Q: If the demand for Uber rides is given by $$Q_D = 111 - 3P$$ and the equilibrium price is $$P^* = 13.30$$, what is the consumer surplus if the maximum willingness to pay is $$65.17$$?

$$CS = \frac{1}{2} \times (65.17 - 13.30) \times 111 = 2,878.785$$

Question 1

Suppose the government imposes a price ceiling below the equilibrium price in the market for apartments. Which of the following is the most likely outcome?

Accepted Answer

A shortage of apartments, as the quantity demanded exceeds the quantity supplied at the ceiling price.

Question 2

If the demand for Uber rides is given by $$Q_D = 111 - 3P$$ and the equilibrium price is $$P^* = 13.30$$, what is the consumer surplus if the maximum willingness to pay is $$65.17$$?

Accepted Answer

$$CS = \frac{1}{2} 	imes (65.17 - 13.30) 	imes 111 = 2,878.785$$

Question 3

A tax of $$0.25$$ per gallon is imposed on gasoline, shifting the supply curve up by $$0.25. If $$the demand curve is vertical, who bears the entire burden of the tax?

Accepted Answer

Consumers bear the entire burden.

Question 4

Which area on a supply and demand graph represents deadweight loss after a price ceiling is imposed below equilibrium?

Accepted Answer

The area between the supply and demand curves from the quantity supplied at the ceiling to the equilibrium quantity.

Question 5

Suppose the supply of wine imported into the Colonies shifts left due to a requirement to ship through Great Britain. What happens to consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus decreases and deadweight loss increases.

Question 6

If a price floor is set above the equilibrium price in the market for milk, what is the likely result?

Accepted Answer

A surplus of milk.

Question 7

Which of the following best describes economic efficiency in a competitive market?

Accepted Answer

Economic efficiency occurs when marginal benefit equals marginal cost and economic surplus is maximized.

Question 8

A government imposes a value-added tax on milk, shifting the supply curve up. What happens to deadweight loss and tax revenue if the tax is reduced?

Accepted Answer

Deadweight loss decreases and tax revenue decreases.

Question 9

If the government sets a minimum wage above the equilibrium wage, what is the most likely effect in the labor market?

Accepted Answer

A surplus of labor (unemployment) as the quantity of labor supplied exceeds the quantity demanded.

Question 10

Which of the following statements about tax incidence is correct?

Accepted Answer

The burden of a tax depends on the relative elasticities of supply and demand, not on who officially pays the tax.

Question 11

Suppose the demand for a good is perfectly inelastic. If a tax is imposed on this good, what will happen to the price paid by consumers?

Accepted Answer

The price paid by consumers will increase by the full amount of the tax.

Question 12

In the context of rent control, which group is most likely to benefit from a price ceiling on apartments?

Accepted Answer

Renters who are able to secure apartments at the controlled price.

Question 13

If the government purchases surplus kumquats at a price floor above equilibrium, what is the total revenue received by kumquat producers?

Accepted Answer

$$30 	imes 180$$ million crates

Question 14

Which of the following is a direct result of a price ceiling in the market for cornmeal in Venezuela, as shown in the provided graph?

Accepted Answer

A shortage of cornmeal and higher illegal market prices.

Question 15

If a supply curve shifts left due to a trade restriction, as in the Navigation Acts, what happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price increases and equilibrium quantity decreases.

Question 16

Which of the following best describes deadweight loss?

Accepted Answer

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

Question 17

If the government lowers a value-added tax, what happens to the supply curve and the equilibrium price?

Accepted Answer

The supply curve shifts down and the equilibrium price falls.

Question 18

Which of the following is true about economic surplus?

Accepted Answer

Economic surplus is maximized at the competitive equilibrium.

Question 19

If a price floor is imposed in the labor market (minimum wage), what is the likely effect on total income for low-wage workers if the decrease in hours worked is large?

Accepted Answer

Total income for low-wage workers will decrease.

Question 20

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

Accepted Answer

"Rent control is undesirable because it reduces economic efficiency."

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

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