Midterm Exam 2 (Questions 1–10)

Paul purchases a hamburger, and his consumer surplus is $3. If Paul is willing to pay $8 for the hamburger, then the price of the hamburger must be

• $5.

• $8.

• $11.

• $3.

The dashed vertical line between points A and B shows the amount of a tax in the market. The effective price that sellers receive after the tax is imposed is

• $6.

• $16.

• $10.

• $24.

The decrease in total surplus that results from a market distortion, such as a tax, is called a

• deadweight loss.

• consumer surplus loss.

• wedge loss.

• revenue loss.

Which of the following statements is correct?

• Government should tax goods with either positive or negative externalities.

• Government should tax goods with positive externalities and subsidize goods with negative externalities.

• Government should tax goods with negative externalities and subsidize goods with positive externalities.

• Government should subsidize goods with either positive or negative externalities.

The equilibrium price is

• $4.00.

• $8.00.

• $6.00.

• $10.00.

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to consumers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

• The equilibrium quantity is greater than the socially optimal quantity.

• The equilibrium quantity is less than the socially optimal quantity.

• They are equal.

• There is not enough information to answer the question.

The vertical distance between points A and B represents a tax in the market. In this market, the per-unit burden of the tax on buyers is

• $5.

• $2.

• $4.

• $3.

Refer to Figure 6-8. When the price ceiling is enforced in this market and the supply curve for gasoline shifts from S1 to S2,

• a surplus will occur at the new market price of P2.

• a shortage will occur at the new market price of P2.

• the market price will stay at P1.

• the market price will increase to P3.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

• This tax does not change the quantity of perfume bought and sold.

• This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume.

• The effective price received by sellers is $0.40 per bottle less than it was before the tax.

• Sixty percent of the burden of the tax falls on sellers.

10  of 40 Will created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?

• $150.

• $50.

• $350.

• $200.