Question 1

Figure 4-18  Figure 4-18 shows the market for cigarettes. The government plans to impose a unit tax in this market.
-Refer to Figure 4-18. For each unit sold, the price sellers receive after the tax (net of tax) is

Accepted Answer

A)  $12. 
B)  $8. 
C)  $4.40. 
D)  $3.

Question 2

Table 4-7
  Table 4-7 shows the demand and supply schedules for labor market in the city of Pixley.
-To affect the market outcome, a price ceiling

Accepted Answer

A)  must be set below the black market price. 
B)  must be set below the legal price. 
C)  must be set below the price floor. 
D)  must be set below the equilibrium price.

Question 3

Figure 4-11  Figure 4-11 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00.
-Congress passed the Freedom to Farm Act in 1996. What was the purpose of this Act?

Accepted Answer

A)  to encourage more people to become farmers 
B)  to grant free land to farmers in order to produce crops that were particularly scarce 
C)  to phase out the use of price ceilings in agricultural markets 
D)  to phase out price floors and return to a free market in agriculture

Question 4

Article Summary
In an attempt to discourage smoking, New York City Mayor Michael Bloomberg proposed a bill which would set a $10.50 minimum price for a pack of cigarettes. The bill would also prohibit retailers from offering any discounts such as 2-for-1 offers or accepting discount coupons. New York City already has the highest cigarette tax in the country, at $5.85 per pack, and the state of New York is one of many which already require cigarettes be marked up by a specified percentage. This bill is a companion to one which would require stores to keep tobacco products hidden from sight. Although the bills are expected to be challenged in court, a precedent has been set in Rhode Island, where a court upheld a ruling allowing the city of Providence to forbid retailers from accepting coupons and offering discounts on cigarettes.
Source: Vivian Yee, "Bloomberg Seeks End to Cheap Cigarettes," New York Times, March 26, 2013.
-Refer to the Article Summary. The minimum price of $10.50 per pack of cigarettes being proposed by mayor Bloomberg would have which of the following effects on the market for cigarettes?

Accepted Answer

A)  Consumer surplus will decrease. 
B)  Some producer surplus will be transferred to consumers. 
C)  Deadweight loss will decrease. 
D)  Marginal benefit will be less than marginal cost.

Question 5

If the price of chewing gum is represented by equation P = 25 - 0.5 QD, then the corresponding quantity of chewing gum demanded is represented by the equation

Accepted Answer

A)  QD = 2P - 0.5. 
B)  QD = 0.5P + 25. 
C)  QD = 50 - 2P. 
D)  QD = -5 + 10P.

Question 6

Table 4-12
 
-Refer to Table 4-12. The equations above describe the demand and supply for Bubba's Fried Jellybeans. The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units. What is the value of economic surplus in this market?

Accepted Answer

A)  $5 thousand 
B)  $12.5 thousand 
C)  $25 thousand 
D)  $37.5 thousand

Question 7

Table 4-9
  Table 4-9 above contains information about the corn market. Answer the following questions based on this table.
-Refer to Table 4-9. An agricultural price floor is a price that the government guarantees farmers will receive for a particular crop. Suppose the federal government sets a price floor for corn at $12 per bushel.
a. What is the amount of shortage or surplus in the corn market as result of the price floor?
b. If the government agrees to purchase any surplus output at $12, how much will it cost the government?
c. If the government buys all of the farmers' output at the floor price, how many bushels of corn will it have to purchase and how much will it cost the government?
d. Suppose the government buys up all of the farmers' output at the floor price and then sells the output to consumers at whatever price it can get. Under this scheme, what is the price at which the government will be able to sell off all of the output it had purchased from farmers? What is the revenue received from the government's sale?
e. In this problem we have considered two government schemes: (1) a price floor is established and the government purchases any excess output and (2) the government buys all the farmers' output at the floor price and resells at whatever price it can get. Which scheme will taxpayers prefer?
f. Consider again the two schemes. Which scheme will the farmers prefer?
g. Consider again the two schemes. Which scheme will corn buyers prefer?

Accepted Answer

The answer of Table 4-9
  Table 4-9 above contains...

Question 8

Economic surplus is maximized in a competitive market when

Accepted Answer

A)  demand is equal to supply. 
B)  the deadweight loss equals the sum of consumer surplus and producer surplus. 
C)  marginal benefit equals marginal cost. 
D)  producers sell the quantity that consumers are willing to buy.

Question 9

Table 4-8
  Table 4-8 shows the demand and supply schedules for the low-skilled labor market in the city of Westover.
-Refer to Table 4-8. Suppose that the quantity of labor demanded decreases by 40,000 at each wage level. What are the new free market equilibrium hourly wage and the new equilibrium quantity of labor?

Accepted Answer

A)  W = $10.00; Q = 390,000 
B)  W = $9.50; Q = 380,000 
C)  W = $8.50; Q = 340,000 
D)  W = $8.00; Q = 350,000

Question 10

Figure 4-14  Figure 4-14 shows the market for taxi rides. The following question(s) are based on this figure.
-Refer to Figure 4-14. To legally drive a taxicab in New York City, you must have a medallion issued by the city government. Assume that only 13,200 medallions have been issued. Let's also assume this puts an absolute limit on the number of taxi rides that can be supplied in New York City on any day, because no one breaks the law by driving a taxi without a medallion. Assume as well that each taxi provides 6 trips per day. In that case, the quantity supplied of taxi rides is 79,200 (or 6 rides per taxi × 13,200 taxis). This is shown in the diagram with a vertical line at this quantity. Assume that there are no government controls on the prices that drivers can charge for rides.
a. What would the equilibrium price and quantity be in this market if there were no medallion requirement?
b. If there were no medallion requirement, indicate the area that represents consumer surplus.
c. If there were no medallion requirement, indicate the area that represents producer surplus.
d. If there were no medallion requirement, indicate the area that represents economic surplus.
e. What are the price and quantity with the medallion requirement?
f. With a medallion requirement in place, what area represents consumer surplus?
g. With a medallion requirement in place, what area represents producer surplus?
h. With a medallion requirement in place, what area represents the deadweight loss?
i. Based on your answers to parts (c) and (g), are taxicab drivers better off with the medallion requirement for taxicabs than without?
j. Are consumers better off with or without the medallion requirement for taxicabs?

Accepted Answer

The answer of Figure 4-14  Figure 4-14 shows the...

Question 11

Table 4-6
 
-Refer to Table 4-6. The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in producing men's clothing. If the price of polo shirts increases from $15 to $20,

Accepted Answer

A)  consumers will buy no polo shirts. 
B)  the marginal cost of producing the third polo shirt will increase to $20. 
C)  producer surplus will rise from $13 to $28. 
D)  there will be a surplus of polo shirts.

Question 12

Which of the following is not a result of government price controls?

Accepted Answer

A)  Some people win and some people lose. 
B)  Price controls benefit poor consumers but harm producers and wealthy consumers. 
C)  Price controls decrease economic efficiency. 
D)  A deadweight loss will occur.

Question 13

If, in a competitive market, marginal benefit is less than marginal cost,

Accepted Answer

A)  the net benefit to consumers from participating in the market is less than the net benefit to producers. 
B)  the government must force producers to raise prices in order to achieve economic efficiency. 
C)  the quantity sold is greater than the equilibrium quantity. 
D)  the quantity sold is less than the equilibrium quantity.

Question 14

Figure 4-15  Figure 4-15 shows the market for beer. The government plans to impose a unit tax in this market.
-Refer to Figure 4-15. For each unit sold, the price sellers receive after the tax (net of tax) is

Accepted Answer

A)  $20. 
B)  $22. 
C)  $27. 
D)  $32.

Question 15

The following equations represent the demand and supply for bird feeders. QD = 35 - P
QS = -5 + 3P
What is the equilibrium price (P) and quantity (Q - in thousands) of bird feeders?

Accepted Answer

A)  P = $10; Q = 25 thousand 
B)  P = $35; Q = 20 thousand 
C)  P = $20; Q = 20 thousand 
D)  P = $5; Q = 30 thousand

Question 16

If a tax is imposed on a product, the buyer will always bear the entire burden of the tax.

Accepted Answer

A) True 
 B)False

Question 17

Figure 4-8  Figure 4-8 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month.
-Refer to Figure 4-8. What is the value of producer surplus after the imposition of the ceiling?

Accepted Answer

A)  $40,000 
B)  $100,000 
C)  $300,000 
D)  $430,000

Question 18

Rent control is an example of a price ceiling.

Accepted Answer

A) True 
 B)False

Question 19

What is producer surplus? What does producer surplus measure?

Accepted Answer

The answer of What is producer surplus? What does producer...

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

Figure 4-18 Figure 4-18 shows the market for cigarettes. The government plans to impose a unit tax in this market. -Refer to Figure 4-18. For each unit sold, the price sellers receive after the tax (net of tax) is

Table 4-7 Table 4-7 shows the demand and supply schedules for labor market in the city of Pixley. -To affect the market outcome, a price ceiling

Figure 4-11 Figure 4-11 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00. -Congress passed the Freedom to Farm Act in 1996. What was the purpose of this Act?

If the price of chewing gum is represented by equation P = 25 - 0.5 QD, then the corresponding quantity of chewing gum demanded is represented by the equation

Table 4-12 -Refer to Table 4-12. The equations above describe the demand and supply for Bubba's Fried Jellybeans. The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units. What is the value of economic surplus in this market?

Economic surplus is maximized in a competitive market when

Table 4-6 -Refer to Table 4-6. The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in producing men's clothing. If the price of polo shirts increases from $15 to $20,

Which of the following is not a result of government price controls?

If, in a competitive market, marginal benefit is less than marginal cost,

Figure 4-15 Figure 4-15 shows the market for beer. The government plans to impose a unit tax in this market. -Refer to Figure 4-15. For each unit sold, the price sellers receive after the tax (net of tax) is

The following equations represent the demand and supply for bird feeders. QD = 35 - P QS = -5 + 3P What is the equilibrium price (P) and quantity (Q - in thousands) of bird feeders?

If a tax is imposed on a product, the buyer will always bear the entire burden of the tax.

Figure 4-8 Figure 4-8 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. -Refer to Figure 4-8. What is the value of producer surplus after the imposition of the ceiling?

Rent control is an example of a price ceiling.

What is producer surplus? What does producer surplus measure?