Deck 4: Economic Efficiency, Government Price Setting, and Taxes

Question 1

Lucinda buys a new motorcycle helmet for $250. She receives consumer surplus of $75 from the purchase. What value does Lucinda place on her motorcycle helmet?

A) $75
B) $175
C) $250
D) $325

Answer 1

$325

Question 2

-Refer to Table 4-1. The table above lists the highest prices three consumers, Tom, Dick, and Harriet, are willing to pay for a short-sleeved polo shirt. If the price of one of the shirts is $28 dollars,

A) Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts.
B) Tom will receive $12 of consumer surplus from buying one shirt.
C) Tom and Dick receive a total of $70 of consumer surplus from buying one shirt each. Harriet will buy no shirts.
D) Harriet will receive $25 of consumer surplus since she will buy no shirts.

Answer 2

Tom will receive $12 of consumer surplus from buying one shirt.

Question 3

-Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a theater ticket. If the price of one of the tickets is $18,

A) Anya and Basil will each buy two tickets.
B) Basil will receive $2 of consumer surplus from buying one ticket.
C) Anya and Basil receive a total of $26 of consumer surplus from buying one ticket each. No one else will buy a ticket.
D) Celeste, Dralon, and Esther will receive a total of $34 of consumer surplus since they will buy no tickets.

Answer 3

Basil will receive $2 of consumer surplus from buying one ticket.

Question 4

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-Refer to Table 4-3. The table above 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 from the first hat is $40.
C) producer surplus will equal $28.
D) there will be a surplus; as a result, the price will fall to $24.

Question 5

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-Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the price of cowboy hats increases from $38 to $46,

A) consumers will buy no cowboy hats.
B) the marginal cost of producing the third cowboy hat will increase to $46.
C) producer surplus will rise from $22 to $46.
D) there will be a surplus of cowboy hats.

Question 6

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-Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the price of cowboy hats decreases from $38 to $30,

A) consumer surplus will rise by $6.
B) the marginal cost of producing the third cowboy hat will fall to $30.
C) producer surplus will fall from $22 to $6.
D) producer surplus will rise from $8 to $24.

Question 7

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. Arnold's marginal benefit from consuming the third burrito is

A) $1.25.
B) $1.50.
C) $2.50.
D) $6.00.

Question 8

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. Arnold's marginal benefit from consuming the second burrito is

A) $1.00.
B) $1.50.
C) $2.00.
D) $4.50.

Question 9

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. If the market price is $1.00, what is the consumer surplus on the third burrito?

A) $0.50
B) $1.00
C) $1.50
D) $7.50

Question 10

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. If the market price is $1.00, what is Arnold's consumer surplus?

A) $1.00
B) $2.00
C) $3.00
D) $7.00

Question 11

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. If the market price is $1.50, what is the consumer surplus on the first burrito?

A) $0.50
B) $1.00
C) $1.50
D) $7.50

Question 12

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. If the market price is $1.50, what is the consumer surplus on the second burrito?

A) $0.50
B) $1.00
C) $1.50
D) $3.50

Question 13

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. If the market price is $1.50, what is Arnold's consumer surplus?

A) $1.50
B) $2.25
C) $3.00
D) $4.75

Question 14

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. If the market price is $2.00, what is the consumer surplus on the first burrito?

A) $0.50
B) $1.00
C) $2.00
D) $7.50

Question 15

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. If the market price is $2.00, what is Arnold's consumer surplus?

A) $0.50
B) $1.00
C) $1.50
D) $3.00

Question 16

Figure 4-1 shows Arnold's demand curve for burritos.

-Refer to Figure 4-1. What is the total amount that Arnold is willing to pay for 3 burritos?

A) $1.50
B) $6.00
C) $7.00
D) $10.00

Question 17

Economists working for Uber, along with economists from the University of Oxford and the University of Chicago, estimated the consumer surplus attributed to Uber. For the entire United States, these economists estimated that the total consumer surplus from Uber for one year was

A) almost $0.
B) $13.30 per customer.
C) $2.88 billion.
D) 6.76 billion.

Question 18

-Refer to Figure 4-4. The figure above 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 price would increase, the quantity supplied would decrease, and the quantity demanded would increase.
B) The quantity supplied would increase, the quantity demanded would decrease, and the equilibrium price would increase.
C) The price would increase, the demand would decrease, and the supply would increase.
D) The price would increase, the quantity demanded would decrease, and the quantity supplied would increase.

Question 19

-Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $9, what changes in the market would result in an economically efficient output?

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

Question 20

-Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If 4,000 pounds of pecans are sold

A) the deadweight loss is equal to $12,000.
B) consumer surplus equals zero.
C) the marginal benefit of each of the 4,000 pounds of pecans equals $3.
D) marginal benefit is equal to marginal cost.

Question 21

-Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. Which of the following is true?

A) If the price of pecans is $3 the output will be economically efficient but there will be a deadweight loss.
B) If the price of pecans is $9 consumers will purchase more than the economically efficient output.
C) Both 4,000 pounds and 12,000 pounds are economically inefficient rates of output.
D) If the price of pecans is $3 producers will sell 12,000 pounds of pecans but this output will be economically inefficient.

Question 22

The graph below represents the market for walnuts. Identify the values of the marginal benefit and the marginal cost at the output levels of 2,000 pounds, 4,000 pounds, and 6,000 pounds. At each of these output levels, state whether output is inefficiently high, inefficiently low, or economically efficient.

Question 23

The graph below represents the market for lychee nuts. The equilibrium price is $7.00 per bushel, but the market price is $5.00 per bushel. Identify the areas representing consumer surplus, producer surplus, and deadweight loss at the equilibrium price of $7.00 and at the market price of $5.00.

Question 24

Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley.

-Refer to Table 4-4. What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)?

A) W* = $10.50; Q* = 590,000
B) W* = $11.50; Q* = 570,000
C) W* = $9.50; Q* = 570,000
D) W* = $10.50; Q* = 1,180,000

Question 25

Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley.

-Refer to Table 4-4. If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor demanded?

A) 40,000
B) 570,000
C) 610,000
D) 1,180,000

Question 26

Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley.

-Refer to Table 4-4. If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor supplied?

A) 40,000
B) 570,000
C) 610,000
D) 1,180,000

Question 27

Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley.

-Refer to Table 4-4. If a minimum wage of $11.50 is mandated, there will be a

A) shortage of 20,000 units of labor.
B) surplus of 20,000 units of labor.
C) shortage of 40,000 units of labor.
D) surplus of 40,000 units of labor.

Question 28

Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley.

-Refer to Table 4-4. If a minimum wage of $12.50 an hour is mandated, what is the quantity of labor demanded?

A) 80,000
B) 550,000
C) 630,000
D) 1,180,000

Question 29

Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley.

-Refer to Table 4-4. If a minimum wage of $12.50 an hour is mandated, what is the quantity of labor supplied?

A) 80,000
B) 550,000
C) 630,000
D) 1,180,000

Question 30

Table 4-4 shows the demand and supply schedules for the labor market in the city of Pixley.

-Refer to Table 4-4. If a minimum wage of $12.50 is mandated, there will be a

A) shortage of 40,000 units of labor.
B) surplus of 40,000 units of labor.
C) shortage of 80,000 units of labor.
D) surplus of 80,000 units of labor.

Question 31

Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month.

-Refer to Figure 4-5. What is the value of consumer surplus after the imposition of the ceiling?

A) $200,000
B) $250,000
C) $300,000
D) $400,000

Question 32

Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month.

-Refer to Figure 4-5. What is the value of producer surplus after the imposition of the ceiling?

A) $50,000
B) $200,000
C) $250,000
D) $300,000

Question 33

Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month.

-Refer to Figure 4-5. What is the value of the portion of producer surplus transferred to consumers as a result of the rent ceiling?

A) $50,000
B) $100,000
C) $150,000
D) $200,000

Question 34

Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month.

-Refer to Figure 4-5. What is the value of the deadweight loss after the imposition of the ceiling?

A) $50,000
B) $100,000
C) $150,000
D) $200,000

Question 35

Figure 4-6 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.

-Refer to Figure 4-6. What area represents the deadweight loss after the imposition of the price floor?

A) C + D + G
B) F + G
C) C + D
D) C + D + F + G

Question 36

If Uber is unsuccessful in fighting the cap on the number of cars driving for ride-hailing companies in New York City, this will have the potential to raise the equilibrium price in this market. This would have a tendency to

A) decrease producer surplus and decrease deadweight loss.
B) decrease consumer surplus and increase deadweight loss.
C) increase consumer surplus and increase producer surplus.
D) maximize consumer surplus and minimize producer surplus.

Question 37

-Refer to Figure 4-9. Suppose the market is initially in equilibrium at price P1 and now the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax? For demand curve D1

A) the producer bears a greater share of the tax burden if the supply curve is S2.
B) the producer bears a greater share of the tax burden if the supply curve is S1.
C) the producer's share of the tax burden is the same whether the supply curve is S1 or S2.
D) the producer bears the entire burden of the tax if the supply curve is S1 and the consumer bears the entire burden of the tax if the supply curve is S2.

Question 38

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 would shift up by less than $1.
D) The supply curve for cases of beer would shift up by $1.

Question 39

Voters in Oregon will decide in November 2020 on a $2-per-pack tax increase on cigarettes, which would raise the per-pack tax to $3.33. Should the tax be implemented, it is expected to raise nearly $350 million every two years, with the revenue going to the state's public health care system. Oregon voters last considered an increase in cigarette taxes in 2007, but that measure was defeated thanks in part to a $12 million campaign against the tax hike by tobacco companies. Proponents of this $2-per-pack tax increase believe the tax has a better chance of passing this time because it has support from the health care industry.
Source: Dirk VanderHart, "Once Stalled, A Cigarette Tax Hike Is Moving In Oregon Capital", opb.org, June 13, 2019

-Refer to the Article Summary. The additional tax of $2 per pack of cigarettes will have which of the following effects on the market for cigarettes in Oregon?

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