Q: If the government imposes a $$10$$ per unit tax and the equilibrium quantity falls from $$20 to$$ $$15$$, what is the deadweight loss from the tax?

$$\frac{1}{2} \times 10 \times (20-15) = 25$$

Question 1

Suppose the price of candy bars increases from $$1.00 to 1.50$$, and the quantity demanded rises from 500 to 600 per day. Using the midpoint formula, what is the price elasticity of demand, and how would you classify the demand for candy bars?

Accepted Answer

Elastic, because $$\frac{(600-500)}{(600+500)/2} \div \frac{(1.50-1.00)}{(1.50+1.00)/2}$$ yields a value greater than 1.

Question 2

If rectangle D in a supply and demand graph is larger than rectangle A, which of the following statements is NOT correct?

Accepted Answer

An increase in price from $$P_1 to$$ $$P_2$$ will result in a decrease in total revenue.

Question 3

A tax of $5 per unit is imposed in a market. Which of the following is correct regarding the tax burden?

Accepted Answer

Buyers and sellers will share the burden of the tax equally only if demand and supply are equally elastic.

Question 4

Given the willingness to pay for oranges by Allison ($$2.00$$ for the first, $$1.50$$ for the second), Bob ($$1.50$$ for the first, $$1.00$$ for the second), and Charisse ($$0.75$$ for the first, $$0.25$$ for the second), what is the highest price at which exactly seven oranges will be demanded per day?

Accepted Answer

$$P \u003c 0.75$$

Question 5

If the cost of producing a product is $$1,150$$, who would be willing to sell the product if the sellers are Abby ($$1,000$$), Bobby ($$1,100$$), Dianne ($$1,200$$), Evaline ($$1,150$$), and Carla ($$1,300$$)?

Accepted Answer

Abby, Bobby, and Evaline

Question 6

If the supply curve shifts from $$S to$$ $$S'$$ and the demand curve shifts from $$D to$$ $$D'$$, what is the increase in producer surplus to existing producers if the area increases by $$75$$ units at a price of $$200$$?

Accepted Answer

$$75 	imes 200 = 15,000$$

Question 7

If the government imposes a $$10$$ per unit tax on a good, which area on the supply and demand graph represents the loss in consumer surplus?

Accepted Answer

Area $$B + C$$

Question 8

Graph (a) and Graph (b) each illustrate a $$4$$ per unit tax in a market. In comparison to Graph (a), Graph (b) illustrates which of the following statements?

Accepted Answer

If demand is relatively elastic, the deadweight loss of a tax is larger than if demand is relatively inelastic.

Question 9

When a tariff is imposed in the market, what happens to domestic producer surplus?

Accepted Answer

Domestic producer surplus increases by the area between the new price and the old price up to the quantity supplied domestically.

Question 10

Suppose the government imposes a per-unit tax on a good. If the demand for the good is perfectly inelastic, who bears the entire burden of the tax?

Accepted Answer

Buyers bear the entire burden.

Question 11

If the price elasticity of demand for a product is $$0.5$$ and the price increases by $$10\%$$, what is the expected percentage change in quantity demanded?

Accepted Answer

$$-5\%$$

Question 12

A government imposes a $$5$$ per unit tax on a good. If the supply is perfectly elastic, what happens to the equilibrium price paid by buyers?

Accepted Answer

The price paid by buyers increases by the full amount of the tax ($$5).$$

Question 13

If a tax is imposed and the demand curve is more elastic than the supply curve, who bears more of the tax burden?

Accepted Answer

Sellers bear more of the tax burden.

Question 14

Suppose a market for oranges has three buyers with willingness to pay for the first orange as $$2.00$$, $$1.50$$, and $$0.75. If $$the market price is $$1.00$$, how many oranges will be demanded?

Accepted Answer

3 oranges

Question 15

If the government imposes a $$10$$ per unit tax and the equilibrium quantity falls from $$20 to$$ $$15$$, what is the deadweight loss from the tax?

Accepted Answer

$$\frac{1}{2} 	imes 10 	imes (20-15) = 25$$

Question 16

If a tariff is imposed and the domestic price rises, what is the effect on consumer surplus?

Accepted Answer

Consumer surplus decreases.

Question 17

If the price elasticity of supply is $$2$$ and the price increases by $$5\%$$, what is the expected percentage change in quantity supplied?

Accepted Answer

$$10\%$$

Question 18

Suppose a $$4$$ per unit tax is imposed in a market with perfectly inelastic supply. What is the effect on equilibrium quantity?

Accepted Answer

Equilibrium quantity does not change.

Question 19

If the government imposes a tax and the deadweight loss is small, what does this indicate about the elasticities of supply and demand?

Accepted Answer

Supply and demand are both relatively inelastic.

Midterm 2 Review: Elasticity, Taxation, Surplus, and Market Interventions in Macroeconomics

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