MIDTERM TWO PRACTICE QUESTIONS

Question 1

producer surplus is

Answer 1

the amount a seller is paid - the cost of production

Question 2

Total surplus is measured as

Answer 2

the area below the demand curve and above the supply curve, up to the equilibrium quantity

Question 3

Efficiency in a market is achieved when

Answer 3

the sum of producer surplus and consumer surplus is maximized

Question 4

For a good that is a luxury, demand tends to be…

Answer 4

elastic

Question 5

If a shortage exists in a market, then the actual price is..

Answer 5

below the equilibrium price and quantity demanded is greater than quantity supplied

Question 6

A consumer’s willingness to pay directly measures the extent to which advertising and other external forces have influenced the consumer’s preference

Answer 6

how much a buyer value a good

Question 7

As the size of a tax rises, the deadweight loss

Answer 7

rises and the tax revenue first rises and then falls

Question 8

The Laffer curve illustrates that

Answer 8

deadweight loss rises by the square of the increase in a tax

deadweight loss rises exponentially as a tax increase

Question 9

What will likely have the most price inelastic demand?

Answer 9

salt

Question 10

Demand is perfectly elastic and supply of the good in question decreases

Answer 10

the equilibrium quantity decreases, the equilibrium price is unchanged

Question 11

Goods with many close substitutes tend to have

Answer 11

more elastic demands

Question 12

An increase in price causes an increase in total revenue when demand is

Answer 12

inelastic

Question 13

Demand is inelastic if the price elasticity of demand is

Answer 13

less than 1

Question 14

For a good that is a necessity, demand tends to be

Answer 14

inelastic

Question 15

As we move downward and to the right along a linear, downward sloping curve

Answer 15

the slope remains constant but elasticity changes

Question 16

When a demand is elastic a decrease in price will cause

Answer 16

a decrease in total revenue

Question 17

When demand is unit elastic, price elasticity of demand equals

Answer 17

1 and total revenue does not change when price changes

Question 18

Price controls are usually enacted

Answer 18

when policymakers believe that the market price of a good/service is unfair to buyers/sellers

Question 19

A 2.00 tac levied on the sellers of birdhouses will shift the supply curve

Answer 19

upward by exactly $2.00

Question 20

A price floor is binding when it is set

Answer 20

above the equilibrium price, causing a surplus

Question 21

a tax levied on buyers shift the demand curve….

Answer 21

downward

Question 22

a tax levied on levied on sellers shift the supply curve

Answer 22

upward

Question 23

taxes do what to the price paid by buyers?

Answer 23

raises the price

Question 24

taxes do what to the price recieved by sellers?

Answer 24

reduces the rpdice

Question 25

why is there a deadweight loss?

Answer 25

people respond to incentives (buyers are motivated to buy less and producers are motivated to make less)

Question 26

A tax on a good has a deadweight loss if…

Answer 26

the tax revenue is greater than the reduction in consumer and producer surplus

Question 27

What does the deadweight loss represent?

Answer 27

the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers

Question 28

deadweight loss measures the loss

Answer 28

in a market to buyers and sellers that is not offset by an increase in government revenue

Question 29

when supply is relatively inelastic, the deadweight loss of a tax…

Answer 29

is smaller than when supply is relatively elastic

Question 30

total surplus includes…

Answer 30

the deadweight loss (all of the triangle)

Question 31

What happens to consumer surplus if the price of a good increases?

Answer 31

consumer surplus decreases

Question 32

Demand is said to be inelastic if

Answer 32

the quantity demanded changes only slightly when the price of the good changes

Question 33

If the price of a good gets smaller, then the total surplus will be

Answer 33

smaller than it would be at the equilibrium price

Question 34

Total surplus is measured as the area

Answer 34

below the demand curve and above the supply curve