Micro Midterm #2 – Flashcards

1. At market equilibrium in a competitive market, which of the following is necessarily true? I. Consumer surplus is maximized. II. Producer surplus is maximized. III. Total surplus is maximized. a. I only b. II only c. III only d. I and II only e. I, II, and III

2. When a competitive market is in equilibrium, total surplus can be increased by III. reallocating consumption among consumers. III. reallocating sales among sellers. III. changing the quantity traded. a. I only b. II only c. III only d. I, II, and III e. None of the above

3. Which of the following is true regarding equity and efficiency in competitive markets? a. Competitive markets ensure equity and efficiency. b. There is often a trade-off between equity and efficiency. c. Competitive markets lead to neither equity nor efficiency. d. There is generally agreement about the level of equity and efficiency in a market. e. None of the above.

4. An excise tax imposed on sellers in a market will result in which of the following? I. an upward shift of the supply curve II. a downward shift of the demand curve III. deadweight loss a. I only b. II only c. III only d. I and III only e. I, II, and III

5. An excise tax will be paid mainly by producers when a. it is imposed on producers. b. it is imposed on consumers. c. the price elasticity of supply is low and the price elasticity of demand is high. d. the price elasticity of supply is high and the price elasticity of demand is low. e. the price elasticity of supply is perfectly elastic.

Graciela is willing to sell 1 dozen roses for $50, while Giuseppe is willing to sell 1 dozen roses for $60. Carlos is willing to buy 1 dozen roses for $60, while Yuriko is willing to pay $50. If the market price is $52, how many roses are sold and what is the sum total of consumer and producer surplus after the transaction(s)? A. One dozen roses will be sold, and the total consumer and producer surplus will be $10. B. One dozen roses will be sold, and the total consumer and producer surplus will be $16. C. Two dozen roses will be sold, and the total consumer and producer surplus will be $16. D. No roses will be sold, and consequently the total consumer and producer surplus will be $0.

2. In a voluntary exchange: A. the amount of consumer surplus will equal the amount of producer surplus. B. if the consumer derives consumer surplus, the supplier will derive no producer surplus. C. if the supplier derives producer surplus, the consumer will derive no consumer surplus. D. both the producer and the consumer can experience a net benefit.

Economic theory asserts that: A. the equilibrium market price will maximize consumer surplus and minimize producer surplus. B. both producers and consumers gain from trade. C. all consumers have the same willingness to pay for a good. D. all producers have the same cost of providing a good.

Gains from trade are maximized in a market if: A. producers sell more than the equilibrium amount of a good and consumers buy more than the equilibrium amount of a good. B. producers sell less than the equilibrium amount of a good and consumers buy less than the equilibrium amount of a good. C. producers sell the equilibrium amount of a good and consumers buy the equilibrium amount of a good. D. producers sell more than the equilibrium amount of a good and consumers buy less than the equilibrium amount of a good.

An efficient outcome is one in which: A. all consumers who desire the good can afford it at the current price. B. no individual buyer could be made better off. C. no individual seller could be made better off. D. no individual can be made better off without making someone else worse off.

An excise tax: A. is a progressive tax on income. B. is a value added tax. C. is a tax on each unit of a good that is sold. D. is a form of a property based tax.

An excise tax imposed on hotel owners: A. shifts the supply curve for hotel rooms up by the amount of the tax. B. shifts the supply curve for hotel rooms down by the amount of the tax. C. shifts the demand curve for hotel rooms up by the amount of the tax. D. shifts the demand curve for hotel rooms down by the amount of the tax.

If an excise tax is imposed on hotel consumers, the incidence of the tax: A. falls on consumers of hotel rooms alone. B. falls on producers of hotel rooms alone. C. is shared by producers and consumers of hotel rooms. D. is always shared evenly by both producers and consumers of hotel rooms.

When the price elasticity of supply is ___________ the price elasticity of demand, an excise tax falls ___________. A. greater than; mainly on producers B. greater than; mainly on consumers C. greater than; only on producers D. less than; mainly on consumers

The incidence of a tax is the: A. amount of the revenue the government collects. B. deadweight loss arising from imposition of the tax. C. per-unit amount of an excise tax. D. measure of who really bears the burden of the tax.

What is meant by the "deadweight loss" caused by a tax? A. The shortage that results B. The surplus that results C. The transfer of wealth from taxpayers to the government in the form of tax revenue D. The inefficiency that results from the loss of potentially beneficial transactions

Suppose that the rate for a hotel room is $75 before the imposition of an $8 excise tax. With the tax, the rate rises to $80. What is the consumer's burden of the tax? A. $3 B. $5 C. $8 D. $10

Suppose that the price of overnight package delivery service is $18 before a $5 excise tax is imposed. With the tax, the price rises to $20. What is the producer's burden of the tax? A. $2 B. $3 C. $5 D. $13

Under what circumstances does the burden of an excise tax fall mainly on producers? A. When the supply is relatively inelastic and demand is fairly elastic B. When the supply is relatively elastic and demand is fairly inelastic C. When consumers do not have many substitutes for the good D. When it is easy for suppliers to expand production of the good

When the price elasticity of demand exceeds the price elasticity of supply, the burden of an excise tax falls: A. mainly on consumers. B. mainly on producers. C. equally on consumers and producers. D. entirely on consumers.

The amount of the deadweight loss resulting from an excise tax is: A. the amount of revenue collected from the tax. B. independent of the elasticity of demand for the taxed good. C. the difference between the government revenue from an excise tax and the reduction in total surplus resulting from imposition of the tax. D. the difference between the amount of consumer surplus and the amount of producer surplus remaining after imposition of the tax.

Which of the following statements is true? A. The amount of deadweight loss resulting from an excise tax will increase as the demand becomes more inelastic. B. The amount of deadweight loss resulting from an excise tax will increase as the demand becomes more elastic. C. An excise tax does not create a deadweight loss if the taxed good is a necessity. D. An excise tax does not create a deadweight loss if the taxed good is a luxury.

An excise tax imposed on chocolate would create a deadweight loss because it will: A. discourage new firms from entering the chocolate-making business. B. dampen the profits of chocolate producers. C. prevent some mutually beneficial trades from occurring. D. reduce the demand for chocolate.

Which of the following is not a predictable result from imposition of an excise tax? A. The quantity demanded decreases B. The quantity supplied decreases C. A deadweight loss results D. Producer profits increase

Which of the following is an example of an implicit cost of going out for lunch? a. the amount of the tip you leave the waiter b. the total bill you charge to your credit card c. the cost of gas to drive to the restaurant d. the value of the time you spent eating lunch e. all of the above

2. Which of the following is an implicit cost of attending college? a. tuition b. books c. laptop computer d. lab fees e. forgone salary

Which of the following is the best definition of accounting profit? Accounting profit equals total revenue minus depreciation and total a. explicit cost only. b. implicit cost only. c. explicit cost plus implicit cost. d. opportunity cost. e. explicit cost plus opportunity cost.

Which of the following is considered when calculating economic profit but not accounting profit? a. implicit cost b. explicit cost c. total revenue d. marginal cost e. All of the above are considered when calculating accounting profit.

You sell T-shirts at your school's football games. Each shirt costs $5 to make and sells for $10. Each game lasts two hours and you sell 100 shirts per game. You could always be earning $8 per hour at your other job. Which of the following is correct? Your accounting profit from selling shirts at a game is a. $1,000 and your economic profit is $500. b. $500 and your economic profit is $1,000. c. $500 and your economic profit is $484. d. $484 and your economic profit is $500. e. $500 and your economic profit is also $500.

What additional information would Sunny need in order to determine whether or not to continue operating the Sno Cone Stand?

Explain how Sunny would determine whether or not to continue operating the business on the basis of these numbers.

4. A firm should continue to produce as long as its a. total revenue is less than its total costs. b. total revenue is greater than its total explicit costs. c. accounting profit is greater than its economic profit. d. accounting profit is not negative. e. economic profit is at least zero.

A firm earns a normal profit when its a. accounting profit equals 0. b. economic profit is positive. c. total revenue equals its total costs. d. accounting profit equals its economic profit. e. economic profit equals its total explicit and implicit costs.

A production function shows the relationship between inputs and a. fixed costs. b. variable costs. c. total revenue. d. output. e. profit.

Which of the following defines the short run? a. less than a year b. when all inputs are fixed c. when no inputs are variable d. when only one input is variable e. when at least one input is fixed

The slope of the total product curve is also known as a. marginal product. b. marginal cost. c. average product. d. average revenue. e. profit.

Diminishing returns to an input ensures that as a firm continues to produce, the total product curve will have what kind of slope? a. negative decreasing b. positive decreasing c. negative increasing d. positive increasing e. positive constant

Historically, the limits imposed by diminishing returns have been alleviated by a. investment in capital. b. increases in the population. c. discovery of more land. d. Thomas Malthus. e. economic models.