Q: A $$1.00$$ per pack tax is imposed on cigarettes. If the pre-tax equilibrium price is $$6.90$$ and the new price consumers pay is $$6.90$$, but producers receive $$5.90$$ after the tax, what is the government’s tax revenue if $$3.7$$ billion packs are sold?

$$3.7$$ billion (since $$1.00 \times 3.7$$ billion packs = $$3.7$$ billion)

Question 1

Suppose the market for chai tea is in competitive equilibrium at a price of $2.00 per cup and a quantity of 15,000 cups per day. What is the economic interpretation when the marginal benefit equals the marginal cost at this equilibrium?

Accepted Answer

The market is economically efficient, maximizing economic surplus.

Question 2

If the government imposes a price ceiling below the equilibrium price in the apartment rental market, what is the most likely outcome?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 3

Given the demand equation $$QD = 4,750,000 - 1,000P$$ and the supply equation $$QS = -1,000,000 + 1,300P$$, what is the equilibrium price $$P^*$$ for apartments?

Accepted Answer

$$P^* = 2,500$$

Question 4

Which area on a supply and demand graph represents total consumer surplus in a competitive market?

Accepted Answer

The area below the demand curve and above the market price.

Question 5

A $$1.00$$ per pack tax is imposed on cigarettes. If the pre-tax equilibrium price is $$6.90$$ and the new price consumers pay is $$6.90$$, but producers receive $$5.90$$ after the tax, what is the government’s tax revenue if $$3.7$$ billion packs are sold?

Accepted Answer

$$3.7$$ billion (since $$1.00 	imes 3.7$$ billion packs = $$3.7$$ billion)

Question 6

What is the deadweight loss in a market where a price floor is set above equilibrium, such as in the wheat market with a price floor of $$8.00$$ per bushel when equilibrium is $$6.50$$?

Accepted Answer

The sum of the areas representing lost transactions (triangles B and C).

Question 7

If a minimum wage is set above the equilibrium wage, what happens in the labor market?

Accepted Answer

The quantity of labor supplied exceeds the quantity demanded, creating unemployment.

Question 8

Which of the following best describes producer surplus?

Accepted Answer

The difference between the lowest price a firm is willing to accept and the price it actually receives.

Question 9

If the government imposes a $$0.10$$ per gallon tax on gasoline and the price consumers pay rises by $$0.08$$, who bears the greater burden of the tax?

Accepted Answer

Consumers bear the greater burden.

Question 10

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

Accepted Answer

Rent control should be implemented to help low-income renters.

Question 11

Given the following willingness to pay for four consumers and a market price of $$3.00$$ per cup, what is the total consumer surplus?

Accepted Answer

$$6$$

Question 12

What happens to economic surplus when a price ceiling is imposed below the equilibrium price?

Accepted Answer

Economic surplus decreases due to deadweight loss.

Question 13

If the marginal benefit of the last unit produced is less than the marginal cost, what does this imply about the market outcome?

Accepted Answer

Too many units are being produced, resulting in inefficiency.

Question 14

Which of the following best describes the concept of tax incidence?

Accepted Answer

The actual division of the burden of a tax between buyers and sellers.

Question 15

If a price floor is set below the equilibrium price, what is the effect on the market?

Accepted Answer

It has no effect on the market outcome.

Question 16

Which formula correctly represents the equilibrium condition in a market?

Accepted Answer

$$QD = QS$$

Question 17

What is the effect of a tax on the supply curve in a competitive market?

Accepted Answer

It shifts the supply curve upward by the amount of the tax.

Question 18

Which of the following is true about economic efficiency in a competitive market?

Accepted Answer

Economic efficiency is achieved when the sum of consumer and producer surplus is maximized.

Question 19

If the government imposes a price ceiling on apartments at $$1,500$$ per month when the equilibrium rent is $$2,500$$, what is the resulting shortage?

Accepted Answer

200,000 apartments

Question 20

Which of the following best describes deadweight loss?

Accepted Answer

The loss of economic surplus that results from a market not being in competitive equilibrium.

Economic Efficiency, Government Price Setting, and Taxes

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