Question 1

A price floor results in a decrease in deadweight loss.

Accepted Answer

A) True 
 B)False  False

Question 2

Exhibit 7-10  
-Refer to Exhibit 7-10.If the government imposed on consumers a tax of $3 per unit bought,the tax revenue would be

Accepted Answer

A) $150. 
B) $120. 
C) $135. 
D) $180. 
E) $165. 
A) $150. 
B) $120. 
C) $135. 
D) $180. 
E) $165. A

Question 3

A tax on producers reduces producer surplus while consumer surplus remains the same.

Accepted Answer

A) True 
 B)False  False

Question 4

A tax on a good results in no deadweight loss if consumers and producers share the benefits of the tax revenues.

Accepted Answer

A) True 
 B)False

Question 5

A specific tax

Accepted Answer

A) increases supply by shifting the curve up. 
B) is a tax that is paid only by producers. 
C) is a per-unit tax on a good. 
D) is a percentage tax on the total value of sales. 
E) is proportionate to the total value of a good sold. 
A) increases supply by shifting the curve up. 
B) is a tax that is paid only by producers. 
C) is a per-unit tax on a good. 
D) is a percentage tax on the total value of sales. 
E) is proportionate to the total value of a good sold.

Question 6

The competitive equilibrium model gets its name from the

Accepted Answer

A) fact that the number of participants eliminated from the market equals the number of new participants. 
B) competition between buyers and sellers,each trying to drive the other out of business. 
C) competition between buyers and sellers,which establishes a market price equating the amounts people wish to buy and sell. 
D) steady-state nature of the model,in which prices can never change. 
E) way that the government is trying to balance the market's supply and demand forces. 
A) fact that the number of participants eliminated from the market equals the number of new participants. 
B) competition between buyers and sellers,each trying to drive the other out of business. 
C) competition between buyers and sellers,which establishes a market price equating the amounts people wish to buy and sell. 
D) steady-state nature of the model,in which prices can never change. 
E) way that the government is trying to balance the market's supply and demand forces.

Question 7

The function of price in a market economy is to

Accepted Answer

A) make producers wealthy at the expense of consumers. 
B) provide information to producers and consumers. 
C) provide a base on which government can build a tax system. 
D) prevent market adjustment from being necessary. 
E) cause consumers to be certain that they desire a product before they buy it. 
A) make producers wealthy at the expense of consumers. 
B) provide information to producers and consumers. 
C) provide a base on which government can build a tax system. 
D) prevent market adjustment from being necessary. 
E) cause consumers to be certain that they desire a product before they buy it.

Question 8

Exhibit 7-7  
-Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East.If the government reacts to the shift of the supply curve from S1 to S2 by imposing a price ceiling at P3,then the consumer surplus

Accepted Answer

A) increases by area C less area H. 
B) decreases by area C less area H. 
C) increases by area G less area I. 
D) decreases by area G less area I. 
E) remains constant. 
A) increases by area C less area H. 
B) decreases by area C less area H. 
C) increases by area G less area I. 
D) decreases by area G less area I. 
E) remains constant.

Question 9

A market

Accepted Answer

A) must be located in a single centralized place where all buyers and sellers can meet together at once. 
B) generally fails to coordinate trading activity,as evidenced by the apparent chaos on Wall Street. 
C) cannot operate without direct government intervention in the conduct of trades. 
D) requires little communication. 
E) is a group of buyers and sellers buying and selling goods and services. 
A) must be located in a single centralized place where all buyers and sellers can meet together at once. 
B) generally fails to coordinate trading activity,as evidenced by the apparent chaos on Wall Street. 
C) cannot operate without direct government intervention in the conduct of trades. 
D) requires little communication. 
E) is a group of buyers and sellers buying and selling goods and services.

Question 10

For a given tax assessed on producers,market price changes the most if demand is perfectly inelastic and supply is perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 7-2  
-Refer to Exhibit 7-2.What would be the total cost of Firm A and Firm B producing 4 units of output each? Is it possible to reduce this total cost and still produce the same total output? How?

Accepted Answer

$62; yes; Firm A produces less.

Firm A

Question 12

Exhibit 7-9  
-Exhibit 7-9 shows the effect of a tax on a market.The deadweight loss equals

Accepted Answer

A) the combined area of C and D. 
B) the combined area of A and B. 
C) the combined area of E and F. 
D) area C minus area D. 
E) the combined area of A,B,C,D,E,and F. 
A) the combined area of C and D. 
B) the combined area of A and B. 
C) the combined area of E and F. 
D) area C minus area D. 
E) the combined area of A,B,C,D,E,and F.

Question 13

Suppose Jack waits in line and gets in to see a movie he values at $6,while Sam,farther back in line,does not get to see the movie he values at $12 because the theater fills up.Which of the following statements is true?

Accepted Answer

A) The movie theater management needs to install more seats. 
B) Pareto efficiency is a concept that is not applicable here. 
C) Pareto efficiency is achieved because Jack can tell Sam about the movie. 
D) Jack must have stolen his ticket from Sam. 
E) Pareto efficiency is not achieved. 
A) The movie theater management needs to install more seats. 
B) Pareto efficiency is a concept that is not applicable here. 
C) Pareto efficiency is achieved because Jack can tell Sam about the movie. 
D) Jack must have stolen his ticket from Sam. 
E) Pareto efficiency is not achieved.

Question 14

Exhibit 7-10  
-Refer to Exhibit 7-10.What would the new equilibrium quantity be if the government assessed on producers a tax of $3 per unit sold?

Accepted Answer

A) 55 
B) 40 
C) 50 
D) 60 
E) 45 
A) 55 
B) 40 
C) 50 
D) 60 
E) 45

Question 15

The first theorem of welfare economics concerns the efficiency of competitive markets.

Accepted Answer

A) True 
 B)False

Question 16

Define Pareto efficiency.

Accepted Answer

Pareto efficiency is achieved

Question 17

Pareto efficiency occurs when there is no difference in the levels of income among individuals.

Accepted Answer

A) True 
 B)False

Question 18

Who are unambiguously worse off in the case of a price ceiling?

Accepted Answer

A) Both buyers and sellers 
B) Buyers 
C) Sellers 
D) Neither buyers nor sellers 
E) Government officials 
A) Both buyers and sellers 
B) Buyers 
C) Sellers 
D) Neither buyers nor sellers 
E) Government officials

Question 19

The first theorem of welfare economics states that

Accepted Answer

A) government action is never Pareto efficient. 
B) Pareto efficiency is achieved in competitive markets. 
C) Pareto efficiency can be achieved only in competitive markets. 
D) Pareto efficiency is unattainable. 
E) government intervention is needed to achieve Pareto efficiency. 
A) government action is never Pareto efficient. 
B) Pareto efficiency is achieved in competitive markets. 
C) Pareto efficiency can be achieved only in competitive markets. 
D) Pareto efficiency is unattainable. 
E) government intervention is needed to achieve Pareto efficiency.

Question 20

Exhibit 7-2  
-Refer to Exhibit 7-2.What is the least cost for the production of 8 units of output?

Accepted Answer

$57 If Firm B produces 5 units and Firm

Exam 7: The Interaction of People in Markets

A price floor results in a decrease in deadweight loss.

Exhibit 7-10 -Refer to Exhibit 7-10.If the government imposed on consumers a tax of $3 per unit bought,the tax revenue would be

A tax on producers reduces producer surplus while consumer surplus remains the same.

A tax on a good results in no deadweight loss if consumers and producers share the benefits of the tax revenues.

A specific tax

The competitive equilibrium model gets its name from the

The function of price in a market economy is to

Exhibit 7-7 -Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East.If the government reacts to the shift of the supply curve from S1 to S2 by imposing a price ceiling at P3,then the consumer surplus

A market

For a given tax assessed on producers,market price changes the most if demand is perfectly inelastic and supply is perfectly elastic.

Exhibit 7-2 -Refer to Exhibit 7-2.What would be the total cost of Firm A and Firm B producing 4 units of output each? Is it possible to reduce this total cost and still produce the same total output? How?

Exhibit 7-9 -Exhibit 7-9 shows the effect of a tax on a market.The deadweight loss equals

Suppose Jack waits in line and gets in to see a movie he values at $6,while Sam,farther back in line,does not get to see the movie he values at $12 because the theater fills up.Which of the following statements is true?

Exhibit 7-10 -Refer to Exhibit 7-10.What would the new equilibrium quantity be if the government assessed on producers a tax of $3 per unit sold?

The first theorem of welfare economics concerns the efficiency of competitive markets.

Define Pareto efficiency.

Pareto efficiency occurs when there is no difference in the levels of income among individuals.

Who are unambiguously worse off in the case of a price ceiling?

The first theorem of welfare economics states that

Exhibit 7-2 -Refer to Exhibit 7-2.What is the least cost for the production of 8 units of output?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

Filters

Exhibit 7-7 -Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East.If the government reacts to the shift of the supply curve from S₁ to S₂by imposing a price ceiling at P₃,then the consumer surplus