Test 2 Agricultural Economics Flashcards
t/f a price floor set below the equilibrium price causes quantity supplied to exceed quantity demanded
False
t/f not all sellers benefit from a binding price floor
true
t/f a binding minimum wage may not help all workers, but it doesn’t hurt any workers
false
t/f advocates of the minimum wage admit that it has some adverse effects, but they believe that these effects are small and that a higher minimum wage makes the poor better off
True
t/f a tax of $1 on buyers shifts the demand curve downward by exactly $1
True
t/f price controls can generate inequities
true
t/f if the equilibrium price of an airline ticket is $400 and the government imposes a price floor of $500 on airline tickets then fewer airline tickets will be sold than at the market equilibrium
True
t/f taxes levied on sellers and taxes levied on buyers are equivalent
True
t/f if a tax is imposed on the sellers of a product, then the tax burden will fall entirely on the sellers
False
when a tax is placed on the sellers of energy drinks, the…
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal
Suppose that a tax is placed on books. If the sellers pay the majority of the tax, then we know that the…
supply is more inelastic than the demand
price control are usually enacted when…
policymakers believe that the market price of a good or service is unfair to buyers or sellers
why do policymakers use taxes
to raise revenue for public purposes and to influence market outcomes
what happens to market price and quantity sold if a price celling is non binding
there is no effect
when a tax is placed on the sellers of a product, buyers pay…
more, and sellers receive less than they did before the tax
t/f a buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay
false
t/f consumer surplus can be measured as the area between the demand curve and the equilibrium price
true
t/f producer surplus is the cost of production minus the amount a seller is paid
false
t/f if producing a soccer ball costs jake $5 and he sells it for $40 his producer surplus is $45
false $35
t/f if the government imposes a binding price ceiling in a market, then the producer surplus in that market will increase
false
t/f the equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market
true
t/f ticket scalping can increase total surplus in the market for tickets to sporting events
true
t/f suppose you sell a kayak for $600, but you were willing to sell it for $450. the buyer was willing to pay $650. The total surplus is $200
true
t/f unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers
true
market power and externalities are examples of market failures
true
what is welfare economics
the study of how the allocation of resources affects economic well-being
suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin’s first movie. Each has in a mind and maximum amount that he will bid. this maximum is called…
willingness to pay
what is consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays
on a graph what does the area below a demand curve and above the price measure
consumer surplus
a seller is willing to sell a product only if the seller receives a price that is at least as great as the…
sellers cost of production
what is producer surplus
the amount a seller is paid minus the cost of production
what is total surplus
the total value of the good to buyers minus the cost to sellers of providing the good
what are externalities
side effects passed on to a party other than the buyers and sellers in the market
what are market power and externalities examples of
market failure
price ceiling
a legal maximum on the price at which a good can be sold
price floor
a legal minimum on the price and which a good can be sold
tax incidence
the manner in which the burden of a tax is shared among participants in a market
elasticity determines this
cost
the value of everything a seller must give up to produce a good
efficiency
the property of a resource allocation of maximizing the total surplus received by all members of society
goods are consumed by buyers who value them most highly
goods are produced by the producers with the lowest costs
raising or lowering the quantity of a good will not increase total surplus
equality
the property of distributing economic prosperity uniformly among the members of society
deadweight loss
the fall in total surplus that results from a market distortion such as a tax
t/f when a tax is imposed on buyers consumer surplus decreases but producer surplus increases
false
t/f taxes affect market participants by increasing the price paid by the buyer and received by the seller
false
t/f the greater the elasticity of demand, the smaller the deadweight loss of tax
false
t/f the greater the deadweight loss from taxation, the larger the cost of government programs
true
t/f when the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency
true
t/f total surplus in a market does not change when the government imposes tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue
false
t/f if the government imposes a $3 tax in a market, the equilibrium price will rise by $3
false, not necessarily
t/f if a tax did not include buyers or sellers to change their behavior, it would not cause a deadweight loss
true
t/f the demand for bread is less elastic than the demand for donuts hence a tax on bread will create a larger deadweight loss than the same tax on donuts, other things equal
false, bread inelastic
t/f economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue
true
It does not matter whether a tax is levied on the buyers or the sellers of a good because…
buyers and sellers will share the burden of the tax
a tax placed on a good…
causes the equilibrium quantity of the good to decrease
how are the size of a tax and the deadweight loss of a tax related
positively
the more elastic the demand for the good, other thongs…
increase as the size of the tax increases, and the increase in deadweight loss is more rapid than the increase in the size of the tax
what happens when a tax is imposed on the sellers of a good
the supply curve shifts upward by the amount of the tax
an increase in the size of a tax is most likely to increase tax revenue in a market with…
inelastic demand and inelastic supply
what creates shortages
price ceilings
what creates surpluses
price floors
who pays most of luxury tax?
producers
does inelastic or elastic bear most of burden?
inelastic
what is the allocation of resources also called
surplus
what is a marginal buyer
a buyer who would leave the market if the price got any higher
what is a marginal seller
a seller who would leave the market if the price was any lower
what does PS equal
the area above the supply curve under the price from 0-Q
which goods or services should the government tax to raise revenue
the ones with the smallest DWL
when is DWL small
inelastic
marginal tax rate
the tax on the last dollar of earnings about %40
t/f a binding price floor may not help all sellers, but it doesn’t hurt any sellers
false
t/f if a market is in equilibrium, then it is impossible for a social planner to raise economic welfare by increasing or decreasing the quantity of the good
true
t/f the current policy on kidney donation effectively sets a price ceiling of zero
true
t/f the Laffer curve is the curve showing how tax revenue varies as the size of the tax varies
true
t/f the more inelastic demand and supply are, the bigger deadweight loss
false, smaller
t/f total surplus is always equal to the sum of consumer surplus and producer surplus
false, tax revenue
t/f the term tax incidence refers to how the burden of a tax is distributed among the various people who make up the economy
true
t/f if the size of a tax doubles, the deadweight loss doubles
false
t/f when the government imposes a binding price ceiling on a competitive market, a surplus of the good arises, and sellers must ration the scarce goods among the large number of buyers
false, shortage
t/f taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay
false, other way around
if the price a consumer pays for a product is equal to a consumer’s willingness to pay, then the consumer surplus relevant to that purchase is…
zero
The imposition of a binding price ceiling on a market causes quantity demanded to be…
greater than quantity supplied
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the…
supply of the product is more elastic than the demand for the product
