Question 1

In order to maximize a market's consumer surplus and producer surplus:

Accepted Answer

A)  output should be expanded if marginal cost exceeds marginal benefit
B)  output should be reduced if marginal benefit exceeds marginal cost
C)  the market may need to move away from its competitive equilibrium
D)  marginal benefit and marginal cost should be equal at the last unit produced
E)  the difference between marginal benefit and marginal cost should be maximized at the last unit producedF) A) and B)
G) A) and E)

Question 2

-The combined consumer surplus and producer surplus when this market is at its competitive output of 1 million units is:

Accepted Answer

A)  $2 million
B)  $4 million
C)  $6 million
D)  $8 million
E)  $14 millionF) A) and B)
G) A) and C)

Question 3

Price floors and price ceilings:

Accepted Answer

A)  both cause shortages
B)  both cause surpluses
C)  cause the supply and demand curves to shift until equilibrium is established
D)  cause surpluses and shortages, respectively
E)  are both imposed by sellers who cooperate to raise their profitsF) B) and D)
G) A) and D)

Question 4

-The burden of this tax is borne:

Accepted Answer

A)  equally by buyers and sellers
B)  most heavily by sellers
C)  most heavily by buyers
D)  only by buyers
E)  only by sellersF) B) and C)
G) A) and E)

Question 5

Spillover effects:

Accepted Answer

A)  are the direct result of government spending policies
B)  promote income equality
C)  serve to lessen discrimination in labour markets
D)  affect outsiders who are not producing or consuming a product
E)  affect insiders who are producing or consuming a productF) A) and D)
G) C) and E)

Question 6

Producer surplus for a business is:

Accepted Answer

A)  the sum the business's profit and its variable cost
B)  the price received from each unit of an item multiplied by the number of units of the item produced by the business
C)  the sum of the marginal costs of producing a particular item for all units of the item produced by the business
D)  the difference between price and marginal cost for each unit the business produces and sells
E)  the sum of the business's variable cost and fixed costF) A) and B)
G) All of the above

Question 7

The marginal benefit derived from the consumption of a product is equal to:

Accepted Answer

A)  the total value placed on the consumption of a product
B)  the total satisfaction derived from the consumption of a product
C)  the marginal utility derived from the consumption of a product
D)  the maximum price a consumer will pay for a specific unit of a product
E)  the minimum price a consumer will pay for a specific unit of a productF) None of the above
G) A) and B)

Question 8

An effective price floor on wheat will:

Accepted Answer

A)  force otherwise profitable farmers out of business
B)  result in a shortage of wheat
C)  help consumers
D)  clear the market for wheat
E)  result in a surplus of wheatF) None of the above
G) A) and D)

Question 9

The obvious winners from agricultural price supports are:

Accepted Answer

A)  consumers of agricultural products, as price supports create a surplus of such products
B)  farmers, as price supports raise their revenues
C)  no one, as price supports always lead to wasteful disposal of surpluses
D)  Canadian taxpayers
E)  companies involved in food-processing, since agricultural price supports reduce their costsF) A) and B)
G) B) and D)

Question 10

A subsidy:

Accepted Answer

A)  should be provided when there are spillover costs
B)  should be provided when there are spillover benefits
C)  should be provided only when a public good is being produced
D)  is appropriate when businesses are guilty of polluting
E)  is appropriate for products such as cigarettes and alcoholF) A) and B)
G) A) and C)

Question 11

0 and D1 represents all spillover effects in this market,excess benefit when output is at Q0 equals the area: A) under the entire demand curve D0 B) under the entire demand curve D1 C) above S and below D0 between the vertical axis and Q0 D) above S and below D1 between the vertical axis and Q0 E) above S and below D0 between the vertical axis and Q1" class="answers-bank-image d-inline" rel="preload" >
-In the second diagram,if the distance between D0 and D1 represents all spillover effects in this market,excess benefit when output is at Q0 equals the area:

Accepted Answer

A)  under the entire demand curve D0
B)  under the entire demand curve D1
C)  above S and below D0 between the vertical axis and Q0
D)  above S and below D1 between the vertical axis and Q0
E)  above S and below D0 between the vertical axis and Q1F) B) and D)
G) A) and B)

Question 12

Assume the supply curve for product X is perfectly elastic and that government imposes a $2 per unit excise tax.We can conclude that the resulting:

Accepted Answer

A)  increase in output will be greater the less elastic the demand curve
B)  decrease in output will be greater the more elastic the demand curve
C)  decrease in output will be greater the less elastic the demand curve
D)  increase in output will be greater the more elastic the demand curve
E)  change in output will be extremely smallF) D) and E)
G) A) and B)

Question 13

According to Thomas Malthus:

Accepted Answer

A)  food production and population levels tend to expand at the same rate
B)  food production tends to increase in a geometric progression and population tends to increase in an algebraic progression
C)  food production tends to increase in an algebraic progression and population tends to increase in a geometric progression
D)  food production increases in a geometric progression as long as population also happens to increase in a geometric progression
E)  food production increases in an algebraic progression only when population also happens to increase in an algebraic progressionF) A) and B)
G) B) and E)

Question 14

Pollution:

Accepted Answer

A)  should be corrected by subsidizing the offending businesses
B)  is not an economic problem because it is external to the market system
C)  is an example of a public good
D)  is an example of a spillover cost
E)  is an example of a spillover benefitF) A) and C)
G) B) and D)

Question 15

Consumer surplus equals:

Accepted Answer

A)  the total benefit from the consumption of a product
B)  total expenditure on a product
C)  the amount by which total expenditure on a product exceeds its total benefit
D)  the sum of a product's total benefit and total expenditure on the product
E)  the amount by which a product's total benefit exceeds total expenditure on the productF) D) and E)
G) None of the above

Question 16

If a legal ceiling price is set above the equilibrium price:

Accepted Answer

A)  a shortage of the product will occur
B)  a surplus of the product will occur
C)  an underground market will evolve
D)  neither the equilibrium price nor equilibrium quantity will be affected
E)  a surplus for the product will first appear and then disappearF) All of the above
G) A) and E)

Question 17

-We can conclude that the government is correcting for:

Accepted Answer

A)  spillover costs in the first diagram and spillover benefits in the second diagram
B)  spillover benefits in the first diagram and spillover costs in the second diagram
C)  spillover costs in both diagrams
D)  spillover benefits in both diagrams
E)  neither spillover costs nor spillover benefits in either diagramF) A) and C)
G) A) and D)

Question 18

Which of the following generalizations is correct?

Accepted Answer

A)  The more elastic the demand and supply of a product, the larger the portion of an excise tax which is borne by buyers.
B)  The more elastic the demand for a product, the larger the portion of an excise tax which is borne by buyers.
C)  The more inelastic the supply of a product, the larger the portion of an excise tax which is borne by buyers.
D)  The more inelastic the demand for a product, the larger the portion of an excise tax which is borne by sellers.
E)  The more elastic the supply of a product, the larger the portion of an excise tax which is borne by buyers.F) C) and E)
G) A) and C)

Question 19

Assume the demand for a product is perfectly inelastic.If government establishes a price floor that is $2 above the equilibrium price,the resulting:

Accepted Answer

A)  shortage will be greater the more elastic the supply
B)  shortage will be greater the less elastic the supply
C)  surplus will be greater the more elastic the supply
D)  surplus will be greater the less elastic the supply
E)  the shortage will be the same regardless of the elasticity of the supply curveF) None of the above
G) B) and D)

Question 20

Wealth includes:

Accepted Answer

A)  wages or salaries earned
B)  the receipt of interest on personal savings accounts
C)  real estate holdings
D)  interest income from inheritances held in trust
E)  employment benefits such as unemployment insuranceF) All of the above
G) B) and C)

Exam 7: Economic Welfare and Income Distribution

-We can conclude that the government is correcting for:

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Assume the demand for a product is perfectly inelastic.If government establishes a price floor that is $2 above the equilibrium price,the resulting:

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Assume the supply curve for product X is perfectly elastic and that government imposes a $2 per unit excise tax.We can conclude that the resulting:

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Pollution:

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Spillover effects:

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According to Thomas Malthus:

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The obvious winners from agricultural price supports are:

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Producer surplus for a business is:

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-The burden of this tax is borne:

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In order to maximize a market's consumer surplus and producer surplus:

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The marginal benefit derived from the consumption of a product is equal to:

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A subsidy:

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An effective price floor on wheat will:

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If a legal ceiling price is set above the equilibrium price:

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Consumer surplus equals:

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-The combined consumer surplus and producer surplus when this market is at its competitive output of 1 million units is:

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Price floors and price ceilings:

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Wealth includes:

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-In the second diagram,if the distance between D0 and D1 represents all spillover effects in this market,excess benefit when output is at Q0 equals the area:

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Which of the following generalizations is correct?

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-In the second diagram,if the distance between D₀ and D₁ represents all spillover effects in this market,excess benefit when output is at Q₀ equals the area:

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