Maceconomics
Figure 9-1
Guatemala
Refer to Figure 9-1. From the figure it is apparent that
a. the world price will fall if Guatemala begins to allow its citizens to trade with other countries.
b. Guatemala will import coffee if trade is allowed.
c. Guatemala will export coffee if trade is allowed.
d. Guatemala has nothing to gain either by importing or exporting coffee.
Figure 9-3
Refer to Figure 9-3 . When a tariff is imposed in the market, domestic producers
a. gain $200 of producer surplus.
b. gain $100 of producer surplus.
c. gain $300 of producer surplus.
d. gain $150 of producer surplus.
Figure 9-2
Refer to Figure 9-2 . The increase in total surplus resulting from trade is
a. $2,240, since consumer surplus increases by $3,240 and producer surplus falls by $1,000.
b. $1,280, since consumer surplus increases by $3,520 and producer surplus falls by $2,240.
c. $2,560, since consumer surplus increases by $7,040 and producer surplus falls by $4,480.
d. $640, since consumer surplus increases by $1,760 and producer surplus falls by $1,120.
Figure 9-4
Refer to Figure 9-4 . Total surplus in this market after trade is
a. A + B.
b. B + C + D.
c. A + B + C.
d. A + B + C + D.
Figure 9-6
Refer to Figure 9-6. The area C + D + E + F represents
a. the deadweight loss of the tariff plus government revenue raised by the tariff.
b. the decrease in total surplus caused by the tariff.
c. the decrease in consumer surplus caused by the tariff.
d. the deadweight loss of the tariff minus government revenue raised by the tariff.
Figure 9-4
Refer to Figure 9-4 . Producer surplus in this market before trade is
a. A.
b. A + B.
c. C.
d. B + C + D.
Figure 9-2
Refer to Figure 9-2 . With trade, this country
a. exports 320 tricycles.
b. imports 160 tricycles.
c. exports 160 tricycles.
d. imports 320 tricycles.
Figure 9-2
Refer to Figure 9-2 . If this country allows free trade in tricycles,
a. consumers will lose and producers will gain.
b. consumers will gain and producers will lose.
c. both consumers and producers will lose.
d. both consumers and producers will gain.
When a country that imports a particular good imposes an import quota on that good,
a. consumer surplus decreases and total surplus decreases in the market for that good.
b. consumer surplus increases and total surplus decreases in the market for that good.
c. consumer surplus decreases and total surplus increases in the market for that good.
d. consumer surplus increases and total surplus increases in the market for that good.
Figure 9-2
Refer to Figure 9-2 . With trade, the price of tricycles in this country is
a. $11, with 360 tricycles produced in this country and another 160 tricycles imported.
b. $19, with 200 tricycles produced in this country and another 160 tricycles imported.
c. $19, with 360 tricycles produced in this country and another 320 tricycles imported.
d. $11, with 200 tricycles produced in this country and another 320 tricycles imported.
Figure 9-1
Guatemala
Refer to Figure 9-1. From the figure it is apparent that
a. foreign countries have a comparative advantage in producing coffee, relative to Guatemala.
b. Guatemala will experience a surplus of coffee if trade is not allowed.
c. Guatemala has a comparative advantage in producing coffee, relative to the rest of the world.
d. Guatemala will experience a shortage of coffee if trade is not allowed.
Figure 9-1
Guatemala
Refer to Figure 9-1. In the absence of trade, total surplus in Guatemala is represented by the area
a. A + B + C + D + F.
b. A + B + C + D + F + G.
c. A + B + C + D + F + G + H.
d. A + B + C.
Figure 9-2
Refer to Figure 9-2 . With trade, producer surplus is
a. $1,500.
b. $1,000.
c. $2,000.
d. $500.
The problem with the protection-as-a-bargaining-chip argument for trade restrictions is
a. if it fails, the country faces a choice between two bad options.
b. if it works, the producer surplus falls.
c. if it fails, the total surplus will increase.
d. if it works, the consumer surplus will decline.
When a country allows trade and becomes an exporter of a good, which of the following is not a consequence?
a. The price received by domestic producers of the good increases.
b. The losses of domestic consumers of the good exceed the gains of domestic producers of the good.
c. The price paid by domestic consumers of the good increases.
d. The gains of domestic producers of the good exceed the losses of domestic consumers of the good.
Representative Vazquez cites the “jobs argument” when he argues before Congress in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Representative Vazquez’s reasoning is that he ignores the fact that
a. the gains from trade are based on absolute advantage.
b. the gains from trade are based on comparative advantage.
c. unemployment of labor is not a serious problem relative to other economic problems.
d. there is no evidence that any worker ever lost their job because of free trade.
Figure 9-3
Refer to Figure 9-3 . Without trade, the equilibrium price of roses is
a. $3 and the equilibrium quantity is 200.
b. $2 and the equilibrium quantity is 500.
c. $4 and the equilibrium quantity is 300.
d. $3 and the equilibrium quantity is 400.
Figure 9-4
Refer to Figure 9-4. When the country for which the figure is drawn allows international trade in crude oil,
a. consumer surplus changes from the area A + B + D to the area A.
b. total surplus decreases by the area D.
c. producer surplus changes from the area C to the area B + C + D.
d. consumer surplus changes from the area A to the area A + B.
If the United States threatens to impose a tariff on Colombian coffee if Colombia does not remove agricultural subsidies, the United States will be
a. better off if Colombia removes the subsidies, and will be no worse off if it doesn’t.
b. worse off if Colombia doesn’t remove the subsidies in response to the threat.
c. worse off regardless of how Colombia responds.
d. better off regardless of how Colombia responds.
Assignment: Chapter 9 Homework
Figure 7-9
Refer to Figure 7-9. At equilibrium, total surplus is represented by the area
a. A+B+C+D+H+F.
b. A+B+C.
c. A+B+C+D+H+F+G+I.
d. A+B+D+F.
Figure 7-9
Refer to Figure 7-9. At equilibrium, consumer surplus is represented by the area
a. A+B+C.
b. A.
c. A+B+C+D+H+F.
d. D+H+F.
Figure 7-6
Refer to Figure 7-6. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be
a. lower than P1.
b. P1.
c. higher than P2.
d. between P1 and P2.
Figure 7-5
Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D’, what is the increase in producer surplus to existing producers?
a. $625
b. $3,125
c. $2,500
d. $5,625
If a market generates a side effect or externality, then free market solutions
a. generate equality.
b. maximize producer surplus.
c. are efficient.
d. are inefficient.
Adam Smith’s “invisible hand” concept suggests that a competitive market outcome
a. minimizes total surplus.
b. maximizes total surplus.
c. generates equality among the members of society.
d. does both b and c.
Moving production from a high-cost producer to a low-cost producer will
a. lower producer surplus.
b. raise producer surplus but lower consumer surplus.
c. raise total surplus.
d. lower total surplus.
Table 7-4
For each of the three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day.
Willingness to Pay
(Dollars)
First Orange Second Orange Third Orange
Allison 2.00 1.50 0.75
Bob 1.50 1.00 0.60
Charisse 0.75 0.25 0.00
Refer to Table 7-4. The market quantity of oranges demanded per day is exactly seven if the price of an orange, P, satisfies
a. $0.25 < P < $0.60.
b. $0.25 < P < $0.75.
c. $0.60 < P < $2.00.
d. $0.60 < P < $0.75.
Producer surplus is
a. the opportunity cost of production minus the cost of producing goods that go unsold.
b. measured using the demand curve for a good.
c. the amount a seller is paid minus the cost of production.
d. always a negative number for sellers in a competitive market.
Figure 7-7
Refer to Figure 7-7. If the government imposes a price ceiling of $55 in this market, then total surplus will be
a. $125.00.
b. $187.50.
c. $250.00.
d. $266.67.
We can say that the allocation of resources is efficient if
a. total surplus is maximized.
b. sellers’ costs are minimized.
c. consumer surplus is maximized.
d. producer surplus is maximized.
t Nick’s Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for
a. $3.50 each.
b. $2.00 each.
c. $5.00 each.
d. $0.50 each.
Which of the following is true when the price of a good or service rises?
a. Buyers who were already buying the good or service are better off.
b. Some buyers exit the market.
c. The total consumer surplus in the market increases.
d. The total value of purchases before and after the price change is the same.
omato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will
a. decrease consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles.
b. increase consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles.
c. increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles.
d. decrease consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles.
Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?
a. Profits and costs to firms
b. Consumer and producer surplus
c. Incomes of and prices paid by buyers
d. The equilibrium price and quantity
Table 7-11
Price
(Dollars per unit) Quantity Demanded
(Units) Quantity Supplied
(Units)
12.00 0 36
10.00 3 30
8.00 6 24
6.00 9 18
4.00 12 12
2.00 15 6
0.00 18 0
Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is
a. $72.
b. $44.
c. $96.
d. $56.
Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then
a. the marginal buyer’s willingness to pay for the 100th unit of the good is $25.
b. the average of the five buyers’ willingness to pay for the 100th unit of the good is $25.
c. all of the five buyers are willing to pay at least $25 for the 100th unit of the good.
d. the sum of the five buyers’ willingness to pay for the 100th unit of the good is $25.
Table 7-11
Price
(Dollars per unit) Quantity Demanded
(Units) Quantity Supplied
(Units)
12.00 0 36
10.00 3 30
8.00 6 24
6.00 9 18
4.00 12 12
2.00 15 6
0.00 18 0
Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be
a. $26.
b. $18.
c. $24.
d. $16.
Table 7-11
Price
(Dollars per unit) Quantity Demanded
(Units) Quantity Supplied
(Units)
12.00 0 36
10.00 3 30
8.00 6 24
6.00 9 18
4.00 12 12
2.00 15 6
0.00 18 0
Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, consumer surplus will be
a. $36.
b. $42.
c. $21.
d. $28.
Table 7-5
Buyer Willingness to Pay
(Dollars)
Michael 500
Earvin 400
Larry 350
Charles 300
Refer to Table 7-5. You are selling extra tickets to the Midwest Regional Sweet 16 game in the men’s NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. Which of the following graphs represents the market demand curve?
a.
b.
c.
d.
Chapter 8 Homework
Use Exhibit to answer question
If a tax is placed on the product in this market, deadweight loss is the area
a. E + F.
b. B + C.
c. B + C + E + F.
d. A + B + C + D.
e. A + D.
The less freedom young mothers have to work outside the home, the
a. larger is the decrease in employment that will result from a tax on labor.
b. less elastic the supply of labor will be.
c. more horizontal the labor supply curve will be.
d. more elastic the supply of labor will be.
When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has
a. caused a deadweight loss.
b. increased efficiency.
c. generated no tax revenue.
d. reduced the price buyers pay.
For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is
a. $3,000.
b. $2,250.
c. $1,750.
d. $4,500.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’–P”’. Total surplus before the tax is measured by the area
a. L + M + Y.
b. I + J + K + L + M + Y.
c. I + Y.
d. J + K + L + M.
Which of the following scenarios is consistent with the Laffer curve?
a. An increase in the tax rate always increases tax revenue .
b. A decrease in the tax rate always increases tax revenue .
c. The tax rate is 99 percent, and tax revenue is very high.
d. The tax rate is 1 percent, and tax revenue is very high.
The Social Security tax is a tax on
a. capital.
b. savings.
c. land.
d. labor.
When a tax is levied on buyers, the
a. buyers bear the entire burden of the tax.
b. tax creates a wedge between the price buyers pay and the price sellers receive.
c. supply curves shifts upward by the amount of the tax.
d. tax has no effect on the well-being of sellers.
Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto’s opportunity cost of cleaning Erin’s house is $70 per week.
Refer to Scenario 8-1 . If Ernesto cleans Erin’s house for $90, Ernesto’s producer surplus is
a. $20.
b. $10.
c. $30.
d. $80.
Figure 8-2
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to
a. decrease by $2.
b. decrease by $4.
c. increase by $5.
d. increase by $3.
Figure 8-2
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-2. The per-unit burden of the tax on sellers is
a. $5.
b. $2.
c. $4.
d. $3.
Figure 8-1
Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The area measured by M represents
a. producer surplus after the tax.
b. consumer surplus after the tax.
c. consumer surplus before the tax.
d. producer surplus before the tax.
Figure 8-2
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to
a. increase by $5.
b. increase by $3.
c. decrease by $2.
d. decrease by $4.
Figure 8-2
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-2. The imposition of the tax causes the quantity sold to
a. decrease by 2 units.
b. increase by 1 unit.
c. increase by 2 units.
d. decrease by 1 unit.
Figure 8-3
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 8-3 . Which of the following statements is correct?
a. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120.
b. The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60.
c. This tax produces $320 in tax revenue for the government.
d. The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax.
To fully understand how taxes affect economic well-being, we must
a. compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
b. assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed.
c. compare the taxes raised in the United States with those raised in other countries, especially France.
d. take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.
Use Exhibit to answer question
If there is no tax placed on the product in this market, total surplus is the area
a. E + F.
b. A + D + E + F.
c. A + B + C + D + E + F.
d. A + B + C + D.
e. B + C + E + F.
Taxes on l abor taxes may distort labor markets greatly if
a. the number of hours many part-time workers want to work is very sensitive to the wage rate.
b. “underground” workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes.
c. many workers choose to work 40 hours per week regardless of their earnings.
d. labor supply is highly inelastic.
If a tax shifts the demand curve downward, we can infer that the tax was levied on
a. sellers of the good.
b. We cannot infer anything because the shift described is not consistent with a tax.
c. buyers of the good.
Figure 8-5
Refer to Figure 8-5. Which of the following combinations will maximize the deadweight loss from a tax?
a. Supply1 and Demand1
b. Supply2 and Demand1
c. Supply2 and Demand2
d. Supply1 and Demand2
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