Q: Which of the following is the correct formula for deadweight loss (DWL) resulting from a tax?

$$ DWL = \frac{1}{2} \times (Q_{e} - Q_{t}) \times Tax $$

Question 1

Which of the following best defines the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 2

Suppose the price of coffee increases. What is the most likely effect on the demand for tea, assuming coffee and tea are substitutes?

Accepted Answer

The demand for tea will increase, shifting the demand curve for tea to the right.

Question 3

Which of the following is an example of a price floor?

Accepted Answer

A minimum wage law that sets the lowest legal hourly pay.

Question 4

If the market price is set below the equilibrium price, which of the following will occur?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied.

Question 5

Which of the following would cause a movement along the supply curve for apples, rather than a shift of the supply curve?

Accepted Answer

A decrease in the price of apples.

Question 6

If income increases and the demand for used clothing decreases, used clothing is best classified as:

Accepted Answer

An inferior good.

Question 7

Suppose the government imposes a price ceiling on bread below the equilibrium price. What is the likely result?

Accepted Answer

A shortage of bread, because quantity demanded exceeds quantity supplied.

Question 8

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Question 9

A tax is imposed on sellers of gasoline. Which of the following statements is correct regarding tax incidence?

Accepted Answer

The burden of the tax is shared between buyers and sellers, depending on the elasticities of demand and supply.

Question 10

If both the demand and supply for laptops increase simultaneously, what can be said about the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity will increase, but the effect on equilibrium price is indeterminate without more information.

Question 11

Which of the following is the correct formula for deadweight loss (DWL) resulting from a tax?

Accepted Answer

$$ DWL = \frac{1}{2} 	imes (Q_{e} - Q_{t}) 	imes Tax $$

Question 12

If the price of peanut butter increases, what is the likely effect on the demand for jelly, assuming they are complements?

Accepted Answer

The demand for jelly will decrease, shifting the demand curve for jelly to the left.

Question 13

Which of the following best describes a movement along the demand curve?

Accepted Answer

A change in the quantity demanded due to a change in the good's own price.

Question 14

Suppose a new technology reduces the cost of producing electric cars. What is the likely effect on the market for electric cars?

Accepted Answer

The supply curve shifts to the right, leading to a lower equilibrium price and higher equilibrium quantity.

Question 15

Which of the following is NOT a determinant (shifter) of supply?

Accepted Answer

Consumer income.

Question 16

If a price floor is set above the equilibrium price, what is the likely result?

Accepted Answer

A surplus, because quantity supplied exceeds quantity demanded.

Question 17

Which area on a supply and demand graph represents producer surplus?

Accepted Answer

The area above the supply curve and below the equilibrium price.

Question 18

Suppose the government imposes a tax on a good. Which of the following is true about deadweight loss?

Accepted Answer

Deadweight loss arises because the tax reduces the quantity traded below the efficient equilibrium level.

Question 19

Which of the following best explains the difference between a shortage caused by a price ceiling and a shortage in a free market?

Accepted Answer

A price ceiling creates a persistent shortage because the price cannot rise to eliminate excess demand, while in a free market, prices adjust to eliminate shortages.

Microeconomics Study Notes: Market Dynamics, Equilibrium, and Government Intervention

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