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1. Welfare economics is the study of the welfare system.
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The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers.
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Micro1ECON TEST 2
| Question | Answer |
|---|---|
| 1. Welfare economics is the study of the welfare system. | false |
| The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers. | true |
| The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good. | True |
| Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it. | False |
| Joel has a 1966 Mustang, which he sells to Susie, an avid car collector. Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car. Susie’s consumer surplus is $2,000. | False |
| The area above the demand curve and below the price measures the consumer surplus in a market. | True |
| For any given quantity, the price on a demand curve represents the marginal buyer’s willingness to pay. | true |
| Consumer surplus measures the benefit to buyers of participating in a market. | true |
| A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay. | false |
| Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product. | true |
| In a competitive market, sales go to those producers who are willing to supply the product at the lowest price. | true |
| Producer surplus is the amount a seller is paid minus the cost of production. | true |
| Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window cleaning is $3 per window. If Connie cleans 100 windows, her producer surplus is $100. | false |
| At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller. | false |
| The area below the price and above the supply curve measures the producer surplus in a market. | true |
| When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market. | true |
| 17. Total surplus in a market is consumer surplus minus producer surplus. | false |
| Total surplus = Value to buyers – Costs to sellers. | true |
| Efficiency refers to whether a market outcome is fair, while equity refers to whether the maximum amount of output was produced from a given number of inputs. | false |
| Efficiency is related to the size of the economic pie, where equity is related to how the pie gets sliced and distributed. | true |
| Total surplus in a market can be measured as the area below the supply curve and the area above the demand curve. | false |
| Free markets allocate (1) the supply of goods to the buyers who value them most highly and (2) the demand for goods to the sellers who can produce them at least cost. | true |
| Even though participants in the economy are motivated by self-interest, the “invisible hand” of the marketplace guides this self-interest into promoting general economic well-being. | true |
| In order for market outcomes to maximize the total benefits to buyers and sellers, the markets must be perfectly competitive. | true |
| When markets fail, public policy can potentially remedy the problem and increase economic efficiency. | true |
| Economists use the term tax incidence to refer to who is legally responsible for paying the tax. | false |
| If buyers of a product are required to pay a tax, the demand curve for the product will shift downward by exactly the size of the tax. | true |
| A government imposed tax on a market shrinks the size of the market. | true |
| A tax on golf clubs will cause the equilibrium market price of golf clubs to increase, and the equilibrium quantity sold to decrease. | true |
| If a tax is imposed on the buyer of a product, the tax incidence will fall entirely on the buyer, causing the buyer to pay more. | false |
| A tax on sellers shifts the supply curve upward by exactly the size of the tax. | true |
| The incidence of a tax depends on whether the tax is levied on buyers or sellers. | false |
| Lawmakers can decide whether the buyer or the seller must send a tax to the government, but they cannot legislate the true burden of a tax. | true |
| Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or the seller. | false |
| In general, a tax burden falls more heavily on the side of the market that is more inelastic. | true |
| Economic policies often have effects that their architects did not intend or anticipate. | true |
| Policymakers use taxes both to raise revenue for public purposes and to influence market outcomes. | true |
| Normally, both buyers and sellers are worse off when a good is taxed. | true |
| A tax places a wedge between the price buyers pay and the price sellers receive. | true |
| A tax on a good causes the size of the market to increase. | false |
| A tax raises the price received by sellers and lowers the price paid by buyers. | false |
| Often, the tax revenue collected by the government equals the reduced welfare of buyers and sellers caused by the tax. | false |
| When a tax is imposed, the loss of consumer surplus and producer surplus as a result of the tax exceeds the revenue raised by the government. | true |
| Because taxes distort incentives, they cause markets to allocate resources inefficiently. | true |
| If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss. | true |
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Mets3172