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intermediate microeconomics
Study Guide For N. Gregory Mankiw's Principles Of Microeconomics 5th Edition David R. Hakes - Solutions
3. Why does a tax generally produce a deadweight loss?
2. Why does a tax reduce producer surplus?
1. Why does a tax reduce consumer surplus?
2. Use Exhibit 3, which shows the market for music CDs, to answer the following questions.a. Complete the table. (Note: To calculate deadweight loss, the area of a triangle is 1/2 base x height).b. Tax per unit Tax revenue collected $ 0 3 6 9 12 Deadweight loss 15 18 As the tax is increased, what
1. Exhibit 2 shows the market for tires. Suppose that a $12 road-use tax is placed on each tire sold.a. In Exhibit 2, locate consumer surplus, producer surplus, tax revenue, and the deadweight loss.b. Why is there a deadweight loss in the market for tires after the tax is imposed?c. What is the
Demonstrate why some very large taxes generate little tax revenue but a great deal of deadweight loss
Show why a given tax will generate a greater deadweight loss if supply and demand are elastic than if they are inelastic
Place a tax wedge in a supply-and-demand graph and determine the value of the deadweight loss
Place a tax wedge in a supply-and-demand graph and determine the tax revenue and the levels of consumer and producer surplus
2. In Exhibit 5, demonstrate your answer to question I above with a supply-and- demand graph for food by showing the impact on economic well-being of producing quantities in excess of the equilibrium quantity.
1. Is it true that you cannot have too much of a good thing? Conversely, is it possible to overproduce unambiguously good things such as food, clothing, and shelter? Why or why not?
Suppose you are having an argument with your roommate about whether the federal government should subsidize the production of food. Your roommate argues that because food is something that is unambiguously good (unlike liquor, guns, and drugs, which may be considered inherently evil by some members
20. Suppose that the price of a new bicycle is $300. Sue values a new bicycle at $400. It costs $200 for the seller to produce the new bicycle. What is the value of total surplus if Sue buys a new bike?a. $100b. $200 C. $300d. $400e. $500
19. Joe has ten baseball gloves and Sue has none. A baseball glove costs $50 to produce. If Joe values an additional baseball glove at $100 and Sue values a baseball glove at $40, then to maximizea. efficiency, Joe should receive the glove.b. efficiency, Sue should receive the glove.c. consumer
18. Medical care clearly enhances people's lives. Therefore, we should consume medical care untila. everyone has as much as they would like.b. the benefit buyers place on medical care is equal to the cost of producing it.c. buyers receive no benefit from another unit of medical care.d. we must cut
17. If a market generates a side effect or externality, then free market solutionsa. generate equality.b. are efficient. C. are inefficient.d. maximize producer surplus.
16. If a market is efficient, thena. the market allocates output to the buyers who value it the most.b. the market allocates buyers to the sellers who can produce the good at least cost.c. the quantity produced in the market maximizes the sum of consumer and producer surplus.d. all of the above are
15. If a producer has market power (can influence the price of the product in the market) then free market solutionsa. generate equality.b. are efficient.c. are inefficient.d. maximize consumer surplus.
14. If buyers are rational and there is no market failure.a. free market solutions are efficient.b. free market solutions generate equality.c. free market solutions maximize total surplus.d. all of the above are true.e. a and care correct.
13. In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner shoulda. choose a price above the market equilibrium price.b. choose a price below the market equilibrium price.c. allow the market to seek equilibrium on its
12. Adam Smith's "invisible hand", concept suggests that a competitive market outcomea. minimizes total surplus.b. maximizes total surplus.c. generates equality among the members of society.d. does both b and c.
11. An increase in the price of a good along a stationary supply curvea. increases producer surplus.b. decreases producer surplus.c. improves market equity.d. does all of the above.
10. Total surplus is the areaa. above the supply curve and below the price.b. below the supply curve and above the price.c. above the demand curve and below the price.d. below the demand curve and above the price.e. below the demand curve and above the supply curve.
9. The seller's cost of production isa. the seller's consumer surplus.b. the seller's producer surplus.c. the maximum amount the seller is willing to accept for a good.d. the minimum amount the seller is willing to accept for a good.e. none of the above.
8. If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, thena. producer surplus is maximized.b. consumer surplus is maximized. C. total surplus is maximized.d. the value placed on the last unit of production by buyers exceeds the cost ofe. production. the
7. If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, thena. producer surplus is maximized.b. consumer surplus is maximized.c. total surplus is maximized.d. the value placed on the last unit of production by buyers exceeds the cost of production.e. the
6. Producer surplus is the area above the supply curve and below the price.b. below the supply curve and above the price. above the demand curve and below the price.d. below the demand curve and above the price. C. below the demand curve and above the supply curve.
5. Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market?a.
4. An increase in the price of a good along a stationary demand curvea. increases consumer surplus.b. decreases consumer surplus.c. improves the material welfare of the buyers.d. improves market efficiency.
3. If a buyer's willingness to pay for a new Honda is $20,000 and she is able to actually buy it for $18,000, her consumer surplus isa. $0.b. $2,000.c. $18,000.d. $20,000.e. $38,000.
2. A buyer's willingness to pay isa. that buyer's consumer surplus.b. that buyer's producer surplus.c. that buyer's maximum amount he is willing to pay for a good.d. that buyer's minimum amount he is willing to pay for a good.e. none of the above.
1. Consumer surplus is the areaa. above the supply curve and below the price.b. below the supply curve and above the price. above the demand curve and below the price.d. below the demand curve and above the price. C.e. below the demand curve and above the supply curve.
15. Producing more of a product always adds to total surplus.
14. Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market.
13. The two main types of market failure are market power and externalities.
12. Equilibrium in a competitive market maximizes total surplus.
11. The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficient.
10. Producer surplus is the area above the supply curve and below the price.
Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price.
8. 9. Total surplus is the cost to sellers minus the value to buyers.
7. The height of the supply curve is the marginal seller's cost.
6. Cost to the seller includes the opportunity cost of the seller's time.
5. Consumer surplus is a good measure of buyers' benefits if buyers are rational.
4. Producer surplus is a measure of the unsold inventories of suppliers in a market.
3. If your willingness to pay for a hamburger is $3.00 and the price is $2.00, your consumer surplus is $5.00.
If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases.
1. 2. Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost.
11. How does a competitive market choose which producers will produce and sell a product?
10. Is a competitive market efficient? Why or why not?
9. What does an economist mean by "efficiency"?
8. Can a benevolent social planner choose a quantity that provides greater economic welfare than the equilibrium quantity generated in a competitive market? Why?
7. When the price of a good rises, what happens to producer surplus? Why?
6. What is producer surplus and how is it measured?
5. What is the relationship between the sellers' cost to produce a good and the supply curve for that good?
4. If the cost for Moe to mow a lawn is $5, for Larry to mow a lawn is $7, and for Curly to mow a lawn is $9, what is the value of their producer surplus if each mows a lawn and the price for lawn mowing is $10?
3. What is the value of consumer surplus for the marginal buyer? Why?
2. What is consumer surplus and how is it measured?
1. What is the relationship between the buyers' willingness to pay for a good and the demand curve for that good?
5. Suppose Lori Landlord has difficulty renting her dilapidated apartments so she increases her willingness to pay for painting by $2,000 per apartment. Plot Lori's new willingness to pay along with Peter's cost in Exhibit 4. If the equilibrium price rises to $4,000, what is the value of consumer
4. In Exhibit 3, plot the linear supply and demand curves for painting apartments implied by the information in questions 1 and 2 above (draw them so that they contact the vertical axis). Show consumer and producer surplus for the free market equilibrium price and quantity. Is this allocation of
3. Use the information about willingness to pay and cost from questions 1 and 2 above to answer the following questions.a. If a benevolent social planner sets the price for painting apartment houses at $5,000, what is the value of consumer surplus? producer surplus? total surplus?b. If a benevolent
2. The following information shows the costs incurred by Peter Painter when he paints apartments. Because painting is backbreaking work, the more he paints, the higher the costs he incurs in both pain and chiropractic bills. Cost of painting first apartment house $1,000 Cost of painting second
1.The following information describes the value Lori Landlord places on having her five apartment houses repainted. She values the repainting of each apartment house at a different amount depending on how badly it needs repainting.Value of new paint on first apartment house Value of new paint on
Demonstrate why all quantities other than the equilibrium quantity fail to maximize total surplus in a market
2. Do you think the burden of a food tax will tend to fall on the sellers of food or the buyers of food? Why?
1. Can the government legislate that the burden of a food tax will fall only on the sellers of food? Why or why not?
Suppose that the government needs to raise tax revenue. A politician suggests that the government place a tax on food because everyone must eat and, thus, a food tax would surely raise a great deal of tax revenue. However, because the poor spend a large proportion of their income on food, the tax
20. For which of the following products would the burden of a tax likely fall more heavily on the sellers?a. foodb. entertainmentc. clothingd. housing
19. Which of the following statements about the burden of a tax is correct?a. The tax burden generated from a tax placed on a good consumers perceive to be a necessity will fall most heavily on the sellers of the good.b. The tax burden falls most heavily on the side of the market (buyers or
18. The burden of a tax falls more heavily on the buyers in a market whena. demand is inelastic and supply is elastic.b. demand is elastic and supply is inelastic. C. both supply and demand are elastic.d. both supply and demand are inelastic.
17. A tax placed on a good that is a necessity for consumers will likely generate a tax burden thata. falls more heavily on buyers.b. falls more heavily on sellers.c. is evenly distributed between buyers and sellers.d. falls entirely on sellers.
16. The burden of a tax falls more heavily on the sellers in a market whena. demand is inelastic and supply is elastic.b. demand is elastic and supply is inelastic.c. both supply and demand are elastic.d. both supply and demand are inelastic.
15. A tax of $1.00 per gallon on gasolinea. increases the price the buyers pay by $1.00 per gallon.b. decreases the price the sellers receive by $1.00 per gallon.c. increases the price the buyers pay by precisely $0.50 and reduces the price received by sellers by precisely $0.50.d. places a tax
14. When a tax is collected from the buyers in a market,a. the buyers bear the burden of the tax.b. the sellers bear the burden of the tax.c. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.d. the tax burden falls most heavily on the buyers.
13. Which of the following takes place when a tax is placed on a good?a. b.c. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the
12. Within the supply-and-demand model, a tax collected from the sellers of a good shifts thea. demand curve upward by the size of the tax per unit.b. demand curve downward by the size of the tax per unit.c. supply curve upward by the size of the tax per unit.d. supply curve downward by the size of
11. Within the supply-and-demand model, a tax collected from the buyers of a good shifts thea. demand curve upward by the size of the tax per unit.b. demand curve downward by the size of the tax per unit.c. supply curve upward by the size of the tax per unit.d. supply curve downward by the size of
10. Studies show that a 10 percent increase in the minimum wagea. decreases teenage employment by about 10 to 15 percent.b. increases teenage employment by about 10 to 15 percent.c. decreases teenage employment by about 1 to 3 percent.d. increases teenage employment by about 1 to 3 percent.
9. Which of the following statements is true if the government places a price ceiling on gasoline at $1.50 per gallon and the equilibrium price is $1.00 per gallon?a. There will be a shortage of gasoline.b. There will be a surplus of gasoline.c. A significant increase in the supply of gasoline
8. Which of the following is an example of a price floor?a. rent controlsb. restricting gasoline prices to $1.00 per gallon when the equilibrium price is $1.50 per gallon C. the minimum waged. All of the above are price floors.
7. The surplus caused by a binding price floor will be greatest if 3. both supply and demand are elastic.b. both supply and demand are inelastic. C. supply is inelastic and demand is elastic.d. demand is inelastic and supply is elastic.
6. Which side of the market is more likely to lobby government for a price floor? Neither buyers nor sellers desire a price floor.a. b. Both buyers and sellers desire a price floor.c. the sellersd. the buyers
3. The surplus created by the price ceiling is greater in the short run than in the long run.b. The surplus created by the price ceiling is greater in the long run than in the short run. C. The shortage created by the price ceiling is greater in the short run than in the long run.d. The shortage
5. Which of the following statements about a binding price ceiling is true?
4. A price floor 3.b. sets a legal maximum on the price at which a good can be sold. sets a legal minimum on the price at which a good can be sold.c. always determines the price at which a good must be sold.d. is not a binding constraint if it is set above the equilibrium price.
3. Suppose the equilibrium price for apartments is $500 per month and the government imposes rent controls of $250. Which of the following is unlikely to occur as a result of the rent controls?a. There will be a shortage of housing.b. Landlords may discriminate among apartment renters.c. Landlords
2. A binding price ceiling createsa. b.c. d. a shortage. a surplus. an equilibrium. a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price.
1. For a price ceiling to be a binding constraint on the market, the government must set ita. above the equilibrium price.b. below the equilibrium price.c. precisely at the equilibrium price.d. at any price because all price ceilings are binding constraints.
15. The government can choose to place the burden of a tax on the buyers in a market by collecting the tax from the buyers rather than the sellers.
14. A tax creates a tax wedge between a buyer and a seller. This causes the price paid by the buyer to rise, the price received by the seller to fall, and the quantity sold to fall.
13. A tax collected from buyers has an equivalent impact to a same size tax collected from sellers.
12. When we use the model of supply and demand to analyze a tax collected from the buyers, we shift the demand curve upward by the size of the tax.
11. If medicine is a necessity, the burden of a tax on medicine will likely land more heavily on the buyers of medicine.
10. The ultimate burden of a tax lands most heavily on the side of the market that is less elastic.
9. A $10 tax on baseball gloves will always raise the price that the buyers pay for baseball gloves by $10.
8. A price floor in a market always creates a surplus in that market.
7. A price ceiling that is not a binding constraint today could cause a shortage in the future if demand were to increase and raise the equilibrium price above the fixed price ceiling.
A 10 percent increase in the minimum wage causes a 10 percent reduction in teenage employment.
The minimum wage helps all teenagers because they receive higher wages than they would otherwise.
The shortage of housing caused by a binding rent control is likely to be more severe in the long run when compared to the short run.
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