Q: Suppose the government introduces a per-unit tax $$t on a $$good. What is the deadweight loss caused by the tax?

$$\frac{1}{2} \times t \times (Q^* - Q_t)$$

Question 1

Suppose a government imposes a price ceiling below the equilibrium price in a competitive market. What is the most likely outcome?

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 2

If the demand for a good is given by $$Q_D = 20 - 2P$$ and the supply is $$Q_S = 2P$$, what is the equilibrium price?

Accepted Answer

$$P = 5$$

Question 3

Which of the following best describes consumer surplus?

Accepted Answer

The area below the demand curve and above the price line, up to the quantity purchased.

Question 4

A tax is imposed on sellers in a market. Which of the following statements is correct regarding the effect on equilibrium?

Accepted Answer

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

Question 5

If a firm faces a perfectly elastic demand curve, what is the price elasticity of demand?

Accepted Answer

$$\infty$$

Question 6

Suppose the government introduces a per-unit tax $$t on a $$good. What is the deadweight loss caused by the tax?

Accepted Answer

$$\frac{1}{2} 	imes t 	imes (Q^* - Q_t)$$

Question 7

Which of the following is true about the incidence of a tax?

Accepted Answer

It depends on the relative elasticities of supply and demand.

Question 8

If the supply of a good is perfectly inelastic, who bears the entire burden of a tax imposed on the good?

Accepted Answer

Sellers

Question 9

A price floor set above the equilibrium price will result in:

Accepted Answer

A surplus

Question 10

If the demand curve for a good is $$Q_D = 30 - P$$ and the supply curve is $$Q_S = P - 10$$, what is the equilibrium quantity?

Accepted Answer

$$Q = 20$$

Question 11

Which of the following best describes producer surplus?

Accepted Answer

The difference between the price sellers receive and the minimum price they are willing to accept.

Question 12

If a market is in equilibrium and both supply and demand increase simultaneously, what happens to the equilibrium quantity?

Accepted Answer

It increases.

Question 13

Suppose the government sets a binding price ceiling on gasoline. Which of the following is a likely consequence?

Accepted Answer

Long lines and rationing.

Question 14

If the price elasticity of demand is $$-0.5$$, how would you describe the demand for the good?

Accepted Answer

Inelastic

Question 15

Which of the following is NOT a likely effect of a binding price floor?

Accepted Answer

A shortage in the market.

Question 16

If a per-unit tax is imposed on buyers, what happens to the demand curve?

Accepted Answer

It shifts downward by the amount of the tax.

Question 17

Suppose the supply curve is $$Q_S = 3P$$ and the demand curve is $$Q_D = 18 - P. If a$$ $$2$$ unit tax is imposed on sellers, what is the new equilibrium price paid by buyers?

Accepted Answer

$$P = 6$$

Question 18

Which of the following statements about deadweight loss is correct?

Accepted Answer

Deadweight loss is larger when supply and demand are more elastic.

Question 19

If a market is perfectly competitive, which of the following is true at equilibrium?

Accepted Answer

Marginal cost equals marginal benefit.

Question 20

Suppose the government removes a binding price ceiling. What is the most likely effect on the market?

Accepted Answer

The shortage will be eliminated and the market will return to equilibrium.

Microeconomics Study Notes: Consumer and Producer Surplus, Market Equilibrium, and Efficiency

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