Question 1

It is always the case that:

Accepted Answer

A) the deadweight loss will be lower with a quota system than a tariff system. 
B) there will be a deadweight loss from imposing tariffs on imports, even though the government may have a need for the revenue from the tariffs. 
C) free trade will lead to a deadweight loss. 
D) the deadweight loss will be lower with a tariff system than a quota system. 
A) the deadweight loss will be lower with a quota system than a tariff system. 
B) there will be a deadweight loss from imposing tariffs on imports, even though the government may have a need for the revenue from the tariffs. 
C) free trade will lead to a deadweight loss. 
D) the deadweight loss will be lower with a tariff system than a quota system.

Question 2

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. What is the new equilibrium quantity traded in this market?

Accepted Answer

A)  $Q = 8$ 
B)  $Q = 2$ 
C)  $Q = 7$ 
D)  $Q = 3$ 
A)  $Q = 8$ 
B)  $Q = 2$ 
C)  $Q = 7$ 
D)  $Q = 3$

Question 3

Which of the following statements regarding a price ceiling in a perfectly competitive market is incorrect?

Accepted Answer

A) There will be no deadweight loss with the price ceiling. 
B) The will be excess demand resulting from the price ceiling. 
C) The market will under produce relative to the efficient level. 
D) Consumer surplus may either increase or decrease with a price ceiling. 
A) There will be no deadweight loss with the price ceiling. 
B) The will be excess demand resulting from the price ceiling. 
C) The market will under produce relative to the efficient level. 
D) Consumer surplus may either increase or decrease with a price ceiling.

Question 4

Government purchase programs in agriculture tend to be politically more palatable than direct cash transfers, even though they induce more deadweight loss.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) The market will overproduce relative to the efficient level. 
B) Consumer surplus will be higher than with no subsidy. 
C) Producer surplus will be higher than with no subsidy. 
D) There will be no deadweight loss from the subsidy. 
A) The market will overproduce relative to the efficient level. 
B) Consumer surplus will be higher than with no subsidy. 
C) Producer surplus will be higher than with no subsidy. 
D) There will be no deadweight loss from the subsidy.

Question 6

Suppose the government decides to create a price support (floor)on the price of corn. A binding price support/floor will tend to lower the price of corn for poorer people.

Accepted Answer

A) True 
 B)False

Question 7

In a perfectly competitive market, a production quota:

Accepted Answer

A) sets a limit on the level of imports of a good. 
B) has the effect of keeping the market price below the equilibrium level. 
C) will create excess supply in the market. 
D) creates no deadweight loss. 
A) sets a limit on the level of imports of a good. 
B) has the effect of keeping the market price below the equilibrium level. 
C) will create excess supply in the market. 
D) creates no deadweight loss.

Question 8

Suppose the government decides to create a price support (floor)on the price of corn. It is likely that the total surplus (consumer surplus plus producer surplus)will rise with a price support program.

Accepted Answer

A) True 
 B)False

Question 9

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) after the government imposes the tax?

Accepted Answer

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

Question 10

Suppose the government decides to create a ceiling on the price of gasoline, which of the following is not likely to be true under the described circumstances?

Accepted Answer

A) The ceiling will have no effect if the ceiling is above the equilibrium market price. 
B) Producer surplus will likely increase if the ceiling is below the equilibrium market price. 
C) Producer surplus will be lower with a binding ceiling (below the initial market equilibrium price). 
D) The ceiling will lead to shortages if the ceiling is below the initial market price. 
A) The ceiling will have no effect if the ceiling is above the equilibrium market price. 
B) Producer surplus will likely increase if the ceiling is below the equilibrium market price. 
C) Producer surplus will be lower with a binding ceiling (below the initial market equilibrium price). 
D) The ceiling will lead to shortages if the ceiling is below the initial market price.

Question 11

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 consumer surplus (per million boxes) associated with the quota?

Accepted Answer

A)  $\$ 450$ 
B)  $\$ 350$ 
C)  $\$ 300$ 
D)  $\$ 50$ 
A)  $\$ 450$ 
B)  $\$ 350$ 
C)  $\$ 300$ 
D)  $\$ 50$

Question 12

Which of the following statements is not generally true of a production quota?

Accepted Answer

A) The market will not clear due to the excess supply of that good. 
B) Consumer surplus increases when compared to the market before the quota. 
C) Producer surplus may increase or decrease. 
D) Some of the consumer surplus will be transferred to producers. 
A) The market will not clear due to the excess supply of that good. 
B) Consumer surplus increases when compared to the market before the quota. 
C) Producer surplus may increase or decrease. 
D) Some of the consumer surplus will be transferred to producers.

Question 13

-Based on the graph above, determine the level of consumer surplus at the market equilibrium.

Accepted Answer

A) 16,875 
B) 11,250 
C) 7,500 
D) 3,750 
A) 16,875 
B) 11,250 
C) 7,500 
D) 3,750

Question 14

The profit in a perfectly competitive market is the one that maximizes the economic benefits (the sum of consumer and producer surplus).

Accepted Answer

A) True 
 B)False

Question 15

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 $Q ^ { s } = 4 P$. The world price for calculators is $\$ 10$. Now, a tariff of $\$ 10$ is imposed on all imports. How much revenue does this policy generate for the government?

Accepted Answer

A)  0 
B)  10 
C)  30 
D)  50 
A)  0 
B)  10 
C)  30 
D)  50

Question 16

When a perfectly competitive market is in equilibrium,:

Accepted Answer

A) consumer and producer surplus are maximized. 
B) price is maximized. 
C) quantity is maximized. 
D) deadweight loss is positive. 
A) consumer and producer surplus are maximized. 
B) price is maximized. 
C) quantity is maximized. 
D) deadweight loss is positive.

Question 17

In a market with an upward-sloping supply curve and a downward-sloping demand curve, the effects of an excise tax are as follows except:

Accepted Answer

A) Consumer surplus will be lower than with no tax. 
B) Producer surplus will be lower than with no tax. 
C) The impact on the government budget will be positive. 
D) The tax will generally lead to a deadweight gain. 
A) Consumer surplus will be lower than with no tax. 
B) Producer surplus will be lower than with no tax. 
C) The impact on the government budget will be positive. 
D) The tax will generally lead to a deadweight gain.

Question 18

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 are the new amount traded and the price in this market?

Accepted Answer

A)  $Q = 40 ; P = 20$ 
B)  $Q = 20 ; P = 40$ 
C)  $Q = 30 ; P = 30$ 
D)  $Q = 30 ; P = 15$ 
A)  $Q = 40 ; P = 20$ 
B)  $Q = 20 ; P = 40$ 
C)  $Q = 30 ; P = 30$ 
D)  $Q = 30 ; P = 15$

Question 19

Acreage limitations are used by the government because:

Accepted Answer

A) they induce less deadweight loss than cash transfers to farmers. 
B) they raise the market price of an agricultural product without the surpluses associated with price supports. 
C) the government wishes to lower agricultural prices. 
D) they are an effective way to feed poor people. 
A) they induce less deadweight loss than cash transfers to farmers. 
B) they raise the market price of an agricultural product without the surpluses associated with price supports. 
C) the government wishes to lower agricultural prices. 
D) they are an effective way to feed poor people.

Question 20

Which of the following is not a description of what a tariff can achieve in a perfectly competitive market?

Accepted Answer

A) A tariff can achieve many of the same goals as an import quota. 
B) A tariff can create less domestic deadweight loss than a quota if the tariff revenues are redistributed domestically. 
C) A tariff can create greater government revenues than a quota. 
D) A tariff creates enough government revenue to completely offset the impact of deadweight loss, thereby increasing total surplus. 
A) A tariff can achieve many of the same goals as an import quota. 
B) A tariff can create less domestic deadweight loss than a quota if the tariff revenues are redistributed domestically. 
C) A tariff can create greater government revenues than a quota. 
D) A tariff creates enough government revenue to completely offset the impact of deadweight loss, thereby increasing total surplus.

It is always the case that:

Which of the following statements regarding a price ceiling in a perfectly competitive market is incorrect?

Government purchase programs in agriculture tend to be politically more palatable than direct cash transfers, even though they induce more deadweight loss.

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

Suppose the government decides to create a price support (floor)on the price of corn. A binding price support/floor will tend to lower the price of corn for poorer people.

In a perfectly competitive market, a production quota:

Suppose the government decides to create a price support (floor)on the price of corn. It is likely that the total surplus (consumer surplus plus producer surplus)will rise with a price support program.

Suppose the government decides to create a ceiling on the price of gasoline, which of the following is not likely to be true under the described circumstances?

Which of the following statements is not generally true of a production quota?

-Based on the graph above, determine the level of consumer surplus at the market equilibrium.

The profit in a perfectly competitive market is the one that maximizes the economic benefits (the sum of consumer and producer surplus).

When a perfectly competitive market is in equilibrium,:

In a market with an upward-sloping supply curve and a downward-sloping demand curve, the effects of an excise tax are as follows except:

Acreage limitations are used by the government because:

Which of the following is not a description of what a tariff can achieve in a perfectly competitive market?

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

It is always the case that:

Which of the following statements regarding a price ceiling in a perfectly competitive market is incorrect?

Government purchase programs in agriculture tend to be politically more palatable than direct cash transfers, even though they induce more deadweight loss.

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

Suppose the government decides to create a price support (floor)on the price of corn. A binding price support/floor will tend to lower the price of corn for poorer people.

In a perfectly competitive market, a production quota:

Suppose the government decides to create a price support (floor)on the price of corn. It is likely that the total surplus (consumer surplus plus producer surplus)will rise with a price support program.

Suppose the government decides to create a ceiling on the price of gasoline, which of the following is not likely to be true under the described circumstances?

Which of the following statements is not generally true of a production quota?

-Based on the graph above, determine the level of consumer surplus at the market equilibrium.

The profit in a perfectly competitive market is the one that maximizes the economic benefits (the sum of consumer and producer surplus).

When a perfectly competitive market is in equilibrium,:

In a market with an upward-sloping supply curve and a downward-sloping demand curve, the effects of an excise tax are as follows except:

Acreage limitations are used by the government because:

Which of the following is not a description of what a tariff can achieve in a perfectly competitive market?

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