Practice Q Chapter 4 PDF

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The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called A. the income effect. B. the substitution effect. C. consumer surplus. D. producer surplus.

C 2. In a city with rent-controlled apartments, all of the following are true except

A. it usually takes more time to find an apartment than it would without rent control. B. landlords have an incentive to rent more apartments than they would without rent control. C. apartments are often in shorter supply than they would be without rent control. D. apartments usually rent for rates lower than the market rate.

B 3. Paul goes to Dick's Sporting Goods to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

A. $125 B. $325 C. $200

D. $75

D 4. Consumers are willing to purchase a product up to the point where

A. the marginal benefit of consuming the product is equal to the marginal cost of consuming it. B. the consumer surplus is equal to the producer surplus. C. the marginal benefit of consuming a product is equal to zero. D. the marginal benefit of consuming the product equals the area below the supply curve and above the market price.

A 5. Marginal benefit is equal to the ________ benefit a consumer receives from consuming one more unit of a good or service.

A. additional B. surplus C. unintended D. total

A 6. Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

A. production possibilities

B. supply C. marginal cost D. demand

D

7. Consumer Willingness to Pay Tom $40 Dick $30 Harriet $25 The table above lists the highest prices three consumers, Tom, Dick, and Harriet, are willing to pay for a shortminus−sleeved polo shirt. If the price of one of the shirts is $28 dollars, A. Tom will receive $12 of consumer surplus from buying one shirt. B. Harriet will receive $25 of consumer surplus since she will buy no shirts. C. Tom and Dick receive a total of $70 of consumer surplus from buying one shirt each. Harriet will buy no shirts. D. Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts.

A 8. Marginal cost is

A. the total cost of producing one unit of a good or service.

B. the average cost of producing a good or service. C. the additional cost to a firm of producing one more unit of a good or service. D. the difference between the lowest price a firm would have been willing to accept and the price it actually receives.

C 9. The table lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the market price of The Waco Kid's cowboy hats is $40,

A. The Waco Kid will produce four hats. B. producer surplus will equal $28. C. producer surplus from the first hat is $40. D. there will be a surplus; as a result, the price will fall to $24. The Waco Kid's Cowboy Hats 1st hat 2nd hat 3rd hat 4th hat

Marginal Cost (dollars) $24 30 38 46

B 10. The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

A. above; below B. below; below C.

above; above D. below; above

A

11. Suppliers will be willing to supply a product only if

A. the price received is less than the additional cost of producing the product. B. the price received is at least equal to the additional cost of producing the product. C. the price is higher than the average cost of producing the product. D. the price received is at least double the additional cost of producing the product.

B 12. Refer to the diagram to the right. What area represents producer surplus at a price of P2? A. A+B+C B. A+B C. A+B+C+D+E D. B+D

A 13. Refer to the diagram to the right. What area represents the increase in producer surplus when the market price rises from P1

to P2? A. C+E B. A+B C. B+D D. A+C+E

B 14. Economic efficiency in a competitive market is achieved when

A. consumers and producers are satisfied. B. the marginal benefit equals the marginal cost from the last unit sold. C. producer surplus equals the total amount firms receive from consumers minus the cost of production. D. economic surplus is equal to consumer surplus.

B 15. ________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium.

A. Economic shortage B. Producer atrophy C. Deadweight loss

D. Marginal cost

C 16. Economic surplus

A. is equal to the sum of consumer surplus and producer surplus. B. is the difference between quantity demanded and quantity supplied when the market price for a product is greater than the equilibrium price. C. is equal to the difference between consumer surplus and producer surplus. D. does not exist when a competitive market is in equilibrium.

A 17. ________ is maximized in a competitive market when marginal benefit equals marginal cost.

A. Deadweight loss B. Selling price C. Marginal profit D. Economic surplus

D 18. Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which

A. the sum of consumer surplus and producer surplus is minimized.

B. the sum of the benefits to firms is equal to the sum of the benefits to consumers. C. the sum of consumer surplus and producer surplus is at a maximum. D. economic surplus is minimized.

C 19. The figure to the right represents the market for pecans. Assume that this is a competitive market. At a quantity of 4,000 pounds,

A. producers should lower the price to $3 in order to sell the quantity demanded of 4,000. B. the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently high. C. the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low. D. the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high.

C 20. The figure to the right represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $3,

A. the quantity supplied is economically efficient but the quantity demanded is economically inefficient. B. not enough consumers want to buy pecans. C. economic surplus is maximized. D. the quantity supplied is less than the economically efficient quantity.

D

21. The figure to the right represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $3, what changes in the market would result in an economically efficient output?

A. The quantity supplied would increase, the quantity demanded would decrease, and the equilibrium price would increase. B. The price would increase, the quantity supplied would decrease, and the quantity demanded would increase. C. The price would increase, the quantity demanded would decrease, and the quantity supplied would increase. D. The price would increase, the demand would decrease, and the supply would increase.

C 22. The figure to the right represents the market for pecans. Assume that this is a competitive market. If 8,000 pounds of pecans are sold,

A. producer surplus is greater than consumer surplus. B. the marginal benefit of each of the 8,000 pounds of pecans equals $9. C. marginal benefit is equal to marginal cost. D. the deadweight loss is equal to economic surplus.

C 23. If equilibrium is achieved in a competitive market,

A. the deadweight loss be the same as the opportunity cost of the last unit of output sold. B. the deadweight loss will be maximized.

C. the deadweight loss will equal the sum of consumer surplus and producer surplus. D. there will be no deadweight loss.

D 24. Rent control is an example of

A. a black market. B. a price ceiling. C. a price floor. D. a subsidy for low-skilled workers.

B 25. Government intervention in agricultural markets in the U.S. began in the

A. 1920s. B. 1930s. C. 1950s. D. 1970s.

B 26. Economists refer a to a market where buying and selling take place at prices that violate government price regulations as

A. a restricted market. B. a black market. C. an outlaw market. D. a noncompetitive market.

B 27. Which term refers to a legally established minimum price that firms may charge?

A. A price floor. B. A tariff. C. A subsidy. D. A price ceiling.

A 28. A minimum wage law dictates

A. the lowest wage that firms may pay for labor. B. the minimum qualifications for labor. C. the highest wage that firms must pay for labor. D. the minimum quantity of labor that a firm must employ.

A

29. Refer to the diagram to the right which 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. What area represents consumer surplus after the imposition of the price floor? A. A+B+E B. A C. A+B+E+F D. A+B

Answer -B 30. Refer to the diagram to the right which 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. What is the area that represents producer surplus after the imposition of the price floor? A. B+E+F B. A+B+E C. B+C+D+E D. B+E

D 31. Refer to the diagram to the right which 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. What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor? A.

E B. B C. B+E D. B+C

B 32. Refer to the diagram to the right which 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. What area represents the deadweight loss after the imposition of the price floor? A. C+D+F+G B. C+D+G C. C+D D. F+G

C 33. Congress passed the ________ in 1996, the purpose of which was to phase out price floors and return to a free market in agriculture

A. Agribusiness Act B. Smoot-Hawley Act C. Rice and Beans Act D.

Freedom to Farm Act

D 34. Which of the following is not a result of imposing a rent ceiling?

A. Some consumer surplus is converted to producer surplus. B. The marginal benefit of the last apartment rented is greater than the marginal cost of supplying it. C. An increase in the quantity of apartments demanded. D. A reduction in the quantity of apartments supplied.

Answer -A 35. Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia?

A. Deadweight loss will increase. B. Market efficiency will increase. C. Consumer surplus will increase. D. Producer surplus will increase.

A 36. Which of the following is not a result of binding government price controls?

A. Some people win and some people lose. B. Price controls decrease economic efficiency.

C. Price controls benefit poor consumers but harm producers and wealthy consumers. D. A deadweight loss will occur.

C

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

A. tax bearer. B. tax liability. C. tax incidence. D. tax parity.

C 38. The figure shows the market for beer. The government plans to impose a unit tax in this market. What is the size of the unit tax? A. $2 B. $5 C. $7 D. $12

C

39. The figure shows the market for beer. The government plans to impose a unit tax in this market. How much of the tax is paid by buyers? A. $2 B. $5 C. $7 D. $12

B 40. The figure shows the market for beer. The government plans to impose a unit tax in this market. The price buyers pay after the tax is A. $7. B. $20. C. $22. D. $27.

D 41. The figure shows the market for beer. The government plans to impose a unit tax in this market. For each unit sold, the price sellers receive after the tax (net of tax) is A. $20. B. $22. C. $27.

D. $32.

A 42. The figure shows the market for beer. The government plans to impose a unit tax in this market. How much of the tax is paid by sellers? A. $2 B. $5 C. $7 D. $12

A 43. The figure shows the market for beer. The government plans to impose a unit tax in this market. As a result of the tax, is there a loss in consumer surplus? A. No, because the producer pays the tax. B. No, because the market reaches a new equilibrium C. No, because consumers are charged a lower price to cover their tax burden. D. Yes, because consumers pay a price above the economically efficient price.

D 44. Suppose an excise tax of $1 is imposed on every case of beer sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?

A.

The supply curve for cases of beer would shift down by $1. B. The supply curve for cases of beer would shift up by more than $1. C. The supply curve for cases of beer shifts up by $1. D. The supply curve for cases of beer would shift up by less than $1.

C 45. Suppose that in Canada the government places a $1,500 tax on the buyers of new snowmobiles. After the purchase of a new snowmobile, a buyer must pay the government $1,500. How would the imposition of the tax on buyers be illustrated in a graph?

A. The tax will shift both the demand and supply curves down by $1,500. B. The tax will shift the supply curve up by $1,500. C. The tax will shift the demand curve up by $1,500. D. The tax will shift the demand curve down by $1,500

D 46. When Congress passed a law that imposed a tax designed to fund its Social Security and Medicare programs it wanted employers and workers to share the burden of the tax equally. Most economists who have studied the incidence of the tax have concluded

A. the tax rate should be greater for high-income workers than for low-income workers. B. the burden of the tax falls almost entirely on workers. C. the tax is not high enough to cover the future costs of Social Security and Medicare. D. the tax on employers is too high because it reduces the employment of low-skilled workers.

B 47. The payroll tax is a tax imposed on ________ that is used to fund Social Security and Medicare.

A. employers only B. the unemployed C. workers only D. employers and workers

Answer D 48. When the government taxes a good or service, it

A. increases consumer surplus for the good or service. B. eliminates the deadweight loss associated with the good or service. C. increases producer surplus for the good or service. D. affects the market equilibrium for that good or service.

D 49. A tax that imposes a small excess burden relative to the tax revenue that it raises is

A. an efficient tax. B. a payroll tax. C.

a FICA tax. D. a sin tax.

A 50. The diagram to the right shows a market in which a price floor has been imposed. Identify the following (enter all values as integers). a. The deadweight loss is 35000

$ nothing . b. The transfer of consumer surplus to producers is 35000

$ nothing . c. Producer surplus with this price floor is 87500

$ nothing . d. Consumer surplus with this price floor is $

17500

nothing ....