Answers to HW3 - Academic Csuohio

Name: ________________________ Class: ___________________ Date: __________ ID: A
HW3
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. A price ceiling
a. is a legal maximum on the price at which a good can be sold.
b. is often imposed in markets in which “cutthroat competition” would prevail without a
price ceiling.
c. is often imposed when sellers of a good are successful in their attempts to convince the
government that the market outcome is unfair without a price ceiling.
d. All of the above are correct.
____ 2. An example of a price floor is
a. the regulation of gasoline prices in the U.S. in the 1970s.
b. rent control.
c. the minimum wage.
d. any restriction on price that leads to a shortage.
____ 3. A price floor is not binding if
a. the price floor is higher than the equilibrium price of the good.
b. the quantity of the good demanded with the price floor is less than the quantity demanded
of the good without the price floor.
c. the quantity of the good supplied with the price floor is less than the quantity supplied of
the good without the price floor.
d. All of the above are correct.
____ 4. When a binding price ceiling is imposed to benefit buyers, a result is that
a. every buyer in the market benefits.
b. every seller in the market benefits, but the overall benefit to sellers is smaller than the
overall benefit to buyers.
c. every buyer in the market benefits and every seller in the market is harmed.
d. some buyers will not be able to buy any amount of the good.
____ 5. The minimum wage has its greatest impact on the market for
a. female workers.
b. older workers.
c. black workers.
d. teenage workers.
____ 6. There are several criticisms of the minimum wage. Which of the following is not one of those criticisms?
a. The minimum wage often hurts those people who it is intended to help.
b. The minimum wage results in an excess supply of low-skilled labor.
c. The minimum wage prevents some younger workers from getting needed on-the-job
training.
d. The minimum wage fails to raise the wage of any employed person.
____ 7. The term tax incidence refers to the
a. widespread view that taxes always will be a fact of life.
b. ongoing debate about which types of taxes make the most economic sense.
c. division of the tax burden between buyers and sellers.
d. division of the tax burden between sales taxes and income taxes.
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Name: ________________________ ID: A
____ 8. When a tax is imposed on tea and buyers of tea are required to send in the tax payments to the government,
a. buyers of tea and sellers of tea both are made worse off.
b. buyers of tea are made worse off and the well-being of sellers is unaffected.
c. buyers of tea are made worse off and sellers of tea are made better-off.
d. the well-being of both buyers of tea and sellers of tea is unaffected.
____ 9. If a tax is imposed on a market with inelastic demand and elastic supply,
a. buyers will bear most of the burden of the tax.
b. sellers will bear most of the burden of the tax.
c. the burden of the tax will be shared equally between buyers and sellers.
d. it is impossible to determine how the burden of the tax will be shared.
____ 10. Which of the following is the most correct statement about tax burdens?
a. A tax burden falls most heavily on the side of the market that is more elastic.
b. A tax burden falls most heavily on the side of the market that is less elastic.
c. A tax burden falls most heavily on the side of the market that is closer to unit elastic.
d. A tax burden is distributed independently of relative elasticities of supply and demand.
____ 11. In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and
expensive cars. The goal of the tax was to
a. raise revenue from the wealthy.
b. prevent wealthy people from buying luxuries.
c. force producers of luxury goods to reduce employment.
d. limit exports of luxury goods to other countries.
____ 12. Which of the Ten Principles of Economics does welfare economics explain more fully?
a. The cost of something is what you give up to get it.
b. Markets are usually a good way to organize economic activity.
c. Trade can make everyone better off.
d. A country’s standard of living depends on its ability to produce goods and services.
____ 13. The area below a demand curve and above the price measures
a. producer surplus.
b. consumer surplus.
c. excess supply.
d. willingness to pay.
____ 14. What happens to consumer surplus if the price of a good increases?
a. It increases.
b. It decreases.
c. It is unchanged.
d. It may increase, decrease, or remain unchanged.
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Name: ________________________ ID: A
Figure 7-1
____ 15. Refer to Figure 7-1. When the price is P2, consumer surplus is
a. A.
b. B.
c. A + B.
d. A + B + C.
____ 16. Refer to Figure 7-1. When the price rises from P1 to P2, consumer surplus
a. increases by an amount equal to A.
b. decreases by an amount equal to B + C.
c. increases by an amount equal to B + C.
d. decreases by an amount equal to C.
____ 17. Refer to Figure 7-1. Area C represents
a. the decrease in consumer surplus that results from a downward-sloping demand curve.
b. consumer surplus to new consumers who enter the market when the price falls from P2 to
P1.
c. the increase in producer surplus when quantity sold increases from Q2 to Q1.
d. the decrease in consumer surplus to each consumer in the market when the price
increases from P1 to P2.
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Name: ________________________ ID: A
Figure 7-9
____ 18. Refer to Figure 7-9. At the equilibrium price, consumer surplus is
a. $480.
b. $640.
c. $1,120.
d. $1,280.
____ 19. Refer to Figure 7-9. At the equilibrium price, producer surplus is
a. $480.
b. $640.
c. $1,120.
d. $1,280.
____ 20. Refer to Figure 7-9. At the equilibrium price, total surplus is
a. $480.
b. $640.
c. $1,120.
d. $1,280.
____ 21. Refer to Figure 7-9. Assume demand increases and as a result, equilibrium price increases to $22 and
equilibrium quantity increases to 110. The increase in producer surplus due to new producers entering the
market would be equal to
a. $90.
b. $210.
c. $360.
d. $480.
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Name: ________________________ ID: A
____ 22. The distinction between efficiency and equity can be described as follows:
a. Efficiency refers to maximizing the number of trades among buyers and sellers; equity
refers to maximizing the gains from trade among buyers and sellers.
b. Efficiency refers to minimizing the price paid by buyers; equity refers to maximizing the
gains from trade among buyers and sellers.
c. Efficiency refers to maximizing the size of the pie; equity refers to producing a pie of a
given size at the least possible cost.
d. Efficiency refers to maximizing the size of the pie; equity refers to distributing the pie
fairly among members of society.
____ 23. If an allocation of resources is efficient, then
a. consumer surplus is maximized.
b. producer surplus is maximized.
c. all potential gains from trade among buyers are sellers are being realized.
d. the allocation is necessarily equitable as well.
____ 24. At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes
a. consumer surplus, but not producer surplus.
b. producer surplus, but not consumer surplus.
c. both consumer and producer surplus.
d. neither consumer nor producer surplus.
____ 25. Inefficiency can be caused in a market by the presence of
a. market power.
b. externalities.
c. imperfectly competitive markets.
d. All of the above are correct.
____ 26. Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax
of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We
can conclude that the equilibrium quantity of widgets has fallen by
a. 25 per month.
b. 50 per month.
c. 75 per month.
d. 100 per month.
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Name: ________________________ ID: A
Figure 8-4
____ 27. Refer to Figure 8-4. The price that buyers effectively pay after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. impossible to determine from the figure.
____ 28. Refer to Figure 8-4. The tax is levied on
a. buyers only.
b. sellers only.
c. both buyers and sellers.
d. This is impossible to determine from the figure.
____ 29. Refer to Figure 8-4. After the tax is levied, producer surplus is represented by area
a. A.
b. A + B + C.
c. D + E + F.
d. F.
____ 30. Refer to Figure 8-4. The benefit to the government is
a. measured by tax revenue and is represented by area A + B.
b. measured by tax revenue and is represented by area B + D.
c. measured by the net gain in total surplus and is represented by area B + D.
d. measured by the net gain in total surplus and is represented by area D + E.
____ 31. Refer to Figure 8-4. The total surplus (consumer, producer, and government) with the tax is represented by
area
a. C + E.
b. A + B + C.
c. D + E + F.
d. A + B + D + F.
____ 32. The deadweight loss from a tax
a. does not vary in amount when the price elasticity of demand changes.
b. does not vary in amount when the amount of the tax per unit changes.
c. is larger, the larger is the amount of the tax per unit.
d. is smaller, the larger is the amount of the tax per unit.
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Name: ________________________ ID: A
____ 33. The Laffer curve relates
a. the tax rate to tax revenue raised by the tax.
b. the tax rate to the deadweight loss of the tax.
c. the price elasticity of supply to the deadweight loss of the tax.
d. government welfare payments to the birth rate.
____ 34. The view held by Arthur Laffer and Ronald Reagan -- that cuts in tax rates would encourage people to
increase the quantity of labor they supplied -- became known as
a. California economics.
b. welfare economics.
c. supply-side economics.
d. elasticity economics.
____ 35. Which of the following scenarios is not consistent with the Laffer curve?
a. The tax rate is very low and tax revenue is very low.
b. The tax rate is very high and tax revenue is very low.
c. The tax rate is very high and tax revenue is very high.
d. The tax rate is moderate (between very high and very low) and tax revenue is relatively
high.
____ 36. The higher a country's tax rates, the more likely that country will be
a. at the top of the Laffer curve.
b. on the positively sloped part of the Laffer curve.
c. on the negatively sloped part of the Laffer curve.
d. experiencing small deadweight losses.
____ 37. With which of the Ten Principles of Economics is the study of international trade most closely connected?
a. People face tradeoffs.
b. Trade can make everyone better off.
c. Governments can sometimes improve market outcomes.
d. Prices rise when the government prints too much money.
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Name: ________________________ ID: A
Figure 9-1
____ 38. Refer to Figure 9-1. Without trade, consumer surplus is
a. $210.
b. $245.
c. $455.
d. $490.
____ 39. Refer to Figure 9-1. With free trade, this country will
a. import 40 baskets.
b. import 70 baskets.
c. export 35 baskets.
d. export 65 baskets.
____ 40. Refer to Figure 9-1. With free trade, consumer surplus is
a. $45.
b. $80.
c. $210.
d. $245.
____ 41. Refer to Figure 9-1. With free trade, producer surplus is
a. $80.00.
b. $210.00.
c. $245.50.
d. $472.50.
____ 42. Refer to Figure 9-1. As a result of trade, total surplus increases by
a. $80.
b. $97.50.
c. $162.50.
d. $495.50.
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Name: ________________________ ID: A
Figure 9-5
____ 43. Refer to Figure 9-5. Without trade, the equilibrium price of carnations is
a. $8 and the equilibrium quantity is 300.
b. $6 and the equilibrium quantity is 200.
c. $6 and the equilibrium quantity is 400.
d. $4 and the equilibrium quantity is 500.
____ 44. Refer to Figure 9-5. With trade and without a tariff,
a. the domestic price is equal to the world price.
b. carnations are sold at $8 in this market.
c. there is a shortage of 400 carnations in this market.
d. this country imports 200 carnations.
____ 45. Refer to Figure 9-5. The size of the tariff on carnations is
a. $8 per dozen.
b. $6 per dozen.
c. $4 per dozen.
d. $2 per dozen.
____ 46. Refer to Figure 9-5. The imposition of a tariff on carnations
a. increases the number of carnations imported by 100.
b. increases the number of carnations imported by 200.
c. decreases the number of carnations imported by 200.
d. decreases the number of carnations imported by 400.
____ 47. Refer to Figure 9-5. The amount of revenue collected by the government from the tariff is
a. $200.
b. $400.
c. $500.
d. $600.
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Name: ________________________ ID: A
____ 48. Refer to Figure 9-5. When a tariff is imposed in the market, domestic producers
a. gain by $100.
b. gain by $200.
c. gain by $300.
d. lose by $100.
____ 49. Refer to Figure 9-5. The amount of deadweight loss caused by the tariff equals
a. $100.
b. $200.
c. $400.
d. $500.
____ 50. Refer to Figure 9-5. When the tariff is imposed, domestic consumers
a. lose by $500.
b. lose by $900.
c. gain by $500.
d. gain by $900.
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HW3
Answer Section
MULTIPLE CHOICE
1
ID: A
1. ANS: A DIF: 2 REF: 6-1 TOP: Price ceilings
MSC: Interpretive
2. ANS: C DIF: 1 REF: 6-1 TOP: Price ceilings, Price floors
MSC: Definitional
3. ANS: C DIF: 3 REF: 6-1
TOP: Price floors, Quantity demanded, Quantity supplied MSC: Analytical
4. ANS: D DIF: 2 REF: 6-1 TOP: Price ceilings
MSC: Interpretive
5. ANS: D DIF: 1 REF: 6-1 TOP: Minimum wage, Labor force
MSC: Interpretive
6. ANS: D DIF: 2 REF: 6-1 TOP: Minimum wage
MSC: Interpretive
7. ANS: C DIF: 1 REF: 6-2 TOP: Tax incidence
MSC: Definitional
8. ANS: A DIF: 2 REF: 6-2 TOP: Tax incidence
MSC: Interpretive
9. ANS: A DIF: 3 REF: 6-2
TOP: Inelastic demand, Elastic supply, Tax incidence MSC: Applicative
10. ANS: B DIF: 2 REF: 6-2 TOP: Elasticity, Tax incidence
MSC: Applicative
11. ANS: A DIF: 1 REF: 6-2 TOP: Luxury tax
MSC: Definitional
12. ANS: B DIF: 2 REF: 7-0 TOP: Economic welfare
MSC: Interpretive
13. ANS: B DIF: 1 REF: 7-1 TOP: Consumer surplus, Demand curve
MSC: Interpretive
14. ANS: B DIF: 2 REF: 7-1 TOP: Consumer surplus
MSC: Interpretive
15. ANS: A DIF: 2 REF: 7-1 TOP: Consumer surplus
MSC: Interpretive
16. ANS: B DIF: 2 REF: 7-1 TOP: Consumer surplus
MSC: Interpretive
17. ANS: B DIF: 3 REF: 7-1 TOP: Consumer surplus
MSC: Applicative
18. ANS: A DIF: 3 REF: 7-3 TOP: Consumer surplus
MSC: Applicative
19. ANS: B DIF: 3 REF: 7-3 TOP: Producer surplus
MSC: Applicative
20. ANS: C DIF: 3 REF: 7-3 TOP: Total surplus
MSC: Applicative
21. ANS: A DIF: 3 REF: 7-3 TOP: Producer surplus
MSC: Applicative

22. ANS: D DIF: 2 REF: 7-3
TOP: Efficiency, Equity, Gains from trade MSC: Interpretive
23. ANS: C DIF: 2 REF: 7-3 TOP: Efficiency
MSC: Interpretive
24. ANS: D DIF: 2 REF: 7-3
TOP: Price ceilings, Consumer surplus, Producer surplus MSC: Applicative
25. ANS: D DIF: 2 REF: 7-4 TOP: Market failures
MSC: Interpretive
26. ANS: B DIF: 3 REF: 8-1 TOP: Tax, Quantity demanded
MSC: Applicative
27. ANS: C DIF: 2 REF: 8-1 TOP: Tax, Equilibrium price
MSC: Applicative
28. ANS: D DIF: 2 REF: 8-1 TOP: Tax
MSC: Interpretive
29. ANS: D DIF: 2 REF: 8-1 TOP: Tax, Producer surplus
MSC: Applicative
30. ANS: B DIF: 2 REF: 8-1 TOP: Tax, Government
MSC: Applicative
31. ANS: D DIF: 2 REF: 8-1 TOP: Total surplus
MSC: Applicative
32. ANS: C DIF: 2 REF: 8-2 TOP: Deadweight losses
MSC: Interpretive
33. ANS: A DIF: 2 REF: 8-3 TOP: Laffer curve
MSC: Definitional
34. ANS: C DIF: 1 REF: 8-3 TOP: Supply-side economics
MSC: Definitional
35. ANS: C DIF: 2 REF: 8-3 TOP: Laffer curve
MSC: Interpretive
36. ANS: C DIF: 2 REF: 8-3 TOP: Laffer curve
MSC: Interpretive
37. ANS: B DIF: 1 REF: 9-0 TOP: International trade
MSC: Interpretive
38. ANS: B DIF: 2 REF: 9-2 TOP: Consumer surplus
MSC: Applicative
39. ANS: D DIF: 2 REF: 9-2 TOP: Exports
MSC: Applicative
40. ANS: B DIF: 2 REF: 9-2 TOP: Trade, Consumer surplus
MSC: Applicative
41. ANS: D DIF: 2 REF: 9-2 TOP: Trade, Producer surplus
MSC: Applicative
42. ANS: B DIF: 3 REF: 9-2 TOP: Trade, Total surplus
MSC: Applicative
43. ANS: A DIF: 1 REF: 9-2
TOP: Equilibrium price, Equilibrium quantity MSC: Interpretive
44. ANS: A DIF: 2 REF: 9-2 TOP: Trade, Prices
MSC: Interpretive
45. ANS: D DIF: 1 REF: 9-2 TOP: Tariffs
MSC: Interpretive
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ID: A

46. ANS: C DIF: 2 REF: 9-2 TOP: Tariffs, Imports
MSC: Applicative
47. ANS: B DIF: 2 REF: 9-2 TOP: Tariffs, Government
MSC: Applicative
48. ANS: C DIF: 2 REF: 9-2 TOP: Tariffs, Producer surplus
MSC: Applicative
49. ANS: B DIF: 3 REF: 9-2 TOP: Tariffs, Deadweight losses
MSC: Applicative
50. ANS: B DIF: 2 REF: 9-2 TOP: Tariffs, Consumer surplus
MSC: Applicative
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ID: A

HW3 [Answer Strip]
_____ A 1.
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26.
ID: A

HW3 [Answer Strip]
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50.
ID: A

Name: ________________________ Class: ___________________ Date: __________
MULTIPLE CHOICE
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ID: A