free
Essay
Q 91Q 91
Figure 9.4.1
-Refer to Figure 9.4.1 above. Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in consumer surplus after this policy is adopted?
A) Consumers lose area B
B) Consumers lose area A+B
C) Consumers lose area A but gain area B
D) Consumers gain area A+B
Free
Multiple Choice
Q 92Q 92
Figure 9.4.1
-Refer to Figure 9.4.1 above. Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in producer surplus after this policy is adopted?
A) Producers lose area C but gain area A.
B) Producers lose area C but gain area A+B.
C) Producers gain A.
D) Producers gain area A+B+D.
Free
Multiple Choice
Q 93Q 93
Figure 9.4.1
-Refer to Figure 9.4.1 above. Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the cost of this program to the government?
A) Government expenditures are area E+F+G.
B) Government expenditures are area B+C+D.
C) Government expenditures are area D.
D) Government expenditures are area B+C+D+E+F+G.
Free
Multiple Choice
Q 94Q 94
Figure 9.4.1
-Refer to Figure 9.4.1 above. Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the deadweight loss of this program?
A) Deadweight loss is area E+F+G.
B) Deadweight loss is area B+C+E+F+G.
C) Deadweight loss is area D.
D) Deadweight loss is area B+C+D+E+F+G.
Free
Multiple Choice
Q 95Q 95
What is the difference between a price support and a price floor?
A) A price support is below equilibrium; a price floor is above it.
B) A price support is above equilibrium; a price floor is below it.
C) Government buys the excess supply to maintain a price floor, but not a price support.
D) Government buys the excess supply to maintain a price support, but not for a price floor.
E) There is no difference between the two.
Free
Multiple Choice
Q 96Q 96
A price support may be pictured by:
A) shifting the demand curve to the right by the amount of the government purchase.
B) shifting the demand curve to the left by the amount of the government purchase.
C) shifting the supply curve to the right by the amount of the government purchase.
D) shifting the supply curve to the left by the amount of the government purchase.
E) drawing a horizontal line below equilibrium price at the supported price.
Free
Multiple Choice
Q 97Q 97
Which of the following is unlikely to occur as a result of a price support program?
A) A reduction in consumer surplus
B) A reduction in producer surplus
C) An increase in quantity purchased
D) An economic cost to government
E) Improved economic efficiency
Free
Multiple Choice
Q 98Q 98
A country's government would like to raise the price of one its most important agricultural crops, coffee beans. Which of the following government programs will result in higher prices for coffee beans?
A) An import quota on coffee beans
B) An acreage limitation program which provides coffee bean farmers financial incentives to leave some of their acreage idle
C) An import tariff on coffee beans
D) all of the above
Free
Multiple Choice
Q 99Q 99
When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, changes in producer surplus:
A) are negative.
B) are positive, but more than offset by the cost to consumers and the government.
C) are positive, and not offset by the cost to consumers and the government.
D) and consumer surplus are both positive.
Free
Multiple Choice
Q 100Q 100
When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, the impact on total welfare is the:
A) change in consumer surplus.
B) change in consumer surplus + the change in producer surplus + the cost to government.
C) change in consumer surplus + the change in producer surplus - the cost to government.
D) change in consumer surplus + the change in producer surplus.
Free
Multiple Choice
Q 101Q 101
Figure 9.4.2
-Refer to Figure 9.4.2 above. The government policy pictured is:
A) a price ceiling of $20.
B) a price support of $20.
C) a price ceiling of $15.
D) a price support of $15.
E) a quota of 600.
Free
Multiple Choice
Q 102Q 102
Figure 9.4.2
-Refer to Figure 9.4.2 above. Before this policy was implemented, consumer surplus was:
A) $20.
B) $4000.
C) $6000.
D) $8000.
E) $12000.
Free
Multiple Choice
Q 103Q 103
Figure 9.4.2
-Refer to Figure 9.4.2 above. Before this policy was implemented, producer surplus was:
A) $10.
B) $2000.
C) $4000.
D) $6000.
E) $12000.
Free
Multiple Choice
Q 104Q 104
Figure 9.4.2
-Refer to Figure 9.4.2 above. As a result of this policy, quantity will:
A) fall to 300.
B) rise to 400.
C) stay at 400.
D) fall to 400.
E) rise to 600.
Free
Multiple Choice
Q 105Q 105
Figure 9.4.2
-Refer to Figure 9.4.2 above. As a result of this policy, consumer surplus will:
A) fall to $15.
B) fall to $2250.
C) rise to $2500.
D) fall to $5000.
E) rise to $5000.
Free
Multiple Choice
Q 106Q 106
Figure 9.4.2
-Refer to Figure 9.4.2 above. As a result of this policy, producer surplus will be:
A) $2000.
B) $3375.
C) $4500.
D) $6000.
E) $12,000.
Free
Multiple Choice
Q 107Q 107
Figure 9.4.2
-Refer to Figure 9.4.2 above. The amount the government pays in the market to implement this policy is:
A) $20.
B) $3000.
C) $4000.
D) $6000.
E) $12,000.
Free
Multiple Choice
Q 108Q 108
Figure 9.4.2
-Refer to Figure 9.4.2 above. Including the consumers' expected tax burden, the total change in welfare from this policy is:
A) -$6000.
B) -$5250.
C) -$4500.
D) $4500.
E) $5250.
Free
Multiple Choice
Q 109Q 109
Figure 9.4.3
-The policy shown in Figure 9.4.3 is a:
A) price floor of $50.
B) price support of $50.
C) price ceiling of $30.
D) quota of 2000.
E) quota of 4000.
Free
Multiple Choice
Q 110Q 110
Figure 9.4.3
-Refer to Figure 9.4.3 above. Before the policy was implemented, consumer surplus was:
A) $30.
B) $60.
C) $45,000.
D) $90,000.
E) $180,000.
Free
Multiple Choice
Q 111Q 111
Figure 9.4.3
-Refer to Figure 9.4.3 above. Before the policy was implemented, producer surplus was:
A) $30.
B) $60.
C) $45,000.
D) $90,000.
E) $180,000.
Free
Multiple Choice
Q 112Q 112
Figure 9.4.3
-Refer to Figure 9.4.3 above. After the policy was implemented, the quantity traded became:
A) 1000.
B) 2000.
C) 3000.
D) 4000.
E) between 2000 and 4000, but the amount depends upon producers' reactions, which are uncertain.
Free
Multiple Choice
Q 113Q 113
Figure 9.4.3
-Refer to Figure 9.4.3 above. After the policy was implemented, price became:
A) $10.
B) $30.
C) $50.
D) $70.
E) between $50 and $70, but the price is uncertain because quantity can be any amount between 2000 and 4000.
Free
Multiple Choice
Q 114Q 114
Figure 9.4.3
-Refer to Figure 9.4.3 above. After the policy, consumer surplus became:
A) $0.
B) $10.
C) $20.
D) $20,000.
E) $40,000.
Free
Multiple Choice
Q 115Q 115
Figure 9.4.3
-Refer to Figure 9.4.3 above. Because of the policy, consumer surplus fell by:
A) $10.
B) $20.
C) $12,500.
D) $25,000.
E) $45,000.
Free
Multiple Choice
Q 116Q 116
Figure 9.4.3
-Refer to Figure 9.4.3 above. Without counting any government payments received by firms, as a result of this policy the producer surplus earned on the units sold in the market:
A) rose by $15,000.
B) rose by $20,000.
C) rose by $40,000.
D) fell by $5,000.
E) fell by $45,000.
Free
Multiple Choice
Q 117Q 117
Figure 9.4.3
-Refer to Figure 9.4.3 above. The amount the government will have to pay to producers to sustain this policy is at least:
A) $0.
B) $10,000.
C) $15,000.
D) $20,000.
E) $100,000.
Free
Multiple Choice
Q 118Q 118
Figure 9.4.3
-Refer to Figure 9.4.3 above. Because of this policy, total producer surplus including funds received from the government will be at least:
A) $10,000.
B) $40,000.
C) $80,000.
D) $100,000.
E) $160,000.
Free
Multiple Choice
Q 119Q 119
As illustrated in the textbook, the government can further increase the support price of a commodity by purchasing excess supplies and using a:
A) production quota.
B) consumption tax.
C) excess profits tax.
D) minimum wage.
Free
Multiple Choice
Q 120Q 120
A small decrease in a production quota will have a large impact on the support price if:
A) demand is completely elastic.
B) demand is highly (but not completely) elastic.
C) demand is inelastic.
D) The demand elasticity does not affect the price outcomes of a quota program.
Free
Multiple Choice
Q 121Q 121
Under a production quota policy, the government can maintain a particular support price by reducing the quantity supplied. To maintain a particular support price, how must the quota amount change if the demand curve becomes more elastic?
A) Quota amount increases
B) Quota amount decreases
C) Quota amount does not change
D) Quota amount depends on the supply curve
Free
Multiple Choice
Q 122Q 122
Suppose the government does not provide an incentive payment to producers under a production quota policy, and the amount that may be produced and sold by firms is limited by law in order to raise the market price to the support price. Do producers still gain surplus value under this version of the production quota policy?
A) Yes, they would always achieve a larger producer surplus under this version of the policy.
B) Yes, as long as the surplus value gained from consumers exceeds the amount of producer surplus lost from production quantities that are no longer produced.
C) No, they would always face a decrease in producer surplus without the government incentive payment.
D) No, the change in producer surplus is always negative due to the gains achieved by consumers.
Free
Multiple Choice
Q 123Q 123
The supply and demand curves for corn are as follows:
QD = 3,750 - 725P
QS = 920 + 690P,
where Q = millions of bushels and P = price per bushel.
a. Calculate the equilibrium price and quantity that would prevail in the free market.
b. The government has imposed a $2.50 per bushel support price. How much corn will the government be forced to purchase?
c. Calculate the loss in consumer surplus that would occur under the support program.
Free
Essay
Q 124Q 124
Figure 9.5.1
-Refer to Figure 9.5.1 above. With no government interference, the country pictured will:
A) import 500 tons of sugar.
B) import 300 tons of sugar.
C) import 200 tons of sugar.
D) import no sugar.
E) export sugar.
Free
Multiple Choice
Q 125Q 125
Figure 9.5.1
-Refer to Figure 9.5.1 above. In order to eliminate international trade in sugar altogether, this country would have to impose a tariff of:
A) $25.
B) $50.
C) $75.
D) $150.
E) $175.
Free
Multiple Choice
Q 126Q 126
Figure 9.5.1
-Refer to Figure 9.5.1 above. In order to eliminate international trade in sugar altogether, this country would have to impose a quota of:
A) 0 tons.
B) 200 tons.
C) 300 tons.
D) 350 tons.
E) 500 tons.
Free
Multiple Choice
Q 127Q 127
Figure 9.5.1
-Refer to Figure 9.5.1 above. A $50 tariff would result in domestic consumption of:
A) 600, domestic production of 100, and imports of 500.
B) 500, domestic production of 200, and imports of 300.
C) 400, domestic production of 300, and imports of 100.
D) 300, domestic production of 400, and exports of 100.
E) 200, domestic production of 500, and exports of 300.
Free
Multiple Choice
Q 128Q 128
Figure 9.5.1
-Refer to Figure 9.5.1 above. If free trade in sugar is allowed, consumer surplus will be:
A) $175.
B) $250.
C) $30,625.
D) $61,250.
E) $62,500.
Free
Multiple Choice
Q 129Q 129
Figure 9.5.1
-Refer to Figure 9.5.1 above. If free trade in sugar is replaced by a $50 tariff in sugar, consumer surplus will:
A) fall by $50.
B) fall by $26,250.
C) fall by $22,500.
D) rise by $50.
E) rise by $17,500.
Free
Multiple Choice
Q 130Q 130
Figure 9.5.1
-Refer to Figure 9.5.1 above. Under free trade in sugar, domestic producer surplus will be:
A) $100.
B) $175.
C) $10,000.
D) $25,000.
E) $30,625.
Free
Multiple Choice
Q 131Q 131
Figure 9.5.1
-Refer to Figure 9.5.1 above. If free trade in sugar is replaced by a $50 tariff on sugar, the effect on domestic producer surplus will be to:
A) lower it by $50.
B) lower it by $12,500.
C) leave it unchanged.
D) raise it by $50.
E) raise it by $12,500.
Free
Multiple Choice
Q 132Q 132
Figure 9.5.1
-Refer to Figure 9.5.1 above. If free trade in sugar is replaced by a $50 tariff in sugar, government revenue from the tariff will be:
A) $50.
B) $5000.
C) $15,000.
D) $17,500.
E) $25,000.
Free
Multiple Choice
Q 133Q 133
Figure 9.5.1
-Refer to Figure 9.5.1 above. In order to gain the equivalent imports as a $50 tariff, the government would have to impose a quota of:
A) 100 tons of sugar.
B) 200 tons of sugar.
C) 300 tons of sugar.
D) 350 tons of sugar.
E) 500 tons of sugar.
Free
Multiple Choice
Q 134Q 134
Import tariffs generally result in:
A) higher domestic prices.
B) less consumer surplus.
C) more producer surplus for domestic producers.
D) a deadweight loss.
E) all of the above
Free
Multiple Choice
Q 135Q 135
Compared to a tariff, an import quota, which restricts imports to the same amount as the tariff, will leave the country as a whole:
A) worse off than a comparable tariff.
B) not as bad off as a comparable tariff.
C) about the same as a comparable tariff.
D) Any of the above can be true.
Free
Multiple Choice
Q 136Q 136
Although rice is a staple of the Japanese diet, the Japanese government has long restricted the importation of rice into Japan. The result of this import quota is:
A) to decrease the price of rice to the Japanese people.
B) to decrease the consumer surplus of Japanese rice consumers.
C) to decrease the producer surplus of Japanese rice producers.
D) a welfare gain for the Japanese people.
E) to increase the consumption of rice by the Japanese people.
Free
Multiple Choice
Q 137Q 137
Figure 9.5.2
-Refer to Figure 9.5.2 above. At free trade, domestic consumer surplus would be:
A) $20,000.
B) $27,500.
C) $40,000,000.
D) $45,000,000.
E) $75,625,000.
Free
Multiple Choice
Q 138Q 138
Figure 9.5.2
-Refer to Figure 9.5.2 above. At free trade, domestic producer surplus would be:
A) $2,500.
B) $50,000.
C) $1,250,000.
D) $2,500,000.
E) $20,000,000.
Free
Multiple Choice
Q 139Q 139
Figure 9.5.2
-Refer to Figure 9.5.2 above. At free trade, domestic consumption is:
A) 5500; domestic production is 1000; imports are 4500.
B) 5000; domestic production is 2000; imports are 3000.
C) 4000; domestic production is 4000; imports are 0.
D) 2000; domestic production is 5000; imports are 3000.
E) 1000; domestic production is 5500; imports are 4500.
Free
Multiple Choice
Q 140Q 140
Figure 9.5.2
-Refer to Figure 9.5.2 above. Now suppose an import quota of 3000 trucks is imposed. The quota will make total consumer surplus equal to:
A) $25,000.
B) $13,125,000.
C) $40,000,000.
D) $62,500,000.
E) $75,625,000.
Free
Multiple Choice
Q 141Q 141
Figure 9.5.2
-Refer to Figure 9.5.2 above. Now suppose an import quota of 3000 trucks is imposed. The quota will make total domestic producer surplus equal to:
A) $2,500.
B) $5,000.
C) $5,000,000.
D) $10,000,000.
E) $30,000,000.
Free
Multiple Choice
Q 142Q 142
Figure 9.5.2
-Refer to Figure 9.5.2 above. Now suppose an import quota of 3000 trucks is imposed. Government revenue from the quota will be:
A) $0.
B) $2,500.
C) $7,500,000.
D) $12,500,000.
E) $13,125,000.
Free
Multiple Choice
Q 143Q 143
Figure 9.5.2
-Refer to Figure 9.5.2 above. Now suppose an import quota of 3000 trucks is imposed. The quota will decrease the revenue of foreign firms by:
A) $0.
B) $2,500.
C) $7,500,000.
D) $11,250,000.
E) $13,125,000.
Free
Multiple Choice
Q 144Q 144
Figure 9.5.2
-Refer to Figure 9.5.2 above. Now suppose an import quota of 3000 trucks is imposed. An alternative to the quota that would have the same impact on the number of imports would be a tariff of:
A) $2,500.
B) $5,000.
C) $15,000.
D) $20,000.
E) $13,125,000.
Free
Multiple Choice
Q 145Q 145
Figure 9.5.2
-Refer to Figure 9.5.2 above. Now suppose an import quota of 3000 trucks is imposed. If the government wanted to cut off all international trade without changing the quota, it could allow the quota amount of 3000 trucks in at no tariff and then charge a tariff on all imports above the quota amount. What tariff would accomplish the goal?
A) $0
B) $5,000
C) $7,500
D) $10,000
E) $20,000
Free
Multiple Choice
Q 146Q 146
The U.S. government currently imposes a $0.54 per gallon tariff on all ethanol imported into the country. If this tariff were removed, then:
A) the domestic ethanol price falls.
B) the domestic quantity of ethanol supplied declines.
C) domestic consumer surplus increases.
D) domestic producer surplus decreases.
E) all of the above
Free
Multiple Choice
Q 147Q 147
In general, the deadweight loss associated with an import tariff or quota becomes relatively larger when:
A) supply and demand are inelastic.
B) supply is elastic and demand is inelastic.
C) demand is elastic and supply is inelastic.
D) supply and demand are elastic.
Free
Multiple Choice
Q 148Q 148
As noted in the text, the major Japanese auto manufacturers agreed to "voluntary" import restrictions that reduced the number of cars they could ship to the U.S. market in the 1980s. One of the key outcomes from this policy is that the Japanese manufacturers were able to:
A) focus on more profitable auto markets in other countries.
B) raise their prices of autos in the U.S. market and capture higher profit margins on the imported cars.
C) cut their costs by more than the import tariff, so profit per auto increased.
D) all of the above
Free
Multiple Choice
Q 149Q 149
A government can impose an import quota or an equivalent tariff that achieves the same impact on trade. What is the key difference in the welfare outcomes of these two policy options?
A) The domestic quantity supplied is larger under the tariff policy.
B) The domestic price is higher under the tariff policy.
C) The domestic price is lower under the tariff policy.
D) The government captures some of the profits from foreign suppliers through the tariff revenue.
Free
Multiple Choice
Q 150Q 150
Suppose a government imposes an import tariff that is too large and exceeds the tax required to completely shut down foreign imports. What is the impact of this mistake on the market outcome?
A) The impact is the same as intended-there are no imports and the domestic market clears at the domestic equilibrium price.
B) The domestic price rises above the domestic equilibrium price, which results in an excess supply.
C) The domestic and foreign prices rise and cause consumer surplus losses in exporting and importing regions.
D) The domestic price rises above the domestic equilibrium price, which results in an excess demand.
Free
Multiple Choice
Q 151Q 151
The market for all-leather men's shoes is served by both domestic (U.S.) and foreign (F) producers. The domestic producers have been complaining that foreign producers are dumping shoes onto the U.S. market. As a result, Congress is very close to enacting a policy that would completely prohibit sales by foreign manufacturers of leather shoes in the U.S. market. The demand curve and relevant supply curves for the leather shoe market are as follows:
QD = 50,000 - 500P
QUS = 6000 + 150P
QF = 2000 + 50P,
where Q = thousands of pairs of shoes per year, and P = price per pair.
a. Currently there are no restrictions covering all-leather men's shoes. What are the current equilibrium values?
b. Calculate the price and quantity that would prevail if the proposed policy is enacted.
c. Sketch a diagram that analyzes the economic welfare implications of the proposed policy.
Free
Essay
Q 152Q 152
The market demand and supply functions for imported cars are: and The legislature is considering a tariff (a tax on imported goods) equal to $2,000 per unit to aid domestic car manufacturers. If the tariff is implemented, calculate the loss in producer surplus. How many units of cars are imported? Suppose that instead of a tariff, importers agree to voluntarily restrict their imports to this level. If they do and no tariff is implemented, calculate producer surplus in this scenario. Do you expect importers will be more in favor of a tariff or a voluntary quota?
Free
Essay
Q 153Q 153
Where Es is the elasticity of supply and Ed is the own price elasticity of demand, the fraction of the tax passed on to consumers in the form of higher prices is:
A) Es/(Es-Ed).
B) Ed/(Es-Ed).
C) Es/(Ed-Es).
D) Ed/(Ed-Es).
E) Ed/Es.
Free
Multiple Choice
Q 154Q 154
The benefit of a subsidy accrues mostly to consumers:
A) in every instance.
B) if Ed/Es is large.
C) if Ed/Es is small.
D) if Ed and Es are equal.
E) in no instance.
Free
Multiple Choice
Q 155Q 155
Which of the following conditions must hold in the equilibrium of a competitive market where the government puts a specific tax on consumers?
A) The quantity sold and the price paid by the buyer must lie on the demand curve.
B) The quantity sold and the seller's price must lie on the supply curve.
C) The quantity demanded must equal the quantity supplied.
D) the difference between the price the buyer pays and the price the seller receives must equal the specific tax.
E) all of the above
Free
Multiple Choice
Q 156Q 156
Consider the following statements when answering this question: I. It is impossible to shift taxes from producers to consumers without hurting the latter.
II) Only polluters pay (through production taxes) for the environmental damage they cause.
A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Free
Multiple Choice
Q 157Q 157
The formula Es/(Es - Ed) is used to calculate the:
A) deadweight loss from price support programs.
B) increase in consumer surplus from a price ceiling.
C) fraction of a specific tax that is passed through to consumers.
D) none of the above
Free
Multiple Choice
Q 158Q 158
In 1994, the state of California suffered a devastating earthquake. To help pay for the damages, the state raised its sales tax by one cent per dollar of expenditure on most consumer goods. This state sales tax is an example of what economists call:
A) an ad valorem tax.
B) a specific tax.
C) a neutral tax.
D) a negative tax.
E) none of the above
Free
Multiple Choice
Q 159Q 159
The Clinton administration has recommended an increase in the tax on yachts to help pay for government programs. Which of the following is true?
A) The burden of this tax will fall entirely on yacht consumers.
B) The burden of this tax will fall entirely on yacht manufacturers.
C) The sales of yachts will decrease.
D) The profit of yacht manufacturers will increase.
E) Employment of workers in the yacht industry will increase.
Free
Multiple Choice
Q 160Q 160
Consider a good whose own price elasticity of demand is 0 and price elasticity of supply is 1. The fraction of a specific tax that will be passed through to consumers is:
A) 0
B) 0.25
C) 0.5
D) 0.75
E) 1
Free
Multiple Choice
Q 161Q 161
Consider a good whose own price elasticity of demand is -0.5 and price elasticity of supply is 1.5. The fraction of a specific tax that will be passed through to consumers is:
A) 0
B) 0.25
C) 0.5
D) 0.75
E) 1
Free
Multiple Choice
Q 162Q 162
Consider a good whose own price elasticity of demand is -1.5 and price elasticity of supply is 0.5. The fraction of a specific tax that is borne by producers is:
A) 0
B) 0.25
C) 0.5
D) 0.75
E) 1
Free
Multiple Choice
Q 163Q 163
The price elasticity of demand is -1.5. The price elasticity of supply is 1.5. The fraction of a specific tax that is borne by producers is:
A) 0
B) 0.25
C) 0.5
D) 0.75
E) 1
Free
Multiple Choice
Q 164Q 164
When the government imposes a specific tax per unit on a product, changes in consumer surplus are ________ and changes in producer surplus are ________.
A) negative; positive
B) positive; positive
C) negative; negative
D) positive; negative
Free
Multiple Choice
Q 165Q 165
The burden of a tax per unit of output will fall heavily on consumers when demand is relatively ________ and supply is relatively ________.
A) inelastic; elastic
B) inelastic; inelastic
C) elastic; elastic
D) elastic; inelastic
Free
Multiple Choice
Q 166Q 166
A specific tax will be imposed on a good. The supply and demand curves for the good are shown in the diagram below. Given this information, the burden of the tax:
A) is shared about evenly between consumers and producers.
B) falls mostly on consumers.
C) falls mostly on producers.
D) cannot be determined without more information on the price elasticities of supply and demand.
Free
Multiple Choice
Q 167Q 167
A specific tax will be imposed on a good. The supply and demand curves for the good are shown in the diagram below. Given this information, the burden of the tax:
A) is shared about evenly between consumers and producers.
B) falls mostly on consumers.
C) falls mostly on producers.
D) cannot be determined without more information on the price elasticities of supply and demand.
Free
Multiple Choice
Q 168Q 168
The deadweight loss of a specific tax will be a small share of the tax revenue collected if:
A) supply is more inelastic than demand.
B) demand is more inelastic than supply.
C) supply and demand are both elastic.
D) supply and demand are both inelastic.
Free
Multiple Choice
Q 169Q 169
A few years ago, the city of Seattle, Washington, considered imposing a specific tax on all espresso-based coffee drinks sold in the city. The extra tax revenue generated would have been used to fund after-school programs for low-income children. The coffee-house owners (firms) agreed that this would be a good program to fund, but they argued that the tax would sharply reduce their sales volume and they would pay most of the tax burden. This claim is true if:
A) the demand for espresso-based coffee is more inelastic than supply.
B) the demand for espresso-based coffee is more elastic than supply.
C) there are no close substitutes for espresso-based coffee drinks.
D) espresso-based coffee drinks can be produced at constant marginal cost.
Free
Multiple Choice
Q 170Q 170
Use the following statements to answer this question: I. For downward sloping demand and upward sloping supply curves, the government expenditure used to pay for a subsidy program exceeds the sum of the changes in producer and consumer surplus.
II) To model the price-quantity impacts of a subsidy, we can shift the demand curve upward by the amount of the per-unit subsidy payment.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
Free
Multiple Choice
Q 171Q 171
What is the welfare impact of a subsidy policy?
A) Producer surplus increases, consumer surplus declines, and total welfare declines.
B) Producer and consumer surplus increase, and these gains are larger than the government cost.
C) Producer and consumer surplus increase, and these gains are smaller than the government cost.
D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.
Free
Multiple Choice
Q 172Q 172
Why is there a deadweight loss associated with subsidy payments?
A) There is no deadweight loss from a subsidy.
B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced.
C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them.
D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.
Free
Multiple Choice
Q 173Q 173
A country which does not tax cigarettes is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as:
QD = 140,000 - 25,000P QS = 20,000 + 75,000P,
where and The country has hired you to provide the following information regarding the cigarette market and the proposed tax.
a. What are the equilibrium values in the current environment with no tax?
b. What price and quantity would prevail after the imposition of the tax? What portion of the tax would be borne by buyers and sellers respectively?
c. Calculate the deadweight loss from the tax. Could the tax be justified despite the deadweight loss? What tax revenue will be generated?
Free
Essay
Q 174Q 174
The total and marginal cost functions for a typical soft coal producer are:
TC = 75,000 + 0.1Q2 and MC = 0.2Q
where Q is measured in railroad cars per year. The industry consists of 55 identical producers. The market demand curve is:
QD = 140,000 - 425P,
where P is the price per carload. The market can be regarded as competitive.
a. Calculate the short run equilibrium price and quantity in the market. Calculate the quantity that each firm would produce. Calculate producer surplus, consumer surplus, and total surplus at the equilibrium values. Calculate the firm's profit (or loss).
b. The Federal government is considering the imposition of a $15 per carload tax on soft coal. Calculate the short-run equilibrium price and quantity that would exist under the tax. What portion of the tax would be paid by producers and what portion by consumers? Calculate the producer and consumer surplus under the tax and analyze the efficiency consequences of the tax. Calculate the firm's profit (or loss) under the tax. Could the tax be justified despite its efficiency implications?
Free
Essay
Q 175Q 175
The world price for oil is $31 per unit. The supply of domestic oil is: Domestic producers can sell as many units as they like at world prices. Calculate current domestic producer surplus. Now, suppose in an effort to boost domestic oil production the government pays producers $2 per unit produced. Calculate the new level of producer surplus. Also, calculate the amount the government spends in payments to domestic producers. Does the change in producer surplus exceed the amount of payments made by the government? If government directly paid domestic oil producers the amount they will spend in the subsidy scenario, would domestic oil producers be better off?
Free
Essay
Q 176Q 176
The market demand and supply functions for pizza are: and Calculate the consumer and producer surplus. Suppose the local community charges a $1 per pizza tax. Calculate the new levels of consumer and producer surplus. Does the gain in tax revenue offset the losses in consumer and producer surplus associated with the tax?
Free
Essay
Q 177Q 177
The local community is considering two options to raise money to finance a new civic center. The first option is to institute a per unit tax on restaurant meals of $2.46. The market demand and supply functions for restaurant meals are: Calculate consumer and producer surplus with the per unit tax. The second option the community is considering implementing is an income tax. If an income tax is implemented, the new demand for restaurant meals is: Calculate the level of consumer and producer surplus in the restaurant market with the income tax. Which of the two options will reduce the sum of consumer and producer surplus the least?
Free
Essay
Q 178Q 178
The market demand and supply functions for imported beer are: and To encourage the consumption of domestic beer, Congress has imposed a quota of 25,000 units of imported beer. Calculate the change in producer surplus from this legislation.
Free
Essay
Q 179Q 179
The market demand and supply functions for toothpaste are: and Calculate the equilibrium quantity and price and point elasticity of demand in equilibrium. Next, calculate consumer surplus. Suppose the toothpaste market is taxed $0.25 per unit. Calculate the revenues generated by the tax. Calculate the loss in consumer surplus. What percentage of the burden of the tax is paid for by consumers?
Free
Essay
Q 180Q 180
The market demand and supply functions for Easton Redline slow-pitch softball bats are: and Calculate the equilibrium quantity and price and point elasticity of demand in equilibrium. Next, calculate consumer surplus. Suppose the Easton bats are taxed $25 per unit. Calculate the revenues generated by the tax. Calculate the loss in consumer surplus. What percentage of the burden of the tax is paid for by consumers?
Free
Essay
Q 181Q 181
The market demand and supply functions for alcohol at Major League Baseball games are: and Calculate the equilibrium quantity and price and point elasticity of supply in equilibrium. Next, calculate producer surplus. Suppose that alcohol is taxed at $0.75 per unit at the games. Calculate the revenues generated by the tax. Calculate the loss in producer surplus. What percentage of the burden of the tax falls on producers?
Free
Essay
Q 182Q 182
The market demand and supply functions for VCR movie rentals are: and Calculate the equilibrium quantity and price and point elasticity of demand in equilibrium. Next, calculate producer surplus. Suppose that VCR movie rentals are taxed at $0.25 per unit. Calculate the revenues generated by the tax. Calculate the loss in producer surplus. What percentage of the burden of the tax falls on producers?
Free
Essay
Q 183Q 183
The market demand and supply functions for cotton are: and Calculate the consumer and producer surplus. To assist cotton farmers, suppose a subsidy of $0.10 a unit is implemented. Calculate the new level of consumer and producer surplus. Did the increase in consumer and producer surplus exceed the increased government spending necessary to finance the subsidy?
Free
Essay