Deck 7: Economic Welfare and Income Distribution

Question 1

If the market becomes uncompetitive,a portion of the consumer surplus is passed on to those producers still in the market in the form of higher profits.If the new output is 500 000 units,the amount of consumer surplus transformed into producer surplus is:

A)$0.25 million
B)$0.5 million
C)$1 million
D)$5.5 million
E)$1.5 million

Answer 1

C

Question 2

The marginal benefit derived from the consumption of a product is equal to:

A)the total value placed on the consumption of a product
B)the total satisfaction derived from the consumption of a product
C)the marginal utility derived from the consumption of a product
D)the maximum price a consumer will pay for a specific unit of a product
E)the minimum price a consumer will pay for a specific unit of a product

Answer 2

D

Question 3

Consumer surplus equals:

A)the total benefit from the consumption of a product
B)total expenditure on a product
C)the amount by which total expenditure on a product exceeds its total benefit
D)the sum of a product's total benefit and total expenditure on the product
E)the amount by which a product's total benefit exceeds total expenditure on the product

Answer 3

E

Question 4

If the market becomes uncompetitive,and output is reduced to 500 000 units,the consumer surplus becomes:

A)$0.25 million
B)$0.5 million
C)$1 million
D)$5.5 million
E)$1.5 million

Question 5

When the market becomes uncompetitive and output is reduced to 500 000 units,the deadweight loss is:

A)$0.5 million
B)$1 million
C)$1.5 million
D)$2 million
E)$2.5 million

Question 6

Consumer surplus:

A)is the difference between a product's total benefit and the total expenditure on the product
B)equals the total benefit that consumers derive from consumption of a product
C)is always less than the total expenditure on the product
D)is always more than the total expenditure on the product
E)is always equal to the total expenditure on the product

Question 7

In order to maximize a market's consumer surplus and producer surplus:

A)output should be expanded if marginal cost exceeds marginal benefit
B)output should be reduced if marginal benefit exceeds marginal cost
C)the market may need to move away from its competitive equilibrium
D)marginal benefit and marginal cost should be equal at the last unit produced
E)the difference between marginal benefit and marginal cost should be maximized at the last unit produced

Question 8

Deadweight loss is defined as:

A)the loss in the consumer surplus that results from a government policy
B)the loss in the producer surplus that results from competitive activity
C)the loss in the consumer surplus that results from competitive activity
D)the net loss in both the consumer surplus and producer surplus that results from a government policy
E)the net loss in both the consumer surplus and producer surplus that results from competitive activity

Question 9

The combined consumer surplus and producer surplus when this market is at its competitive output of 1 million units is:

A)$2 million
B)$4 million
C)$6 million
D)$8 million
E)$14 million

Question 10

A market's consumer surplus and producer surplus are maximized when:

A)the market's total benefit is maximized
B)the total costs of producers in the market are minimized
C)the consumer surplus minus the producer surplus is maximized
D)the producer surplus minus the consumer surplus is maximized
E)at the perfectly competitive equilibrium

Question 11

Spillover effects:

A)are the direct result of government spending policies
B)promote income equality
C)serve to lessen discrimination in labour markets
D)affect outsiders who are not producing or consuming a product
E)affect insiders who are producing or consuming a product

Question 12

The consumer surplus when 1 million units of the product in this market are consumed is:

A)$2 million
B)$4 million
C)$6 million
D)$8 million
E)$10 million

Question 13

Pollution:

A)should be corrected by subsidizing the offending businesses
B)is not an economic problem because it is external to the market system
C)is an example of a public good
D)is an example of a spillover cost
E)is an example of a spillover benefit

Question 14

The producer surplus when 1 million units of the product in this market are produced and sold is:

A)zero
B)$2 million
C)$4 million
D)$6 million
E)$8 million

Question 15

The total benefit derived from a product equals:

A)the sum of the marginal benefits of all units of the product that are consumed
B)the sum of the marginal benefits of all units of the product that are consumed minus total consumer expenditure on the product
C)the marginal utility derived from the consumption of a product
D)the maximum price a consumer will pay for a specific unit of a product
E)the minimum price a consumer will pay for a specific unit of a product

Question 16

Producer surplus for a business is:

A)the sum the business's profit and its variable cost
B)the price received from each unit of an item multiplied by the number of units of the item produced by the business
C)the sum of the marginal costs of producing a particular item for all units of the item produced by the business
D)the difference between price and marginal cost for each unit the business produces and sells
E)the sum of the business's variable cost and fixed cost

Question 17

The marginal benefit of the 1 millionth unit of the product consumed in this market is:

A)$4
B)$6
C)$8
D)$10
E)$12

Question 18

Spillover effects:

A)entail costs only
B)entail benefits only
C)entail neither costs nor benefits
D)have been legislated out of existence
E)entail both costs and benefits

Question 19

The total benefit when 1 million units are consumed is:

A)$2 million
B)$4 million
C)$6 million
D)$8 million
E)$10 million

Question 20

Excess benefit is defined as:

A)the difference between marginal cost and marginal benefit for the last unit of an item produced and consumed
B)the total difference between marginal cost and marginal benefit for all units of an item produced and consumed
C)the total difference between marginal benefit and marginal cost for all units of an item produced and consumed
D)the difference between marginal benefit and marginal cost for the last unit of an item produced and consumed
E)the excess of total utility over total fixed cost for a particular product

Question 21

In the second diagram,if the distance between D₀ and D₁ represents all spillover effects in this market,then the requirement of marginal-cost pricing is met:

A)at the point on D₀ whose horizontal coordinate is Q₁
B)at the point on D₁ whose horizontal coordinate is Q₁
C)at the point on D₀ whose horizontal coordinate is Q₀
D)at the point on D₁ whose horizontal coordinate is Q₀
E)at the origin

Question 22

If the demand for a product is perfectly inelastic and the supply curve is upsloping,the imposition of a $1 excise tax per unit of output will:

A)raise the price as seen by buyers by $1
B)raise the price as seen by buyers by more than $1
C)raise the price as seen by buyers by less than $1
D)lower the price by $1
E)lower the price by more than $1

Question 23

Assume the supply curve for product X is perfectly elastic and that government imposes a $2 per unit excise tax.We can conclude that the resulting:

A)increase in output will be greater the less elastic the demand curve
B)decrease in output will be greater the more elastic the demand curve
C)decrease in output will be greater the less elastic the demand curve
D)increase in output will be greater the more elastic the demand curve
E)change in output will be extremely small

Question 24

If the demand for a product is perfectly inelastic,the incidence of an excise tax will be:

A)entirely on buyers
B)mostly on buyers
C)entirely on sellers
D)mostly on sellers
E)neither on buyers nor sellers

Question 25

Assume a particular type of alcohol is produced in a perfectly competitive market.Its demand is highly inelastic while its supply is highly elastic.The burden of a $2 excise tax on each bottle of this alcohol will therefore be:

A)borne by the resource suppliers who provide the inputs for producing this alcohol
B)shared about equally by buyers and sellers
C)borne primarily by buyers
D)borne primarily by sellers
E)borne by neither buyers nor sellers, but by other participants in the economy

Question 26

The total tax collection of the excise tax shown in the graph is the area:

A)acdf + efd
B)acdf
C)efd
D)0cdg
E)0afg

Question 27

In the second diagram,if the distance between D₀ and D₁ represents all spillover effects in this market,excess benefit when output is at Q₀ equals the area:

A)under the entire demand curve D₀
B)under the entire demand curve D₁
C)above S and below D₀ between the vertical axis and Q₀
D)above S and below D₁ between the vertical axis and Q₀
E)above S and below D₀ between the vertical axis and Q₁

Question 28

Which of the following is most likely to be accompanied by spillover benefits?

A)the construction of a nuclear power plant
B)purchasing a car
C)eating dinner at an expensive French restaurant
D)being immunized for measles
E)watching a situation comedy TV show

Question 29

In the first diagram,if the distance between S₀ and S₁ represents all spillover effects in this market,excess benefit when output is at Q₀ equals the area:

A)under the entire demand curve D
B)separating the lines S₁ and D between Q₁ and Q₀
C)separating the lines D and S₁ between the vertical axis and Q₁
D)separating the lines D and S₀ between the vertical axis and Q₀
E)separating the lines D and S₁ between the vertical axis and Q₁, minus the area separating the lines S₁ and D between Q₁ and Q₀

Question 30

An example of a public good is:

A)a movie theatre
B)a freight train
C)national defence
D)an amusement park
E)a restaurant meal

Question 31

A subsidy:

A)should be provided when there are spillover costs
B)should be provided when there are spillover benefits
C)should be provided only when a public good is being produced
D)is appropriate when businesses are guilty of polluting
E)is appropriate for products such as cigarettes and alcohol

Question 32

The shift of the demand curve from D₀ to D₁ in the second diagram might be caused by a per unit:

A)subsidy paid to the producers of this product
B)tax on the producers of this product
C)subsidy paid to the buyers of this product
D)tax on the buyers of this product
E)tax on the buyers of this product combined with a subsidy paid to producers

Question 33

We can conclude that the government is correcting for:

A)spillover costs in the first diagram and spillover benefits in the second diagram
B)spillover benefits in the first diagram and spillover costs in the second diagram
C)spillover costs in both diagrams
D)spillover benefits in both diagrams
E)neither spillover costs nor spillover benefits in either diagram

Question 34

In the second diagram,if the distance between D₀ and D₁ represents all spillover effects in this market,excess benefit when output level is at Q₁ equals the area:

A)under the entire demand curve D₀
B)under the entire demand curve D₁
C)above S and below D₁ between the vertical axis and Q₁
D)above S and below D₀ between the vertical axis and Q₀
E)above S and below D₀ between the vertical axis and Q₁

Question 35

Which of the following statements is correct?

A)Private goods yield direct benefits to the purchaser and are financed by government.
B)Public goods yield widespread spillover benefits and are purchased by government with tax revenues.
C)Public goods are bought voluntarily out of private incomes and yield no significant spillover benefits.
D)Public goods are bought voluntarily out of private incomes and yield widespread spillover benefits.
E)Private goods are often public goods as well.

Question 36

The existence of spillover effects weakens the efficiency with which the market system functions because they:

A)are a major source of inflation
B)mean that certain essential goods and services do not get produced at all
C)are a major source of employment
D)cause certain goods to be overproduced or underproduced
E)can cause deflation

Question 37

Which of the following is a public good?

A)ballpoint pens
B)chewing gum
C)a book
D)bread
E)a lighthouse

Question 38

In the first diagram,if the distance between S₀ and S₁ represents all spillover effects in this market,then the requirement of marginal-cost pricing is met:

A)at the point on S₁ whose horizontal coordinate is Q₁
B)at the point on S₀ whose horizontal coordinate is Q₁
C)at the point on S₁ whose horizontal coordinate is Q₀
D)at the point on S₀ whose horizontal coordinate is Q₀
E)at the origin

Question 39

In the first diagram,if the distance between S₀ and S₁ represents all spillover effects in this market,excess benefit when output is at Q₁ equals the area:

A)under the entire demand curve D
B)separating the lines S₁ and D between Q₁ and Q₀
C)separating the lines D and S₁ between the vertical axis and Q₁
D)separating the lines D and S₀ between the vertical axis and Q₀
E)separating the lines D and S₁ between the vertical axis and Q₁, minus the area separating the lines S₁ and D between Q₁ and Q₀

Question 40

The shift of the supply curve from S₀ to S₁ in the first diagram might be caused by a per unit:

A)subsidy paid to the producers of this product
B)tax on the producers of this product
C)subsidy paid to the buyers of this product
D)tax on the buyers of this product
E)discount offered by sellers of this product

Question 41

Price floors and price ceilings:

A)both cause shortages
B)both cause surpluses
C)cause the supply and demand curves to shift until equilibrium is established
D)cause surpluses and shortages, respectively
E)are both imposed by sellers who cooperate to raise their profits

Question 42

The imposition of the tax causes:

A)no change in the consumer surplus and producer surplus
B)the consumer surplus to rise and the producer surplus to fall
C)the consumer surplus to fall and the producer surplus to rise
D)the consumer surplus and producer surplus to both fall
E)the consumer surplus and producer surplus to both rise

Question 43

The obvious winners from agricultural price supports are:

A)consumers of agricultural products, as price supports create a surplus of such products
B)farmers, as price supports raise their revenues
C)no one, as price supports always lead to wasteful disposal of surpluses
D)Canadian taxpayers
E)companies involved in food-processing, since agricultural price supports reduce their costs

Question 44

For buyers,the change is price before and after the tax is:

A)from 0a to 0c
B)from 0c to 0a
C)from 0b to 0a
D)from 0b to 0c
E)from 0c to 0b

Question 45

Which of the following is not a likely effect of rent controls?

A)an increase in the supply of rental housing in the short run
B)the development of underground markets
C)the movement of resources away from the rental housing industry
D)a shortage of rental units
E)an increased frequency of subletting, as tenants try to maintain benefits from apartments in which they no longer reside

Question 46

Rent controls cause:

A)a transfer of consumer surplus to producer surplus due to the higher price
B)a transfer of producer surplus to consumer surplus due to the higher price
C)a transfer of producer surplus to consumer surplus due to the lower price
D)a transfer of consumer surplus to producer surplus due to the lower price
E)no change in the consumer surplus or producer surplus

Question 47

Assume the demand for a product is perfectly inelastic.If government establishes a price floor that is $2 above the equilibrium price,the resulting:

A)shortage will be greater the more elastic the supply
B)shortage will be greater the less elastic the supply
C)surplus will be greater the more elastic the supply
D)surplus will be greater the less elastic the supply
E)the shortage will be the same regardless of the elasticity of the supply curve

Question 48

Price ceilings and price floors:

A)cause surpluses and shortages, respectively
B)make the functioning of free markets more efficient
C)interfere with the efficient operations of free markets
D)shift demand and supply curves
E)shift demand curves but not supply curves

Question 49

If agricultural price supports are combined with an output restriction,then there is:

A)a transfer of consumer surplus to producer surplus due to the higher price
B)a transfer of producer surplus to consumer surplus due to the higher price
C)a transfer of producer surplus to consumer surplus due to the lower price
D)a transfer of consumer surplus to producer surplus due to the lower price
E)no change in the consumer surplus or producer surplus

Question 50

A price floor means that:

A)inflation is severe in this particular market
B)some sellers are artificially restricting supply in order to raise prices
C)the government is imposing a legal price that is below the equilibrium price
D)the government is imposing a legal price that is above the equilibrium price
E)there will be shortage

Question 51

An effective price floor on wheat will:

A)force otherwise profitable farmers out of business
B)result in a shortage of wheat
C)help consumers
D)clear the market for wheat
E)result in a surplus of wheat

Question 52

Which of the following generalizations is correct?

A)The more elastic the demand and supply of a product, the larger the portion of an excise tax which is borne by buyers.
B)The more elastic the demand for a product, the larger the portion of an excise tax which is borne by buyers.
C)The more inelastic the supply of a product, the larger the portion of an excise tax which is borne by buyers.
D)The more inelastic the demand for a product, the larger the portion of an excise tax which is borne by sellers.
E)The more elastic the supply of a product, the larger the portion of an excise tax which is borne by buyers.

Question 53

A price ceiling means that:

A)the relevant product is currently available in excess supply
B)the government is imposing a legal price that is below the equilibrium price
C)sellers are trying to impose a minimum price to raise their revenues
D)the government is imposing a legal price that is above the equilibrium price
E)buyers are attempting to impose a minimum price to minimize their expenditures

Question 54

The main reason for agricultural price supports is to:

A)give government control over agriculture
B)stabilize prices and farm incomes
C)provide supplies for foreign aid
D)reduce competition
E)help consumers

Question 55

The deadweight loss of the tax is shown by the area:

A)acdf + efd
B)acdf
C)efd
D)0cdg
E)0afg

Question 56

An effective price ceiling will:

A)induce new firms to enter the industry
B)result in a product surplus
C)result in product shortage
D)clear the market
E)lead to a price above the equilibrium price that would exist without this ceiling in place

Question 57

If a legal ceiling price is set above the equilibrium price:

A)a shortage of the product will occur
B)a surplus of the product will occur
C)an underground market will evolve
D)neither the equilibrium price nor equilibrium quantity will be affected
E)a surplus for the product will first appear and then disappear

Question 58

If agricultural price supports are combined with an output restriction,then there is:

A)an expansion of both consumer surplus and producer surplus due to a deadweight loss
B)an expansion of consumer surplus and reduction in producer surplus due to a deadweight loss
C)a reduction of both consumer surplus and producer surplus due to a deadweight loss
D)the disappearance of any deadweight loss
E)no change in consumer surplus or producer surplus

Question 59

The obvious losers from rent controls are:

A)tenants at all income levels
B)taxpayers
C)landlords
D)builders of owner-occupied homes
E)those who rent out apartments in the underground market (ie.illegal basement suites)

Question 60

The burden of this tax is borne:

A)equally by buyers and sellers
B)most heavily by sellers
C)most heavily by buyers
D)only by buyers
E)only by sellers

Question 61

Rent controls cause:

A)an expansion of both consumer surplus and producer surplus due to a deadweight loss
B)an expansion of consumer surplus and reduction in producer surplus due to a deadweight loss
C)a reduction of both consumer surplus and producer surplus due to a deadweight loss
D)a reduction of consumer surplus and expansion of producer surplus due to a deadweight loss
E)no change in consumer surplus or producer surplus

Question 62

According to Statistics Canada,the distribution of income to each fifth of households shows:

A)a sharp movement toward greater equality since the 1950s
B)a sharp movement toward greater inequality since the 1950s
C)considerable stability in the distribution of income since the 1950s
D)a marked decline in the relative importance of the "upper class"
E)a marked increase in the relative importance of the "middle class"

Question 63

A worker's labour productivity will tend to vary depending on:

A)the worker's self-awareness
B)the level of job-related training obtained through education
C)the number of years of elementary education
D)experience in real life skills
E)the worker's number of economic dependents

Question 64

Data on education and earnings reveal:

A)no relationship between the two
B)a relationship that, as education increases, shifts from being inverse to direct
C)a direct relationship between the two
D)an inverse relationship between the two
E)a relationship that, as education increases, shifts from being direct to inverse

Question 65

Expenditures on education are regarded as investments by economists when:

A)they are subject to tax deductions at the same rate as are expenditures on machinery and equipment
B)education is economically beneficial at the same time as it is being acquired
C)such expenditures are current costs that are intended to enhance future earnings
D)they differ from expenditures on health and worker mobility
E)they make a student more aware of his/her surroundings

Question 66

The country with the lowest Gini coefficient is:

A)A
B)B
C)C
D)D
E)E

Question 67

If a high school graduate decides to pursue a degree in ancient philosophy rather than in accounting,he/she:

A)has a zero opportunity cost for education
B)views post-secondary education primarily as an investment in human capital, assuming skills and knowledge attained will be greater through the study of accounting
C)prefers receiving a dollar in purchasing power now rather than in the future
D)prefers math to literature
E)views post-secondary education primarily as a consumption item

Question 68

The Lorenz curve is used to portray the:

A)government revenues gained through the federal tax system
B)extent to which our welfare system affects incentives to work
C)degree of inequality in the distribution of income
D)degree of discrimination against minorities
E)government expenditures on transfer payments

Question 69

A given country's income is equally distributed among households in:

A)B
B)A and E
C)D
D)E
E)A

Question 70

The lowest 20 percent of households in the income distribution receive about:

A)2 percent of total pre-tax income
B)4 percent of total pre-tax income
C)8 percent of total pre-tax income
D)10 percent of total pre-tax income
E)15 percent of total pre-tax income

Question 71

The highest 20 percent of households in the income distribution receive about:

A)35 percent of total pre-tax income
B)47 percent of total pre-tax income
C)52 percent of total pre-tax income
D)60 percent of total pre-tax income
E)63 percent of total pre-tax income

Question 72

A positive effect of on-the-job training is that it:

A)guarantees rising average incomes over a person's entire life
B)leads to seniority rights that allow workers to move from one employer to another without the loss of special privileges
C)shifts the supply curve rightward and raises wage rates for such trained labour
D)increases a worker's productivity.
E)raises the demand for skilled workers

Question 73

If workers with similar educational levels and the same productivity in two different occupations receive equal earnings,it can be concluded that:

A)they both enjoy their jobs
B)working conditions in both occupations are equally appealing
C)a change in the wage rates they receive will lead to a shift in their labour demand curves
D)one must be a garbage collector and the other a filing clerk
E)a change in the wage rate they receive will lead to a shift in their labour supply curves

Question 74

Human capital is best defined as:

A)the income-earning productive skills and knowledge that workers acquire from education and training
B)the substitution of labour for machinery in the production process
C)any productive asset that must be combined with labour to be productive
D)the exchange of money for other assets
E)the substitution of machinery for labour in the productive process

Question 75

Which of the following involves the creation of human capital?

A)the XYZ Corporation upgrades the machinery on its assembly line
B)a worker becomes more satisfied with his/her job
C)Smith buys 30 shares of common stock
D)a homemaker decides to enter the labour force
E)Jones receives apprenticeship training as a carpenter

Question 76

The most important determinant of labour income is:

A)education
B)experience
C)job segregation
D)working conditions
E)productivity

Question 77

$\begin{array}{}\hline \text { Percentage of Total Pre-Tax Income Received by Each }\\ \text {Fifth of Households in 1980 and 2010 }\\\begin{array} { |l|c|c| } \hline & 1980 & 2010 \\\hline \text { First 20\% } & 4.5 \% & 4.3 \% \\\hline \text { Second } 20 \% & 10.9 \% & 9.9 \% \\\hline \text { Third } 20 \% & 17.6 \% & 16.0 \% \\\hline \text { Fourth } 20 \% & 25.2 \% & 24.3 \% \\\hline \text { Fifth } 20 \% & 41.8 \% & 45.5 \% \\\hline\end{array}\\\end{array}$

-The cumulative share of income received by the 60 percent of households with the lowest incomes in the years 1980 and 2010 shows that the distribution of income for this group has:

A)drastically increased in favour of these households
B)drastically decreased for these households
C)fallen slightly for these households
D)risen slightly for these households
E)been set at random

Question 78

Education has an impact on labour supply because:

A)students choose university programs based on the consumption benefits they will receive
B)it is costly and time-consuming
C)it exhausts students who later do not have the energy to look for employment
D)the opportunity cost of education is zero since government institutions subsidize the cost
E)college and university graduates find it more difficult to acquire jobs than do those without any postsecondary education

Question 79

$\begin{array}{}\hline \text { Percentage of Total Pre-Tax Income Received by Each }\\ \text {Fifth of Households in 1980 and 2010 }\\\begin{array} { |l|c|c| } \hline & 1980 & 2010 \\\hline \text { First 20\% } & 4.5 \% & 4.3 \% \\\hline \text { Second } 20 \% & 10.9 \% & 9.9 \% \\\hline \text { Third } 20 \% & 17.6 \% & 16.0 \% \\\hline \text { Fourth } 20 \% & 25.2 \% & 24.3 \% \\\hline \text { Fifth } 20 \% & 41.8 \% & 45.5 \% \\\hline\end{array}\\\end{array}$

-The cumulative share of income received by the 60 percent of households with the lowest incomes in 2010 was:

A)14.2 percent
B)16.0 percent
C)45.5 percent
D)54.5 percent
E)30.2 percent

Question 80

A given country's income is most unequally distributed among households in:

A)E
B)D
C)A
D)A and E
E)B