Figure 9.2

1) Refer to Figure 9.2.    At price 0H and quantity Q1, consumer surplus is the area

A) EDGF.

B) 0FGQ1.

C) HFGB.

D) EFC.

E) none of the above

2) Refer to Figure 9.2.    At price 0H and quantity Q1, producer surplus is the area

A) 0ABQ1.

B) 0EDQ1.

C) AHB.

D) 0FGQ1.

E) none of the above

3) Refer to Figure 9.2.    At price 0H and quantity Q1, the deadweight loss is

A) DGC.

B) BDC.

C) BGC.

D) 0FGQ1.

E) none of the above

4) An effective price ceiling causes a loss of

A) producer surplus for certain and possibly consumer surplus as well.

B) consumer surplus only.

C) producer surplus only.

D) consumer surplus for certain and possibly producer surplus as well.

E) neither producer nor consumer surplus.

5) Consider the following statements when answering this question

I.   Employers are always hurt by minimum wage laws.

II.  Workers always benefit from minimum wage laws.

A) I and II are true.

B) I is true, and II is false.

C) I is false, and II is true.

D) I and II are false.

6) Suppose a competitive market is in equilibrium at price P' and quantity Q'.    If the demand curve becomes less elastic, but the same price-quantity equilibrium is           maintained, what happens to consumer and producer surplus?

A) Both PS and CS increase

B) CS increases and PS decreases

C) CS increases and PS remains the same

D) Both CS and PS decrease

7) The market supply curve for music downloads is Q = 135(P- 1) where Q is millions of downloads and P is the price in dollars per track.    If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per   track?

A) $5.4 million

B) $8.1 million

C) $10.8 million

D) $27 million

8) Which of the following is NOT true about price floors?

A) Consumer surplus is always lower than it would be in the competitive equilibrium.

B) Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium.

C) Producer surplus could be negative as the result of a price floor.

D) Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost.

E) The total producer surplus depends on how producers respond to the price floor in determining their output level.

Figure 9.9

9) Refer to Figure 9.9.   Now suppose an import quota of 3000 trucks is imposed. The quota will make total consumer surplus equal to

A) $25,000.

B) $13,125,000.

C) $40,000,000.

D) $62,500,000.

E) $75,625,000.

10) Refer to Figure 9.9.   Now suppose an import quota of 3000 trucks is imposed. The quota will decrease the revenue of foreign firms by

A) $0.

B) $2,500.

C) $7,500,000.

D) $11,250,000.

E) $13,125,000.

11) Consider a good whose own price elasticity of demand is - 1.5 and price elasticity of supply is 0.5.    The fraction of a specific tax that is borne by producers is

________ .

A) 0

B) 0.25

C) 0.5

D) 0.75

E) 1

12) The deadweight loss of a specific tax will be a small share of the tax revenue collected if:

A) supply is more inelastic than demand.

B) demand is more inelastic than supply.

C) supply and demand are both elastic.

D) supply and demand are both inelastic.

13) Why is there a deadweight loss associated with subsidy payments?

A) There is no deadweight loss from a subsidy.

B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced.

C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them.

D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.

14) The monopolist has no supply curve because

A) the quantity supplied at any particular price depends on the monopolist's demand curve.

B) the monopolist's marginal cost curve changes considerably over time.

C) the relationship between price and quantity depends on both marginal cost and average cost.

D) there is a single seller in the market.

E) although there is only a single seller at the current price, it is impossible to know how many sellers would be in the market at higher prices.

15) Which of the following is NOT true for monopoly?

A) The profit maximizing output is the one at which marginal revenue and marginal cost are equal.

B) Average revenue equals price.

C) The profit maximizing output is the one at which the difference between total revenue and total cost is largest.

D) The monopolist's demand curve is the same as the market demand curve.

E) At the profit maximizing output, price equals marginal cost.

16) What is the value of the Lerner index under perfect competition?

A) 1

B) 0

C) infinity

D) two times the price

17) Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be:

A) to decrease the price of rice to the Japanese people.

B) to decrease the consumer surplus of Japanese rice consumers.

C) to decrease the producer surplus of Japanese rice producers.

D) a welfare gain for the Japanese people.

E) increase the consumption of rice by the Japanese people.

18) A country which does not tax cigarettes is considering the introduction of a $0.40 per pack tax.    The economic advisors to the country estimate the supply and demand curves for cigarettes as:

QD = 140,000    25,000P QS= 20,000 + 75,000P,

where Q = daily sales in packs of cigarettes, and P = price per pack.    The country has hired you to provide the following information regarding the cigarette market and the proposed tax.

a.   What are the equilibrium values in the current environment with no tax?

b.   What price and quantity would prevail after the imposition of the tax?    What portion of the tax would be borne by buyers and sellers respectively?

c.   Calculate the deadweight loss from the tax.    Could the tax be justified despite the deadweight loss?    What tax revenue will be generated?