Question 1

Suppose the demand curve for a product is given by $$Q_d = 100 - 2P$$ and the supply curve is $$Q_s = 4P. $$What is the equilibrium price and quantity in this market?

Accepted Answer

Equilibrium price is $20, equilibrium quantity is 80.

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the highest price a consumer is willing to pay and the actual price paid.

Question 3

If the market price for a cup of chai tea is $$3.50, and Theresa is willing to pay 6.00$$, Tom $$5.00, and Terri 4.00$$, what is the total consumer surplus for these three consumers?

Accepted Answer

$4.50

Question 4

Producer surplus is best defined as:

Accepted Answer

The difference between the lowest price a firm would accept and the price it actually receives.

Question 5

A competitive market is considered economically efficient when:

Accepted Answer

The sum of consumer surplus and producer surplus is maximized.

Question 6

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

Accepted Answer

A surplus of the good.

Question 7

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

Accepted Answer

Rent control in major cities.

Question 8

Suppose the government imposes a $$1.00 per unit tax on cigarettes. If the pre-tax equilibrium price is 6.00 $$and the new equilibrium price paid by consumers is $6.90, what price do producers receive after the tax?

Accepted Answer

$5.90

Question 9

Deadweight loss is:

Accepted Answer

The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Question 10

If the demand for gasoline is relatively inelastic compared to supply, who bears most of the burden of a gasoline tax?

Accepted Answer

Consumers bear most of the burden.

Question 11

Which of the following statements about tax incidence is correct?

Accepted Answer

The burden of a tax falls more heavily on the side of the market that is less elastic.

Question 12

A rent ceiling set below the equilibrium rent will likely result in:

Accepted Answer

A shortage of apartments.

Question 13

Which of the following is a normative statement regarding price controls?

Accepted Answer

The benefits of price controls outweigh the losses.

Question 14

Suppose the government imposes a price ceiling on hand sanitizer during an emergency. What is the most likely short-run effect?

Accepted Answer

A shortage of hand sanitizer.

Question 15

If the supply curve for labor is more elastic than the demand curve, who bears more of the burden of a payroll tax?

Accepted Answer

Workers bear more of the burden.

Question 16

Which of the following best describes economic surplus?

Accepted Answer

The sum of consumer surplus and producer surplus.

Question 17

If a price floor is set below the equilibrium price, what will happen in the market?

Accepted Answer

The price floor will have no effect.

Question 18

Which of the following is a real-world example of a price floor?

Accepted Answer

Minimum wage laws.

Question 19

If the government collects $$1 billion in tax revenue from a market, but the deadweight loss is 500 $$million, what is the excess burden of the tax?

Accepted Answer

$500 million

Question 20

Suppose the demand for Uber rides is given by $$P = 65.17 - 0.47Q ($$where $$P is $$price and $$Q is $$quantity in millions). If the price is $$13.30$$, what is the quantity demanded?

Accepted Answer

110 million rides

Economic Efficiency, Government Price Setting, and Taxes: Study Notes

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