Question 1

If supply is relatively inelastic when compared with demand in a perfectly competitive market,:

Accepted Answer

A) consumers will share a larger burden of an excise tax than producers. 
B) consumers and producers will share the burden of an excise tax equally. 
C) producers will share a larger burden of an excise tax than consumers. 
D) the incidence of the tax cannot be determined without more information. 
A) consumers will share a larger burden of an excise tax than producers. 
B) consumers and producers will share the burden of an excise tax equally. 
C) producers will share a larger burden of an excise tax than consumers. 
D) the incidence of the tax cannot be determined without more information.

Question 2

Consider a perfectly competitive market with market supply $Q ^ { s } = - 2 + P$ and market demand $Q ^ { d } = 30 - P$. Suppose the government imposes an excise tax of $\$ 4$ per unit on this market.
What is total surplus (consumer surplus plus producer surplus) before the government imposes the tax?

Accepted Answer

A)  72 
B)  98 
C)  144 
D)  196 
A)  72 
B)  98 
C)  144 
D)  196

Question 3

Consider a perfectly competitive market with inverse market supply $P = 5 + 3 Q ^ { s }$ and inverse market demand $P = 50 - 2 Q ^ { d }$. Suppose the government subsidizes this market with a subsidy of $\$ 5$ per unit. What is the deadweight loss resulting from the subsidy?

Accepted Answer

A) 0, subsidies do not have a deadweight loss 
B) 2.5 
C) 5 
D) 7.5 
A) 0, subsidies do not have a deadweight loss 
B) 2.5 
C) 5 
D) 7.5

Question 4

The domestic market for calculators is perfectly competitive and is in equilibrium. Domestic demand is given by $Q ^ { d } = 100 - P$ and domestic supply is given by $Q ^ { * } = 4 P$. The world price for calculators is $\$ 10$. As an alternative to a tariff of $\$ 10$ per unit, the government considers an outright trade prohibition on calculators. Which is better for the domestic economy?

Accepted Answer

A)  The trade prohibition is better. 
B)  The tariff is better. 
C)  The trade prohibition is better for producers; the tariff is better for consumers. 
D)  Both policies generate exactly the same surpluses. 
A)  The trade prohibition is better. 
B)  The tariff is better. 
C)  The trade prohibition is better for producers; the tariff is better for consumers. 
D)  Both policies generate exactly the same surpluses.

Question 5

Consider a perfectly competitive market with market supply $Q ^ { s } = - 2 + P$ and market demand $Q ^ { d } = 30 - P$. What is the equilibrium quantity in this market?

Accepted Answer

A) 12 
B) 14 
C) 16 
D) 18 
A) 12 
B) 14 
C) 16 
D) 18

Question 6

The incidence of a tax depends on:

Accepted Answer

A) whom the tax is levied upon. 
B) the relative elasticities of supply and demand. 
C) the elasticity of government revenues. 
D) the income elasticity of demand for the product. 
A) whom the tax is levied upon. 
B) the relative elasticities of supply and demand. 
C) the elasticity of government revenues. 
D) the income elasticity of demand for the product.

Question 7

Deadweight loss can be explained as:

Accepted Answer

A) an increase in economic benefits due to efficient allocation of resources 
B) a reduction in net economic benefits resulting from an inefficient allocation of resources 
C) an increase in economic benefits due to inefficient allocation of resources 
D) a decline in the quantity of output produced due to the inefficient allocation of resources 
A) an increase in economic benefits due to efficient allocation of resources 
B) a reduction in net economic benefits resulting from an inefficient allocation of resources 
C) an increase in economic benefits due to inefficient allocation of resources 
D) a decline in the quantity of output produced due to the inefficient allocation of resources

Question 8

Suppose that the market for cigarettes is initially in equilibrium and is perfectly competitive. The demand curve can be expressed as $P = 60 - Q ^ { d }$; the supply curve can be expressed as $P =$ $0.5 Q ^ { s }$. Quantity is expressed in millions of boxes per month. Now suppose that the federal government imposes a production quota on cigarettes of 30 million boxes per month. What is the change in producer surplus (per million boxes) associated with the quota?

Accepted Answer

A)  $\$ 175$ 
B)  $\$ 75$ 
C)  $\$ 50$ 
D)  $\$ 25$ 
A)  $\$ 175$ 
B)  $\$ 75$ 
C)  $\$ 50$ 
D)  $\$ 25$

Question 9

An analysis that determines the equilibrium prices and quantities in more than one market simultaneously is calledL

Accepted Answer

A) partial equilibrium analysis 
B) general equilibrium analysis 
C) externality analysis 
D) market equilibrium analysis 
A) partial equilibrium analysis 
B) general equilibrium analysis 
C) externality analysis 
D) market equilibrium analysis

Question 10

With a price floor, the market will not clear.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that a market is initially in equilibrium. The initial demand curve is $P = 90 - Q ^ { d }$. The initial supply curve is $P = 2 Q ^ { s }$. Suppose that the government imposes a $\$ 3$ tax on this market. What are the government receipts from the tax?

Accepted Answer

A) $90. 
B) $87. 
C) $45. 
D) $43.50. 
A) $90. 
B) $87. 
C) $45. 
D) $43.50.

Question 12

In a perfectly competitive market, which of the following will not occur as a result of an excise tax?

Accepted Answer

A) The market will under-produce relative to the efficient level. 
B) Consumer surplus will be higher than with no tax since the tax is imposed on suppliers. 
C) Producer surplus will be lower than with no tax. 
D) The tax causes a deadweight loss. 
A) The market will under-produce relative to the efficient level. 
B) Consumer surplus will be higher than with no tax since the tax is imposed on suppliers. 
C) Producer surplus will be lower than with no tax. 
D) The tax causes a deadweight loss.

Question 13

If there is an excise tax collected by suppliers of a particular product, when we draw the graph of supply and demand we would normally represent the excise tax by:

Accepted Answer

A) a horizontal shift of the supply curve to the left by the amount of the excise tax. 
B) a horizontal shift of the supply curve to the right by the amount of the excise tax. 
C) a vertical shift up of the demand curve by the amount of the excise tax. 
D) a vertical shift up of the supply curve by the amount of the excise tax. 
A) a horizontal shift of the supply curve to the left by the amount of the excise tax. 
B) a horizontal shift of the supply curve to the right by the amount of the excise tax. 
C) a vertical shift up of the demand curve by the amount of the excise tax. 
D) a vertical shift up of the supply curve by the amount of the excise tax.

Question 14

When a tax is imposed on the producers of a product, if the tax is levied on producers, the producers bear the burden of the tax; if the tax is levied on consumers, the consumers bear the burden of the tax.

Accepted Answer

A) True 
 B)False

Question 15

With a price floor there will be excess supply.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the government decides to create a price support (floor)on the price of corn, which of the following is a true statement?

Accepted Answer

A) A binding price support/floor will tend to lower the price of corn for poorer people. 
B) If the government does not buy any wheat, there will tend to be an excess supply of wheat in the marketplace, if the price floor is binding. 
C) A non-binding price support/floor below the equilibrium price in the market will also lead to a rise in the price of corn. 
D) It is likely that the total surplus (consumer surplus plus producer surplus)will rise with a price support program. 
A) A binding price support/floor will tend to lower the price of corn for poorer people. 
B) If the government does not buy any wheat, there will tend to be an excess supply of wheat in the marketplace, if the price floor is binding. 
C) A non-binding price support/floor below the equilibrium price in the market will also lead to a rise in the price of corn. 
D) It is likely that the total surplus (consumer surplus plus producer surplus)will rise with a price support program.

Question 17

Consider a perfectly competitive market with inverse market supply $P = 5 + 3 Q ^ { s }$ and inverse market demand $P = 50 - 2 Q ^ { d }$. Suppose the government subsidizes this market with a subsidy of $\$ 5$ per unit. What is the impact on the government's budget resulting from the subsidy?

Accepted Answer

A)  $- 45$ 
B)  $- 50$ 
C)  $- 270$ 
D)  $- 300$ 
A)  $- 45$ 
B)  $- 50$ 
C)  $- 270$ 
D)  $- 300$

Question 18

Suppose that the market for corn is initially in equilibrium and is perfectly competitive. The demand curve can be expressed as $P = 10 - Q ^ { d }$; the supply curve can be expressed as $P =$ $0.25 Q ^ { s }$. Quantity is expressed in millions of bushels. Now suppose that the federal government imposes a price floor of $\$ 3$ per bushel of corn. Which of the following best describes the market after the price floor is imposed?

Accepted Answer

A)  There will be a shortage of 5 million bushels. 
B)  There will be a surplus of 5 million bushels. 
C)  There will be a surplus of 7 million bushels. 
D)  There will be a surplus of 12 million bushels. 
A)  There will be a shortage of 5 million bushels. 
B)  There will be a surplus of 5 million bushels. 
C)  There will be a surplus of 7 million bushels. 
D)  There will be a surplus of 12 million bushels.

Question 19

Suppose the government decides to create a price support (floor)on the price of corn. If the government does not buy any wheat, there will tend to be an excess supply of wheat in the marketplace, if the price floor is binding.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that a market is initially in equilibrium. The initial demand curve is $P = 90 - Q ^ { d }$. The initial supply curve is $P = 2 Q ^ { s }$. Suppose that the government imposes a $\$ 3$ tax on this market. How much of this $\$ 3$ tax is paid by consumers?

Accepted Answer

A)  $\$ 1$. 
B)  $\$ 1.50$. 
C)  $\$ 2$. 
D)  $\$ 3$ 
A)  $\$ 1$. 
B)  $\$ 1.50$. 
C)  $\$ 2$. 
D)  $\$ 3$

If supply is relatively inelastic when compared with demand in a perfectly competitive market,:

Consider a perfectly competitive market with inverse market supply $P = 5 + 3 Q ^ { s }$ and inverse market demand $P = 50 - 2 Q ^ { d }$ . Suppose the government subsidizes this market with a subsidy of $\$ 5$ per unit. What is the deadweight loss resulting from the subsidy?

Consider a perfectly competitive market with market supply $Q ^ { s } = - 2 + P$ and market demand $Q ^ { d } = 30 - P$ . What is the equilibrium quantity in this market?

The incidence of a tax depends on:

Deadweight loss can be explained as:

An analysis that determines the equilibrium prices and quantities in more than one market simultaneously is calledL

With a price floor, the market will not clear.

Suppose that a market is initially in equilibrium. The initial demand curve is $P = 90 - Q ^ { d }$ . The initial supply curve is $P = 2 Q ^ { s }$ . Suppose that the government imposes a $\$ 3$ tax on this market. What are the government receipts from the tax?

In a perfectly competitive market, which of the following will not occur as a result of an excise tax?

If there is an excise tax collected by suppliers of a particular product, when we draw the graph of supply and demand we would normally represent the excise tax by:

When a tax is imposed on the producers of a product, if the tax is levied on producers, the producers bear the burden of the tax; if the tax is levied on consumers, the consumers bear the burden of the tax.

With a price floor there will be excess supply.

Suppose the government decides to create a price support (floor)on the price of corn, which of the following is a true statement?

Consider a perfectly competitive market with inverse market supply $P = 5 + 3 Q ^ { s }$ and inverse market demand $P = 50 - 2 Q ^ { d }$ . Suppose the government subsidizes this market with a subsidy of $\$ 5$ per unit. What is the impact on the government's budget resulting from the subsidy?

Suppose the government decides to create a price support (floor)on the price of corn. If the government does not buy any wheat, there will tend to be an excess supply of wheat in the marketplace, if the price floor is binding.

Suppose that a market is initially in equilibrium. The initial demand curve is $P = 90 - Q ^ { d }$ . The initial supply curve is $P = 2 Q ^ { s }$ . Suppose that the government imposes a $\$ 3$ tax on this market. How much of this $\$ 3$ tax is paid by consumers?

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Exam 10: Competitive Markets: Applications

If supply is relatively inelastic when compared with demand in a perfectly competitive market,:

Consider a perfectly competitive market with market supply Qs=−2+PQ ^ { s } = - 2 + PQs=−2+P and market demand Qd=30−PQ ^ { d } = 30 - PQd=30−P . What is the equilibrium quantity in this market?

The incidence of a tax depends on:

Deadweight loss can be explained as:

An analysis that determines the equilibrium prices and quantities in more than one market simultaneously is calledL

With a price floor, the market will not clear.

Suppose that a market is initially in equilibrium. The initial demand curve is P=90−QdP = 90 - Q ^ { d }P=90−Qd . The initial supply curve is P=2QsP = 2 Q ^ { s }P=2Qs . Suppose that the government imposes a $3\$ 3$3 tax on this market. What are the government receipts from the tax?

In a perfectly competitive market, which of the following will not occur as a result of an excise tax?

If there is an excise tax collected by suppliers of a particular product, when we draw the graph of supply and demand we would normally represent the excise tax by:

When a tax is imposed on the producers of a product, if the tax is levied on producers, the producers bear the burden of the tax; if the tax is levied on consumers, the consumers bear the burden of the tax.

With a price floor there will be excess supply.

Suppose the government decides to create a price support (floor)on the price of corn, which of the following is a true statement?

Suppose the government decides to create a price support (floor)on the price of corn. If the government does not buy any wheat, there will tend to be an excess supply of wheat in the marketplace, if the price floor is binding.

Suppose that a market is initially in equilibrium. The initial demand curve is P=90−QdP = 90 - Q ^ { d }P=90−Qd . The initial supply curve is P=2QsP = 2 Q ^ { s }P=2Qs . Suppose that the government imposes a $3\$ 3$3 tax on this market. How much of this $3\$ 3$3 tax is paid by consumers?

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Consider a perfectly competitive market with market supply $Q ^ { s } = - 2 + P$ and market demand $Q ^ { d } = 30 - P$ . What is the equilibrium quantity in this market?

Suppose that a market is initially in equilibrium. The initial demand curve is $P = 90 - Q ^ { d }$ . The initial supply curve is $P = 2 Q ^ { s }$ . Suppose that the government imposes a $\$ 3$ tax on this market. What are the government receipts from the tax?

Suppose that a market is initially in equilibrium. The initial demand curve is $P = 90 - Q ^ { d }$ . The initial supply curve is $P = 2 Q ^ { s }$ . Suppose that the government imposes a $\$ 3$ tax on this market. How much of this $\$ 3$ tax is paid by consumers?