Question 1

A price ceiling imposed below equilibrium price causes a deadweight loss for society because:

Accepted Answer

A price ceiling below equilibrium price causes a shortage in the market, as the quantity demanded exceeds the quantity supplied at the fixed price. This shortage leads to deadweight loss, as units of output that consumers value more than the cost of production are not produced, resulting in a loss of potential surplus for both buyers and sellers. Ultimately, the burden of the price ceiling will fall on both parties, resulting in a net loss for society.

Question 2

A tax on a product causes a deadweight loss because:

Accepted Answer

A tax on a product creates a deadweight loss because it distorts the incentives of producers and consumers, causing them to produce and consume less than the efficient level of output. This results in a loss of both consumer and producer surplus that could have been gained if the market operated at the efficient level. Options A, B, and C describe the effects of the tax, but they do not explain why the tax creates a deadweight loss.

Question 3

Exhibit 7-4 The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp:
 Refer to Exhibit 7-4.If the price of shrimp were to decrease from $12 to $10,the increase in consumer surplus would equal:

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the price they actually pay. In this case, the consumer is willing to pay $12 for one pound of shrimp, but the price is actually $10. Therefore, the consumer surplus is $2 ($12 - $10). If the price were to decrease to $10, the consumer would be willing to buy more shrimp, resulting in an increase in consumer surplus. The new consumer surplus would be $8 ($12 - $10) for the first pound of shrimp and $6 ($11 - $10) for the second pound, for a total increase of $6. Therefore, the increase in consumer surplus would be $6 if the price of shrimp were to decrease from $12 to $10.

Question 4

Other things being equal,the more elastic demand is:

Accepted Answer

When demand is more elastic, consumers are more responsive to price changes, including those resulting from taxes. This leads to a larger decrease in quantity demanded for a given tax increase, resulting in a greater deadweight loss as the market moves further from the efficient equilibrium quantity.

Question 5

Which of the following statements is always true?

Accepted Answer

An increase in price generally leads to an increase in producer surplus along a supply curve because producers are able to sell their goods at a higher price, which typically increases their profits or surplus from those sales. Choices B, C, and D are not always true because the effects on consumer surplus depend on various factors such as the elasticity of demand and supply, and the specific conditions under which price ceilings or floors are implemented.

Question 6

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community.
 Refer to Exhibit 7-5.If the market price of wine is $30,the total consumer surplus for the community equals:

Accepted Answer

Consumer surplus is calculated as the difference between the willingness to pay and the price paid for a good. At a market price of $30, consumers are willing to pay a total of $50,000 for wine (sum of the willingness to pay values from $30 to $80). Thus, the total consumer surplus for the community would be $50,000 - ($30 x 10,000 consumers) = $30,000. Therefore, the correct answer is B.

Question 7

Goods that are heavily taxed,such as alcohol and cigarettes,often have:

Accepted Answer

Goods that are heavily taxed, such as alcohol and cigarettes, often have relatively inelastic demand because they are addictive and have few substitutes. This means that buyers are willing to pay a higher price for them even with the tax, and the tax burden falls primarily on buyers. The deadweight loss associated with the tax is smaller than if the demand were elastic because there is less of a change in quantity demanded with the tax.

Question 8

Exhibit 7-3 Refer to Exhibit 7-3.What is the consumer surplus of the 10^th unit bought/sold?

Accepted Answer

The answer of Exhibit 7-3  Refer to Exhibit 7-3.What...

Question 9

The net loss to society from a tax on a product can be measured as:

Accepted Answer

The answer of The net loss to society from a...

Question 10

Phil and Lasca have always wanted to take a cruise.Although willing to pay $5,000 for a Caribbean cruise for two,they were able to purchase a cruise vacation for two for $3,500.Their total consumer surplus amounted to:

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price paid.

In this case, Phil and Lasca were willing to pay $5,000 for a cruise but were able to purchase one for $3,500.

Therefore, their consumer surplus is:

$5,000 - $3,500 = $1,500

So, the correct answer is choice C.

Question 11

Consumer surplus measures:

Accepted Answer

The answer of Consumer surplus measures:
...

Question 12

Exhibit 7-3 Refer to Exhibit 7-3.What is the sum of consumer surplus and producer surplus for the 10^th unit bought/sold?

Accepted Answer

The answer of Exhibit 7-3  Refer to Exhibit 7-3.What...

Question 13

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community.
 Refer to Exhibit 7-5.If the market price of wine is $20,the total consumer surplus for the community equals:

Accepted Answer

The answer of Exhibit 7-5 The schedule below represents the...

Question 14

As a result of the imposition of a tax on a product:

Accepted Answer

Imposition of tax on a product results in a decrease in consumer and producer surplus, as the tax is levied on both parties. The tax revenue collected by the government is a gain for the government, which represents a transfer of surplus from buyers and sellers to the government. Hence, some consumer and producer surplus is transferred from buyers and sellers to the government.

Question 15

Exhibit 7-4 The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp:
 Refer to Exhibit 7-4.If the price of shrimp is $12 per pound,according to the schedule total consumer surplus equals:

Accepted Answer

The answer of Exhibit 7-4 The schedule below shows the...

Question 16

As a result of a per-unit tax on output in a market:

Accepted Answer

The introduction of a per-unit tax on output increases the cost of production, therefore shifting the supply curve upwards. This results in a higher equilibrium price for consumers and a lower net price received by producers. The higher price also leads to a decrease in the quantity traded, as demand will decrease due to the higher price. Therefore, the correct choice is C, the quantity traded decreases.

Question 17

Exhibit 7-3 Refer to Exhibit 7-3.What is the producer surplus of the 10^th unit bought/sold?

Accepted Answer

The answer of Exhibit 7-3  Refer to Exhibit 7-3.What...

Question 18

As the market price of a good falls due to an increase in supply,consumer surplus:

Accepted Answer

When the market price of a good falls due to an increase in supply, consumers can buy the good at a lower price, which increases their consumer surplus. Therefore, consumer surplus rises.

Question 19

A deadweight loss occurs as a result of a per-unit tax because:

Accepted Answer

A deadweight loss occurs as a result of a per-unit tax because it causes a decline in output for units for which the marginal benefit exceeds the marginal cost. This is because the tax raises the cost of production, leading to a reduction in the quantity produced and consumed. The loss of surplus from these reduced transactions is the deadweight loss.

Question 20

Other things being equal,the less elastic demand is:

Accepted Answer

When demand is less elastic, consumers are less responsive to price changes, meaning they will continue to buy the product even when the price increases due to a tax. This results in a lower deadweight loss because the quantity traded in the market does not decrease significantly. Additionally, because consumers are less responsive to price changes, they end up bearing a greater portion of the tax burden. Finally, because the quantity traded does not decrease significantly, the government is able to collect more tax revenue.

Quiz 7: Market Efficiency and Welfare

A price ceiling imposed below equilibrium price causes a deadweight loss for society because:

A tax on a product causes a deadweight loss because:

Exhibit 7-4 The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp: Refer to Exhibit 7-4.If the price of shrimp were to decrease from $12 to $10,the increase in consumer surplus would equal:

Other things being equal,the more elastic demand is:

Which of the following statements is always true?

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community. Refer to Exhibit 7-5.If the market price of wine is $30,the total consumer surplus for the community equals:

Goods that are heavily taxed,such as alcohol and cigarettes,often have:

Exhibit 7-3 Refer to Exhibit 7-3.What is the consumer surplus of the 10th unit bought/sold?

The net loss to society from a tax on a product can be measured as:

Phil and Lasca have always wanted to take a cruise.Although willing to pay $5,000 for a Caribbean cruise for two,they were able to purchase a cruise vacation for two for $3,500.Their total consumer surplus amounted to:

Consumer surplus measures:

Exhibit 7-3 Refer to Exhibit 7-3.What is the sum of consumer surplus and producer surplus for the 10th unit bought/sold?

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community. Refer to Exhibit 7-5.If the market price of wine is $20,the total consumer surplus for the community equals:

As a result of the imposition of a tax on a product:

Exhibit 7-4 The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp: Refer to Exhibit 7-4.If the price of shrimp is $12 per pound,according to the schedule total consumer surplus equals:

As a result of a per-unit tax on output in a market:

Exhibit 7-3 Refer to Exhibit 7-3.What is the producer surplus of the 10th unit bought/sold?

As the market price of a good falls due to an increase in supply,consumer surplus:

A deadweight loss occurs as a result of a per-unit tax because:

Other things being equal,the less elastic demand is:

Exhibit 7-3 Refer to Exhibit 7-3.What is the consumer surplus of the 10^th unit bought/sold?

Exhibit 7-3 Refer to Exhibit 7-3.What is the sum of consumer surplus and producer surplus for the 10^th unit bought/sold?

Exhibit 7-3 Refer to Exhibit 7-3.What is the producer surplus of the 10^th unit bought/sold?