Deck 9: Applications of the Competitive Model

Question 1

The real cost of allocating goods when a non- price mechanism is substituted for the market is:

A)higher.
B)quite large.
C)lower.
D)the same.

Answer 1

higher.

Question 2

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the tax is shared by consumers and producers the following way:

A)30% paid by the consumers and 70% paid by the producers.
B)100% paid by the producers.
C)100% paid by the consumers.
D)50% paid by the consumers and 50% paid by the producers.

Answer 2

50% paid by the consumers and 50% paid by the producers.

Question 3

Do consumers benefit if government sets a price ceiling in a market?

A)No, because government regulations always injure consumers.
B)No, because consumer surplus decreases.
C)Yes, because consumer surplus increases.
D)Yes, because consumers will pay a lower price.

Answer 3

No, because consumer surplus decreases.

Question 4

A tax on an industry with a perfectly inelastic supply curve will generate a dead weight loss:

A)lower than the consumer's surplus.
B)equal to zero.
C)equal to the sum of consumer surplus and producer surplus.
D)greater than the consumer's surplus.

Question 5

An effective quota system causes which of the following?

A)an increase in the price and quantity in the market
B)an increase in the price and decrease in the quantity in the market
C)a decrease in the price and quantity in the market
D)a decrease in the price and an increase in the quantity in the market

Question 6

Rent control does not lead to:

A)lower rents for new tenants.
B)new apartments being made available.
C)improvements in housing capital.
D)lower rents for everyone.

Question 7

When a per unit tax is imposed on an industry where the supply curve is perfectly elastic:

A)consumers and producers share the tax.
B)consumers pay the full amount of the tax.
C)innovation is discouraged in that industry.
D)producers pay the full amount of the tax.

Question 8

If the price of a substitute increases, the demand curve for a good:

A)does not move because the goods are independent.
B)does not move because the price and quantity adjust along the demand curve.
C)shifts down and to the left.
D)shifts up and to the right.

Question 9

Suppose a market is in equilibrium. If the price of a substitute for the good decreases, which of the following would occur?

A)P increases and Q decreases
B)P decreases and Q increases
C)P decreases and Q decreases
D)P increases and Q increases

Question 10

If the demand curve in a decreasing cost market shifts up and to the right, then:

A)both the short run and long run prices stay the same.
B)both the short run and long run prices increase.
C)the short run price increases and the long run price decreases.
D)both the short run and long run prices decrease.

Question 11

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the price paid by consumers is larger than the price faced by suppliers.

A)$6.5.
B)$5.
C)$1.
D)$6.

Question 12

A decrease in the supply of a good will cause a larger increase in its price:

A)the more elastic the demand for that good.
B)the greater the scarcity of that good.
C)if there are many close substitutes for that good.
D)the more inelastic the demand for that good.

Question 13

Which of the following is true if a $2 per unit tax is levied on sellers of a good?

A)Buyers bear the brunt of the tax if the elasticity of demand is - 1.3 and the elasticity of supply is .6.
B)The price consumers pay will increase by $2 if the elasticity of demand is 0.
C)Buyers bear the brunt of the tax if the elasticity of demand is - .3 and the elasticity of supply is 1.6.
D)Dead weight loss will be smaller the more elastic demand.

Question 14

One reason that the predictions of the Club of Rome have not come to fruition is because

A)prices are not exogenous
B)global economic growth has slowed
C)resources are more plentiful than first believed
D)conscientious consumers reduce reuse and recycle

Question 15

A tariff does which of the following?

A)lowers the world price to the importing country
B)raises the world price to the exporting country
C)lowers the world price to the exporting country
D)raises the world price to the importing country

Question 16

Quotas in agriculture exist to:

A)increase the wealth of consumers.
B)insure that consumers have a steady supply of food.
C)increase the wealth of farmers.
D)insure that farmers have a steady income.

Question 17

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the price paid by consumers is:

A)$5.
B)$6.
C)$6.5.
D)$1.

Question 18

The observation that over time demand curves become more elastic is labeled:

A)the law of low prices.
B)the second law of demand.
C)the limits to growth.
D)the first law of supply.

Question 19

A tax on an industry with a perfectly inelastic demand curve will generate a dead weight loss:

A)greater than the producer's surplus.
B)lower than the producer's surplus.
C)equal to the sum of consumer surplus and producer surplus.
D)equal to zero.

Question 20

Quantities demanded generally equal quantities supplied over time because:

A)generally we are lucky to have it work this way but it doesn't have to.
B)most of the time we have an abundance of natural resources.
C)prices adjust until this is so.
D)the government directs production.

Question 21

What effect would a reduction in the Canadian selling price of Japanese made cars have on the Canadian demand for Canadian made cars?

A)The demand would increase.
B)The demand would decrease.
C)No effect, because price changes affect quantity demanded, not demand.
D)We cannot tell unless we know what happened to the price of Canadian made cars.

Question 22

An excise tax on consumers:

A)generates less tax revenue than taxing producers.
B)has exactly the same effect as taxing producers.
C)generates more tax revenue than taxing producers.
D)causes the supply curve to shift up and to the left.

Question 23

Suppose that the demand for labour is given by P = 30 - Q and the supply of labour is given by P =
2Q. Which of the following is true if a minimum wage of 24 is imposed on the labour market?

A)the dead weight loss will be 24.
B)unemployment will be 2.
C)the number of people laid off will be 6.
D)the minimum wage is not binding.

Question 24

In New Zealand most of the homes are cold in the winter:

A)because the climate leads to high marginal costs of heating.
B)because there are few sources of heat in New Zealand.
C)because New Zealanders do not maximize wealth.
D)because they have lots of sheep to make wool.

Question 25

The market demand for cars is P = 1000 - Q and the supply is P = 100 + 2Q. A quota of 150 units will create a dead weight loss of:

A)33750.
B)45750.
C)33000.
D)15000.

Question 26

Suppose that the demand for labour is given by P = 30 - Q and the Supply of labour is given by P =
2Q. If a minimum wage of 24 is imposed on the labour market, the deadweight loss is:

A)24.
B)2.
C)6.
D)20.

Question 27

If the demand curve in an increasing cost market shifts up and to the right, then:

A)the long run price goes up and the long run quantity goes up.
B)the short run price goes up and the short run quantity stays the same.
C)the long run price stays the same and the long run quantity goes up.
D)the short run price stays the same and the short run quantity goes up.

Question 28

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the consumers' tax burden is:

A)$0.75.
B)$1.75.
C)$0.
D)$0.5.

Question 29

If the demand curve in a constant cost market shifts down and to the left, then:

A)the long run price and quantity decrease.
B)the long run price stays the same and the long run quantity decreases.
C)the long run price decreases and the long run quantity stays the same.
D)the long run price and quantity increase.

Question 30

A per unit tax usually:

A)decreases the equilibrium price.
B)does not effect the equilibrium price.
C)increases supply.
D)increases the equilibrium price.

Question 31

Suppose that the demand for labour is given by P = 30 - Q and the supply of labour is given by P =
2Q. Which of the following is not true if a minimum wage of 24 is imposed on the labour market?

A)the dead weight loss will be 24.
B)the dead weight loss will be 30.
C)labour supply will be 12.
D)labour demand will be 6.

Question 32

The market demand for cars is P = 1000 - Q and the supply is P = 100 + 2Q. A quota of 150 units will:

A)cause price to fall by 100.
B)cause quantity demanded to fall by 200.
C)cause quantity demanded to fall by 150.
D)cause price to fall by 200.

Question 33

The market demand curve shifts when:

A)there is a change in the supply curve.
B)there is a change in the price of other goods.
C)there is a change in the price.
D)there is a change in the quantity demanded.

Question 34

Rent control:

A)involve only a transfer of wealth from landlords to tenants.
B)leads to higher prices for apartments at the margin if we include implicit costs.
C)does not affect the long run supply of the housing stock.
D)increases social welfare.

Question 35

If the demand curve in an increasing cost market shifts up and to the right, then:

A)both the short run and long run prices decrease.
B)both the short run and long run prices increase.
C)the short run price increases and the long run price stays the same.
D)both the short run and long run prices stay the same.

Question 36

Queues of customers:

A)suggest that prices are too low.
B)suggest a sale is on.
C)suggest that demand is too low at existing prices.
D)are a sign of market failure.

Question 37

A per unit tax increases the equilibrium price by:

A)zero.
B)an amount greater than the tax.
C)an amount less than the tax.
D)the full amount of the tax.

Question 38

an economist might suggest that one way to reduce crime is to

A)increase police spending
B)decrease the net marginal benefit of crime
C)higher more judges
D)build more prisons

Question 39

New farmers who buy a quota will:

A)earn a zero rate of return on the quota.
B)produce more than farmers without a quota.
C)earn above normal profits.
D)be better off than farmers that do not have a quota.

Question 40

A per unit tax in a competitive market with demand elasticity less than zero:

A)never creates dead weight loss.
B)decreases the equilibrium price.
C)always creates dead weight loss.
D)sometimes creates dead weight loss.

Question 41

Increases in demand lead to:

A)shifts in the supply curve to the right.
B)movements along the supply curve to the right.
C)no change in quantity supplied.
D)shifts in the supply curve to the left.

Question 42

What is the fundamental error in the suggestion that prices be based on costs rather than on supply and demand?

A)This would be less efficient than basing prices on supply and demand.
B)People should be free to set whatever prices they prefer.
C)Supply and demand determine costs.
D)People cannot be compelled to base prices on costs.

Question 43

If the demand curve in a constant cost market shifts up and to the right, then:

A)the long run price stays the same and the long run quantity goes up.
B)the short run price goes up and the short run quantity goes down.
C)the short run price stays the same and the long run quantity goes up.
D)the long run price stays the same and the long run quantity goes down.

Question 44

An effective quota does not:

A)raises the price to consumers.
B)reduces the quantity supplied.
C)make everybody worse off.
D)creates a dead weight loss.

Question 45

An import tariff:

A)increases prices for domestic consumers.
B)decreases prices for domestic consumers.
C)reduces producers' surplus.
D)increases consumer's surplus.

Question 46

An effective quota system does not:

A)increase quantity demanded.
B)decrease quantity supplied.
C)create economic rent.
D)produce a dead weight loss.

Question 47

When the value of a quota gets transferred to the original farmer, we call this:

A)the economic rent trap.
B)the transitional gains trap.
C)the agricultural leg hold trap.
D)the profit trap.

Question 48

The market demand for cars is P = 1000 - Q and the supply is P = 100 + 2Q. An effective quota is:

A)400 units.
B)350 units.
C)250 units.
D)450 units.

Question 49

If a competitive market is in equilibrium and then the price of an input increases and at the same time the price of a complement for the good decreases then we can predict which of the following?

A)Q decreases
B)P decreases
C)Q increases
D)P increases

Question 50

The market demand for cars is P = 1000 - Q and the supply is P = 100 + 2Q. If the regulators impose a quota of 400 units the unit price is:

A)750.
B)800.
C)600.
D)700.

Question 51

Import tariffs have the effect of:

A)lowering the market price in the domestic economy.
B)increasing producer surplus.
C)reducing producer surplus.
D)increasing consumer surplus.

Question 52

Which of the following would not cause a shift in the firm's cost curves?

A)changes in customer's preferences
B)changes in economies of scope
C)changes in input prices
D)changes in technology

Question 53

A per unit tax will:

A)only cause a deadweight loss if the demand is perfectly inelastic.
B)have a symmetrical effect on consumers and firms.
C)decrease the price paid by consumers.
D)increase prices by less than the amount of the tax.

Question 54

If the demand curve in a decreasing cost market shifts up and to the right, then:

A)the long run price decreases and the long run quantity increases.
B)the long run price and quantity increase.
C)the long run price stays the same and the long run quantity increases.
D)the long run price and quantity decrease.

Question 55

In the market for crime, the imposition of penalties:

A)lowers the marginal benefit of crime.
B)increases the opportunity cost of crime.
C)causes the number of crimes committed to increase.
D)increases the marginal costs of crime.

Question 56

Quotas are:

A)bad for everyone.
B)bad for the producers and consumers.
C)good to the producers and consumers.
D)good for some producers and bad for consumers.

Question 57

If 80,000 Blue Jays fans wanted tickets to the fifth game of the World Series, but there are only 55,000 tickets available:

A)the quantity purchased will be greater than the quantity supplied.
B)the price is too low.
C)the cost of obtaining a ticket for someone who doesn't yet have one will be greater than the price stamped on its face.
D)the demand for tickets is highly elastic.

Question 58

Allowing people to carry concealed weapons:

A)will have a big effect on crime rates for men because they like guns.
B)will increase the number of violent crimes.
C)will increase the number of stealth crimes.
D)will have an impact only if most people carry guns.

Question 59

A $5 per unit tax on a good is borne by the buyer:

A)if the demand is perfectly elastic.
B)if it is a sales tax.
C)if the supply is perfectly elastic.
D)if it is an excise tax.

Question 60

The surprising observation that houses in cold climates have higher inside temperatures is consistent with the competitive model because:

A)people will act to equalize the marginal costs of heating across climates.
B)houses in warm climates have higher marginal costs of heating.
C)houses in warm climates have more insulation.
D)people in warm climates care less about temperature.

Question 61

Residents of Vancouver often complain when the temperature drops below zero while residents of Winnipeg frequently endure temperatures of - 40. How can economics explain this?

A)houses in Winnipeg are colder because the marginal cost of heating is lower
B)residents of Winnipeg are heartier than Vancouverites
C)the moist air in Vancouver increases heating costs
D)houses in Vancouver are colder because the marginal cost of heating is higher

Question 62

An import tariff:

A)increases consumer's surplus.
B)reduces producers' surplus.
C)generates tariff revenues for the government.
D)decreases prices for domestic consumers.

Question 63

In the long run, if the demand curve in a decreasing cost market shifts up and to the right, then:

A)equilibrium price goes down and quantity goes up.
B)equilibrium price goes up and goes down.
C)equilibrium price and quantity go down.
D)equilibrium price and quantity go up.

Question 64

Suppose that the demand for labour is given by P = 30 - Q and the supply of labour is given by P =
2Q. Which of the following is true if a minimum wage of 24 is imposed on the labour market?

A)the number of people laid off will be 4
B)the number of people laid off will be 12
C)the number of people laid off will be 6
D)the number of people laid off will be 2

Question 65

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the government revenue from the tax is:

A)$1.5.
B)$1.75.
C)$1.
D)$3.5.

Question 66

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the producers' tax burden is:

A)$1.75.
B)$1.
C)$0.5.
D)$0.

Question 67

If the demand curve shifts down and to the left in an increasing cost market, then:

A)the long run price stays the same and the long run quantity increases.
B)the long run price decreases and the long run quantity stays the same.
C)the long run price and quantity increase.
D)the long run price and quantity decrease.

Question 68

Rent control:

A)increases social welfare.
B)affects the demand for rental housing.
C)creates a dead weight loss.
D)represents a price ceiling on rental prices.

Question 69

Which of the following will not cause an increase in the equilibrium price?

A)a shortage of labour
B)an invention that makes capital more productive
C)a fall in the price of a complement
D)an increase in the price of a substitute

Question 70

When a per unit tax is imposed on an industry characterized by a perfectly inelastic supply curve:

A)producers pay the full amount of the tax.
B)the output goes to zero.
C)consumers and producers share the tax.
D)consumers pay the full amount of the tax.

Question 71

A price ceiling is a policy that:

A)will lead to a shortage if the policy is effective.
B)sets a minimum price in a market.
C)is effective only if the ceiling price is above the equilibrium price.
D)transfers surplus without creating any dead weight loss.

Question 72

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the deadweight loss is:

A)$0.
B)$0.25.
C)$1.
D)$0.5.

Question 73

When a price ceiling such as a rent control is substituted for market allocation:

A)it is not possible to tell if the goods get allocated optimally.
B)the goods get allocated to consumers who most desire them.
C)the goods get allocated to the poor.
D)the goods get allocated to consumers who least desire them.

Question 74

If the demand curve shifts down and to the left in an increasing cost market, then:

A)both the short run and long run prices stay the same.
B)both the short run and long run prices decrease.
C)both the short run and long run prices increase.
D)the short run price increases and the long run price stays the same.

Question 75

One reason that the predictions of the Club of Rome have not come to fruition is because

A)resources are more plentiful than first believed
B)prices are exogenous
C)demand curves become more elastic over time
D)conscientious consumers reduce reuse and recycle

Question 76

If the elasticity of demand is low, then the introduction of excise taxes implies:

A)tax revenue generated is low.
B)tax revenue generated is high.
C)consumers pay proportionally less than producers.
D)consumers pay proportionally more than producers.

Question 77

Houses in cold winter climates will have cooler inside temperatures in the summer because:

A)the outside temperature is cooler.
B)these people have to save money for heating costs in the winter.
C)they have more windows in general.
D)they are better insulated and this keeps out the heat.

Question 78

A rent controlled market is an example of:

A)a price ceiling.
B)a quota.
C)a price floor.
D)good government.

Question 79

Which of the following would not be expected effects of a binding maximum price control on downtown apartments?

A)there would be a shortage of apartments.
B)rent would be due in advance.
C)new developments downtown.
D)deposits would increase.

Question 80

The dead weight loss of a tax is a result of

A)the resulting excess demand
B)marginal cost being greater than marginal benefit
C)marginal cost being greater than average cost
D)marginal benefit being greater than marginal cost