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1) Which of the following statements is correct regarding a tax on a good and the
resulting deadweight loss?
a.The greater are the price elasticities of supply and demand, the greater is the
deadweight loss.
b.The greater is the price elasticity of supply and the smaller is the price elasticity of
demand, the greater is the deadweight loss.
c.The smaller are the decreases in quantity demanded and quantity supplied, the greater
the deadweight loss.
d.The smaller is the wedge between the effective price to sellers and the effective price
to buyers, the greater is the deadweight loss.
2) Table 13-6
Wooden Chair Factory
Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine
is $20 per day regardless of the number of chairs produced. If the factory produces at a
rate of 35 chairs per hour, what is the total labor cost per hour?
a.$40
b.$48
c.$384
d.$424
3) Suppose the supply of capital decreases. As a result, the quantity of capital used in
production and the rental price of capital will both fall.
a.True
b.False
4) Corn chips and potato chips are substitutes. Good weather that sharply increases the
corn harvest would
a.increase consumer surplus in the market for corn chips and decrease producer surplus
in the market for potato chips.
b.increase consumer surplus in the market for corn chips and increase producer surplus
in the market for potato chips.
c.decrease consumer surplus in the market for corn chips and increase producer surplus
in the market for potato chips.
d.decrease consumer surplus in the market for corn chips and decrease producer surplus
in the market for potato chips.
5) In 2012, the total income of all U.S. residents was approximately $15 trillion.
a.True
b.False
6) The poverty rate for female households with no spouse present is approximately
a.10 percent.
b.20 percent.
c.30 percent.
d.40 percent.
7) Which of the following governmental actions would eliminate some or all of the
inefficiency that results from monopoly pricing? The government could
a.regulate the monopoly.
b.prohibited the monopoly from price discriminating.
c.force the monopoly to operate at a point where its marginal revenue is equal to its
marginal cost.
d.None of the above would eliminate any inefficiency associated with a monopoly.
8) Consider the labor market for heath care workers. Because of the aging population in
the United States, the output price for health care services has increased. Holding all
else equal, the equilibrium quantity of health care employees would
a.increase.
b.decrease.
c.not change.
d.It is not possible to determine what happens to the equilibrium quantity.
9) The nation of Aquilonia has decided to end its policy of not trading with the rest of
the world. When it ends its trade restrictions, it discovers that it is importing rice,
exporting steel, and neither importing nor exporting TVs. We can conclude that
producer surplus in Aquilonia is now
a.higher in the steel market, lower in the rice market, and unchanged in the TV market.
b.higher in the rice and steel markets, and unchanged in the TV market.
d.it is possible that the quantity demanded fell from 550 to 500 as a result.
15) Scenario 9-3
Suppose domestic demand and domestic supply in a market are given by the following
equations:
Suppose the world price in this market is $8 per unit. If the country allows free trade,
will the country import or export this good, and how many units will be
imported/exported?
16) Graphically depict the deadweight loss caused by a monopoly. How is this similar
to the deadweight loss from taxation?
17) Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:
What are the equilibrium price and equilibrium quantity in this market?
18) Which market structure(s) is(are) imperfectly competitive?
19) What are the two types of costs that a well-designed tax policy tries to avoid or
minimize?
20) Why would a firm in a perfectly competitive market always choose to set its price
equal to the current market price? If a firm set its price below the current market price,
what effect would this have on the market?
21) Suppose that instead of a supply-demand diagram, you are given the following
information:
Qs= 100 + 3P Qd= 400 - 2P
From this information compute equilibrium price and quantity. Now suppose that a tax
is placed on buyers so that
Qd= 400 - 2(P + T).
If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price
received by sellers and P + T is the price paid by buyers.) Compare these answers for
equilibrium price and quantity with your first answers. What does this show you?
22) Some policies toward externalities provide incentives so that private decision
makers will choose to solve the problem on their own. What name do we use for these
types of policies?
23) Figure 9-27
The following diagram shows the domestic demand and supply curves in a market.
Assume that the world price in this market is $20 per unit.
With no trade allowed, what are the equilibrium price and equilibrium quantity in this
market?
24) Scenario 10−3:
Suppose there is an external cost of $12 associated with the production of each unit of
the good. What are the socially optimal quantity and price?
