Exploring Economics 7th Edition Sexton Test Bank 1

Exploring Economics 7th Edition by Sexton
ISBN 128585943X 9781285859439

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1. If Ming is willing to pay $75 to attend the Broadway production of The Lion King but actually pays $40, she receives a
consumer surplus of $35.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 187
TOPICS: 7.1 Consumer Surplus and Producer Surplus | Consumer Surplus
2. If James is willing to sell an extra concert ticket for $40 and actually sells it for $100, his consumer surplus is $60.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 187
3. If the world supply of diamonds decreases, diamonds become more valuable, and therefore, the consumer surplus
derived from diamonds increases.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 188-189
TOPICS: 7.1 Consumer Surplus and Producer Surplus | Price Changes and Changes in Consumer
Surplus
4. If the world supply of diamonds increases, the market price of diamonds decreases, and the consumer surplus derived
by diamond consumers increases.
Copyright Cengage Learning. Powered by Cognero. Page 1

a. True
b. False
ANSWER: True
POINTS: 1
Surplus
5. Consumer surplus equals the quantity supplied minus the quantity demanded.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 187
6. Consumer surplus increases whenever the price of a good decreases.

a. True
b. False
ANSWER: True
POINTS: 1
Surplus
7. Consumer surplus increases whenever the price of a good increases.
a. True
b. False
ANSWER: False
POINTS: 1
Surplus
8. Producer surplus is always the total area below the demand curve and above the supply curve.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 189
TOPICS: 7.1 Consumer Surplus and Producer Surplus | Producer Surplus
9. Producer surplus from a unit of output is the difference between the market price and the seller's cost of producing that
unit.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 189
10. Total welfare gains from trade to the economy can be measured by the sum of consumer and producer surplus.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: 7.1 Consumer Surplus and Producer Surplus | Market Efficiency and Producer and
Consumer Surplus
11. The deadweight loss from a tax is the reduction in producer and consumer surplus minus the tax revenue transferred to
the government.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: 7.2 The Welfare Effects of Taxes, Subsidies, and Price Controls | Using Consumer and
Producer Surplus to Find the Welfare Effects of a Tax
12. The more elastic the demand curve, the smaller is the deadweight loss resulting from the imposition of a tax.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: 7.2 The Welfare Effects of Taxes, Subsidies, and Price Controls | Elasticity and the Size of
the Deadweight Loss
13. If a customer had to pay a $5 entry charge to get into a roller coaster theme park, and then pay $2 per ride, she would
get less consumer surplus than if she was able to pay $2 per ride with no entry charge.
a. True
b. False
ANSWER: True
POINTS: 1
Surplus
14. A subsidy in an industry would be likely to increase the consumer surplus for buyers in that industry and increase the
producer surplus for sellers in that industry.
a. True

b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 197
TOPICS: 7.2 The Welfare Effects of Taxes, Subsidies, and Price Controls | The Welfare Effects of
Subsidies
15. Other things equal, a price ceiling will increase consumer surplus by allowing customers to buy more at the lower
price.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: 7.2 The Welfare Effects of Taxes, Subsidies, and Price Controls | Price Ceilings and Welfare
Effects
16. Other things equal, a price floor will reduce consumer surplus, but it will increase producer surplus if the government
buys up any surplus at the price floor.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: 7.2 The Welfare Effects of Taxes, Subsidies, and Price Controls | The Welfare Effects of a
Price Floor When the Government Buys the Surplus
17. If the government provides a subsidy in one industry and raises the tax revenue by taxing another industry, would,
other things equal, cause welfare costs in both industries.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 197
Subsidies
18. Producer surplus is always the total area below the price and above the supply curve.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 189
19. Consumer surplus is always the total area below the demand curve and above the price.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 189
20. Welfare economics is the study of how

the allocation of resources affects economic well-being.
a. the allocation of resources affects economic well-being.
b. price controls work.
c. the government helps poor people.
d. to produce greater equality.
ANSWER: a
POINTS: 1
REFERENCES: p. 187
21. The maximum price a buyer is willing to pay for a good is called:
a. cost.
b. willingness to pay.
c. equity.
d. efficiency.
ANSWER: b
POINTS: 1
REFERENCES: p. 187
22. Marginal willingness to pay

a. rises as greater quantities are consumed.
b. falls as greater quantities are consumed.
c. stays the same as greater quantities are consumed.
d. none of the above
ANSWER: b
POINTS: 1
REFERENCES: p. 188
23. The difference between the value of a good to consumers and its price is known as:
a. demand.
b. marginal utility.
c. total utility.
d. consumer surplus.
ANSWER: d
POINTS: 1
REFERENCES: p. 187
24. The difference between the value of a good to sellers and its price is known as:
a. consumer surplus.
b. producer surplus.
c. demand.
d. supply.
ANSWER: b
POINTS: 1
REFERENCES: p. 189
25. Graphically, consumer surplus is measured by:

a. the area below the demand curve.
b. the area below the demand curve, but above the upward-sloping supply curve.
c. the area below the demand curve, but above the market price.
d. the area below the market demand curve, but above the supply curve.
ANSWER: c
POINTS: 1
REFERENCES: p. 188
TOPICS: 7.1 Consumer Surplus and Producer Surplus | Marginal Willingness to Pay Falls as More Is
Consumed
26. Total welfare gains from trade to the economy can be measured:
a. as the sum of consumer and producer surpluses.
b. as the difference between producer surplus and consumer surplus.
c. as the sum of consumer and producer surpluses minus taxes
d. as the net gain in consumer surplus that results from an action that alters a market equilibrium.
ANSWER: a
POINTS: 1
Consumer Surplus
27. The area between the market price and the demand curve provides a measure of:
c. consumer surplus plus producer surplus.
d. marginal utility.
ANSWER: a
POINTS: 1
REFERENCES: p. 188
Consumed
28. The area between the market price and the supply curve provides a measure of:
c. consumer surplus plus producer surplus.
d. marginal utility.
ANSWER: b
POINTS: 1
REFERENCES: p. 189
Exhibit 7-1
Miles demands jazz CDs according to the following demand schedule:
Price of Jazz CDs Quantity of Jazz CDs
$30 1
$25 2
$20 3
$15 4
$10 5
29. Refer to Exhibit 7-1. If the price of the jazz CDs equals $15, the total consumer surplus Miles receives from
purchasing jazz CDs is:
a. $15.
b. $25.
c. $30.
d. $55.
ANSWER: c
POINTS: 1
REFERENCES: p. 188
Consumed
30. Refer to Exhibit 7-1. If the price of the jazz CDs equals $20, the consumer surplus Miles receives from purchasing
jazz CDs is:
a. $10.
b. $15.
c. $20.
d. $55.
ANSWER: b
POINTS: 1
REFERENCES: p. 188
Consumed
31. Refer to Exhibit 7-1. If in the schedule, total consumer surplus equals $5, the market price of a jazz CD is:
a. $10.
b. $15.
c. $20.
d. $25.
ANSWER: d
POINTS: 1
REFERENCES: p. 188
Consumed
32. Gains from trade are measured by:

c. the sum of consumer and producer surplus.
d. producer surplus minus consumer surplus.
ANSWER: c
POINTS: 1
REFERENCES: p. 188
Consumer Surplus
33. Lydia enjoys going to the theater to see Broadway musicals. The following demand schedule shows Lydia's
willingness to pay for theater tickets in a year.
Ticket Price Number of Tickets
$90 1
$80 2
$70 3
$60 4
$50 5
$40 6
If the price of tickets to Broadway musicals equals $50, Lydia's consumer surplus will be:
a. $350.
b. $300.
c. $250.
d. $100.
ANSWER: d
POINTS: 1
REFERENCES: p. 188
Consumed
34. Which of the following best explains the source of consumer surplus for Good A?
a. Many consumers pay prices that are greater than the equilibrium price of Good A.
b. Many consumers would be willing to pay more than the market price for some units of Good A.
c. Many consumers think the market price of Good A is greater than its cost.
d. Many consumers of Good A place a value on it that is less than the market price.
ANSWER: b
POINTS: 1
REFERENCES: p. 187
35. The difference between the amount a consumer is willing to pay and the amount they actually must pay for a good is
called the:
a. price elasticity of demand.
b. substitution effect.
c. consumer surplus.
d. income elasticity of demand.
ANSWER: c
POINTS: 1
REFERENCES: p. 187
36. Ceteris paribus, a decrease in the price of a good will cause the:
a. quantity demanded of the good to decrease.
b. quantity supplied of the good to increase.
c. consumer surplus derived from the good to increase.
d. supply of the good to decrease.
ANSWER: c
POINTS: 1
Surplus
37. Ceteris paribus, an increase in the price of a good will cause the:
a. quantity demanded of the good to increase.
b. quantity supplied of the good to decrease.
c. supply of the good to increase.
d. consumer surplus derived from the good to decrease.
ANSWER: d
POINTS: 1
REFERENCES: p. 184
Surplus
38. Consumer surplus is:

a. the area underneath the demand curve.
b. the total utility derived from consuming a good.
c. the marginal utility of the last unit consumed multiplied by the number of units consumed.
d. the difference between what consumers are willing to pay and what they are required to pay for a good.
ANSWER: d
POINTS: 1
REFERENCES: p. 187
Exhibit 7-2
Price Quantity Demanded Quantity Supplied
$1.00 7 1
$2.00 6 2
$3.00 5 3
$4.00 4 4
$5.00 3 5
$6.00 2 6
$7.00 1 7
39. Refer to Exhibit 7-2. What is the total amount of consumer surplus assuming this market reaches equilibrium?
a. $1.00
b. $2.00
c. $3.00
d. $6.00
ANSWER: d
POINTS: 1
Consumer Surplus
40. Refer to Exhibit 7-2. What is the total amount of producer surplus assuming this market reaches equilibrium?
a. $1.00
b. $2.00
c. $3.00
d. $6.00
ANSWER: d
POINTS: 1
Consumer Surplus
41. Refer to Exhibit 7-2. What is the consumer surplus of the 2nd unit consumed assuming this market reaches
equilibrium?
a. $1.00
b. $2.00
c. $3.00
d. $7.00
ANSWER: b
POINTS: 1
Consumer Surplus
42. Refer to Exhibit 7-2. What is the producer surplus of the 1st unit sold assuming this market reaches equilibrium?
a. $1.00
b. $2.00
c. $3.00
d. $7.00
ANSWER: c
POINTS: 1
Consumer Surplus
43. If Stephanie buys a laptop for $700 and the maximum she would have paid was $1,000, which of the following is
true?
a. Stephanie received consumer surplus of $1,000.
b. Stephanie received producer surplus of $700.
c. Stephanie received a consumer surplus of $700.
d. Stephanie received a consumer surplus of $300.
ANSWER: d
POINTS: 1
REFERENCES: p. 187
44. Phil and Kelly have always wanted to take a cruise. Although willing to pay $5,000 for a Caribbean cruise for two,
they were able to purchase a cruise vacation for two for $3,500. Their total consumer surplus amounted to:
a. $750.
b. $5,000.
c. $1,500.
d. $3,500.
ANSWER: c
POINTS: 1
REFERENCES: p. 187
Exhibit 7-3
45. Refer to Exhibit 7-3. What is the consumer surplus of the 10th unit bought/sold?
a. $1.25
b. $2.25
c. $2.75
d. $3.50
ANSWER: a
POINTS: 1
REFERENCES: p. 188
Consumed
46. Refer to Exhibit 7-3. What is the producer surplus of the 10th unit bought/sold?
a. $1.25
b. $2.25
c. $2.75
d. $3.50
ANSWER: b
POINTS: 1
REFERENCES: p. 188
Consumed
47. Refer to Exhibit 7-3. What is the sum of consumer surplus and producer surplus for the 10th unit bought/sold?
a. $3.50
b. $5.00
c. $6.25
d. $25.00
ANSWER: a
POINTS: 1
REFERENCES: p. 188
Consumed
48. Consumer surplus measures:

a. the total benefits received from consuming a given quantity of a good.
b. the marginal benefit received from consuming the last unit of a good.
c. the net benefits received by consumers after deducting the cost of purchasing a good.
d. the dollar amount spent on units of a particular good.
ANSWER: c
POINTS: 1
REFERENCES: p. 187
Exhibit 7-4
The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp:
Number of Pounds
Price Per Pound Consumed Each Year
$20 1
$16 2
$12 3
$10 4
$6 5
$2 6
49. Refer to Exhibit 7-4. If the price of shrimp is $12 per pound, according to the schedule total consumer surplus equals:
a. $8.
b. $12.
c. $14.
d. $36.
ANSWER: b

POINTS: 1
REFERENCES: p. 188
Consumed
50. Refer to Exhibit 7-4. If the price of shrimp were to decrease from $12 to $10, the increase in consumer surplus would
equal:
a. $2.
b. $6.
c. $10.
d. $13.
ANSWER: b
POINTS: 1
REFERENCES: p. 188
Consumed
Exhibit 7-5
The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10,000
identical consumers in the community.
Price Per Bottles of Wine
Bottle of Wine Consumed Per Year
$50 1
$40 2
$30 3
$20 4
$10 5
51. Refer to Exhibit 7-5. If the market price of wine is $20, the total consumer surplus for the community equals:
a. $20,000.
b. $30,000.
c. $50,000.
d. $60,000.
ANSWER: d
POINTS: 1
REFERENCES: p. 188
Consumed
52. Refer to Exhibit 7-5. If the market price of wine is $30, the total consumer surplus for the community equals:
a. $20,000.
b. $30,000.
c. $50,000.
d. $60,000.
ANSWER: b
POINTS: 1
REFERENCES: p. 188

Consumed
53. As the market price of a good falls, consumer surplus:

a. falls.
b. rises.
c. does not change.
d. can either fall, rise, or stay the same.
ANSWER: b
POINTS: 1
Surplus
54. Which of the following statements is always true?

a. An increase in price will lead to an increase in producer surplus along a supply curve.
b. An increase in price will lead to an increase in consumer surplus along a demand curve.
c. A price ceiling will lead to an increase in consumer surplus.
d. A price floor will lead to an increase in consumer surplus.
ANSWER: a
POINTS: 1
REFERENCES: p. 189
55. As a result of a per-unit tax on output in a market:

a. the quantity traded increases.
b. the quantity traded does not change.
c. the quantity traded decreases.
d. a surplus is created at the new equilibrium price.
ANSWER: c
POINTS: 1
56. As a result of the imposition of a tax on a product:

a. some consumer surplus is transferred from buyers to producers.
b. some producer surplus is transferred from sellers to consumers.
c. some consumer and producer surplus is transferred from buyers and sellers to the government.
d. there is no change in either consumer or producer surplus.
ANSWER: c
POINTS: 1
57. A tax on a product causes a deadweight loss because:

a. some consumer surplus is transferred from buyers to producers.
b. some producer surplus is transferred from producers to consumers.
c. some consumer and producer surplus is transferred to the government.
d. it distorts the incentives of producers and consumers so that the efficient level of output is not produced.
ANSWER: d
POINTS: 1
58. The net loss to society from a tax on a product can be measured as:
a. the loss in consumer surplus.
b. the loss in producer surplus.
c. the loss in both consumer and producer surplus.
d. the difference between the loss in consumer and producer surplus and the gain in tax revenue.
ANSWER: d
POINTS: 1
59. A deadweight loss occurs as a result of a per-unit tax because:

a. the government spends tax dollars less efficiently than do private citizens.
b. there is a decline in output for units for which the marginal benefit exceeds the marginal cost.
c. taxes cause an overproduction of output relative to the socially efficient level or production.
d. a surplus is created.
ANSWER: b
POINTS: 1
60. Other things being equal, the less elastic demand is:
a. the lower the deadweight loss is resulting from the imposition of a given tax on a product.
b. the greater the burden is of the tax borne by consumers.
c. the greater the tax revenue collected by the government is.
d. all of the above
ANSWER: d
POINTS: 1
the Deadweight Loss
61. Other things being equal, the more elastic demand is:
a. the lower the deadweight loss is resulting from the imposition of a particular tax on a product.
b. the greater the deadweight loss is resulting from the imposition of a particular tax on a product.
c. the greater the fraction is of the burden of the tax borne by consumers.
d. the greater the tax revenue collected by the government is.
ANSWER: b
POINTS: 1
the Deadweight Loss
62. Goods that are heavily taxed, such as alcohol and cigarettes, often have:
a. relatively inelastic demand, such that the tax burden falls primarily on sellers and the deadweight loss
associated with the tax is smaller than if demand were elastic.
b. relatively elastic demand, such that the tax burden falls primarily on sellers and the deadweight loss associated
with the tax is smaller than if demand were inelastic.
c. relatively inelastic demand, such that the tax burden falls primarily on buyers and the deadweight loss
associated with the tax is smaller than if demand were elastic.
d. relatively elastic demand, such that the tax burden falls primarily on buyers and the deadweight loss associated
with the tax is smaller than if demand were inelastic.
ANSWER: c
POINTS: 1
the Deadweight Loss
63. A price ceiling imposed below equilibrium price causes a deadweight loss for society because:
a. buyers benefit at the expense of sellers.
b. as a result of the ceiling, units of output are not produced despite the fact that the value to consumers exceeds
the production cost.
c. sellers benefit at the expense of buyers.
d. the poor gain at the expense of the rich.
ANSWER: b
POINTS: 1
Effects
Exhibit 7-6
64. Refer to Exhibit 7-6. If the market price equals P2, consumer surplus can be identified in the diagram as area:
a. A + B + E.
b. B + E.
c. A.
d. C + D + F.
ANSWER: a
POINTS: 1
Consumer Surplus
65. Refer to Exhibit 7-6. If the market price equals P2, producer surplus can be identified in the diagram as area:
a. A + B + E.
b. B + E.
c. D.
d. C + D+ F.
ANSWER: d
POINTS: 1
Consumer Surplus
66. Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P1, buyers
lose consumer surplus equal to area:
a. C + D + F.
b. B + C + E + F.
c. E + F.
d. B + E.
ANSWER: d
POINTS: 1
67. Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P1, sellers
lose producer surplus equal to area ____, but gain producer surplus equal to area ____.
a. E + F; B
b. F; C
c. F; B
d. E; C
ANSWER: c
POINTS: 1
68. Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price floor equal to P1,
society suffers a deadweight loss equal to area:
a. C + D + F.
b. A + B + E.
c. E + F.
d. E only.
ANSWER: c
POINTS: 1
69. Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price ceiling equal to P3,
buyers lose consumer surplus equal to area ____, but gain consumer surplus equal to area ____.
a. F; C
b. E; C
c. E + F; C
d. D; C + F
ANSWER: b
POINTS: 1
Effects
sellers lose producer surplus equal to area:
a. C + D + F.
b. B + C + E +F.
c. E + F.
d. C + F.
ANSWER: d
POINTS: 1
Effects
society suffers a deadweight loss equal to area:
a. C + D + F.
b. A + B + E.
c. E + F.
d. E only.
ANSWER: c
POINTS: 1
Effects

72. Fred's demand schedule for movie DVDs is as follows: At $60, he would buy 1; at $50, he would buy two; at $30, he
would buy 3; and at $20, he would buy 4. If the price of movie DVDs equals $40, the consumer surplus Fred receives
from purchasing movie DVDs would be:
a. $20.
b. $30.
c. $40.
d. $110.
ANSWER: b
POINTS: 1
Consumer Surplus
73. Fred's demand schedule for movie DVDs is as follows: At $30, he would buy 1; at $25, he would buy two; at $15, he
would buy 3; and at $10, he would buy 4. If the price of movie DVDs equals $25, the consumer surplus Fred receives
from purchasing movie DVDs would be:
a. zero.
b. $5.
c. $25.
d. $55.
ANSWER: b
POINTS: 1
Consumer Surplus
74. Which of the following is true about consumer surplus?

a. Consumer surplus is how much more consumers have to pay than they are willing to pay.
b. Consumer surplus is shown graphically as the area under the demand curve but above the supply curve.
c. An increase in the market price due to a decrease in supply will increase consumer surplus.
d. A decrease in market price due to an increase in supply will increase consumer surplus.
ANSWER: d
POINTS: 1
Surplus
75. Which of the following is true about producer surplus?

a. Producer surplus is how much more it costs sellers than they are paid.
b. Producer surplus is shown graphically as the area under the demand curve but above the supply curve.
c. An increase in the market price due to an increase in demand will increase producer surplus.
d. All of the above are true about producer surplus.
ANSWER: c
POINTS: 1
Surplus
76. Which of the following is true?
a. A lower price will increase your consumer surplus by the amount you were buying originally, times the
reduction in the price.
b. A lower price will leave unchanged your consumer surplus for each of the units you were already consuming,
but will increase consumer surplus from increased purchases at the lower price.
c. A lower price will decrease your producer surplus for each of the units you were producing, but will not
change producer surplus by changing the quantity sold.
d. None of the above is true.
ANSWER: d
POINTS: 1
Surplus
77. Welfare effects are the gains and losses associated with ____ in markets.
a. supply shocks
b. government intervention
c. excess production
d. demand supply gap
ANSWER: b
POINTS: 1
REFERENCES: p. 194
Taxes, Subsidies, and Price Controls
78. A subsidy in an industry would result in:

a. an increase in consumer surplus.
b. an increase in producer surplus
c. both (a) and (b).
d. none of the above.
ANSWER: c
POINTS: 1
REFERENCES: p. 197
Subsidies
79. A tax in an industry would result in:

a. a decrease in consumer surplus.
b. a decrease in producer surplus
c. a decrease in the gains from trade.
d. all of the above.
ANSWER: d
POINTS: 1

a. If the consumer is a buyer of several units of a good, the earlier units will have greater marginal value and
therefore create more consumer surplus, because marginal willingness to pay falls as greater quantities are
consumed in any period.
b. When some units of output can be produced at a cost that is lower than the market price, the seller receives a
surplus, or net benefit, from producing those units.
c. At the market equilibrium both consumers and producers benefit from trading every unit up to the market
equilibrium output.
d. All of the above are true.
ANSWER: d
POINTS: 1
Surplus
81. Other things equal, for a given tax, if the demand curve is more elastic,
a. the greater the tax revenue raised and the greater the deadweight cost of the tax.
b. the greater the tax revenue raised and the smaller the deadweight cost of the tax.
c. the less the tax revenue raised and the greater the deadweight cost of the tax.
d. the less the tax revenue raised and the smaller the deadweight cost of the tax.
ANSWER: c
POINTS: 1
the Deadweight Loss
82. The more elastic the demand curve, the ____ will be the effect of a tax on the quantity exchanged and the ____ will be
the welfare cost.
a. greater; greater.
b. greater; smaller.
c. smaller; greater.
d. smaller; smaller.
ANSWER: a
POINTS: 1
the Deadweight Loss
83. The more elastic the supply curve, the ____ will be the effect of a tax on the quantity exchanged and the ____ will be
the welfare cost.
a. greater; greater.
b. greater; smaller.
c. smaller; greater.
d. smaller; smaller.
ANSWER: a
POINTS: 1

the Deadweight Loss
84. After a tax is imposed,

a. consumers pay a higher price.
b. consumers lose consumer surplus.
c. producers lose producer surplus.
d. all of the above are true.
ANSWER: d
POINTS: 1
85. If a tax is increased,

a. consumers will pay a higher price.
b. consumers will lose consumer surplus.
c. producers will receive a lower price after taxes.
d. all of the above are true.
ANSWER: d
POINTS: 1

a. Once the equilibrium price and output is reached, all the mutually beneficial trade opportunities between
suppliers and demanders will have taken place, and the sum of consumer and producer surplus is maximized.
b. The deadweight loss of a tax is the difference between the lost consumer and producer surplus and the tax
revenue generated.
c. Those goods that are heavily taxed often have a relatively inelastic demand curve in the short run, so that the
burden falls mainly on the buyer, and the deadweight loss to society is smaller than if the demand curve was
more elastic.
d. All of the above are true.
ANSWER: d
POINTS: 1
87. If the government wanted a tax to reduce the quantity exchanged a large amount but not raise much in tax revenue, it
would want to tax an industry with
a. elastic supply and demand curves.
b. inelastic supply and demand curves.
c. inelastic supply and elastic demand.
d. elastic supply and inelastic demand.
ANSWER: a
POINTS: 1
the Deadweight Loss
88. If the government wanted a tax to raise a great deal of revenue but not burden producers much, it would want to tax an
industry with
a. elastic supply and demand curves.
b. inelastic supply and demand curves.
c. inelastic supply and elastic demand.
d. elastic supply and inelastic demand.
ANSWER: d
POINTS: 1
the Deadweight Loss
89. A tax would not impose a welfare cost only if:

a. the quantity exchanged did not change as a result.
b. supply was perfectly elastic.
c. supply was unit elastic.
d. the demand curve was perfectly elastic.
ANSWER: a
POINTS: 1
Exhibit 7-7
90. Refer to Exhibit 7-7. When the price rises from P1 to P2, consumer surplus
a. increases by area D + E
b. increases by area B + C
c. decreases by area B + C
d. decreases by area C
ANSWER: c
POINTS: 1
Surplus
91. Refer to Exhibit 7-7. When the price falls from P2 to P1, consumer surplus
a. increases by area D + E
b. increases by area B + C
c. decreases by area B + C
d. decreases by area C
ANSWER: b
POINTS: 1
Surplus
92. Refer to Exhibit 7-7. When the price is P1, the consumer surplus is equal to the area:
a. A
b. C
c. A + B
d. A + B + C
ANSWER: d
POINTS: 1
Surplus
93. Refer to Exhibit 7-7. When the price is P2, the consumer surplus is equal to area:
a. A + B + C
b. A
c. A + B
d. C
ANSWER: b
POINTS: 1
Surplus
Exhibit 7-8

94. Refer to Exhibit 7-8. When the price is P2, the producer surplus is equal to area:
a. A
b. B
c. A + B
d. A + B + C
ANSWER: c
POINTS: 1
Consumer Surplus
95. Refer to Exhibit 7-8. When the price is P1, the producer surplus is equal to area:
a. A
b. B
c. A + B
d. A + B + C
ANSWER: b
POINTS: 1
Consumer Surplus
96. Refer to Exhibit 7-8. When the price rises from P1 to P2, producer surplus:
a. increases by area A + B
b. increases by area B
c. increases by area A
d. decreases by area A + B + C
ANSWER: c
POINTS: 1

Consumer Surplus
97. Refer to Exhibit 7-8. When the price falls from P2 to P1, producer surplus:
a. increases by area B
b. increases by area A + B
c. decreases by area A
d. decreases by area A + B
ANSWER: c
POINTS: 1
Consumer Surplus
Exhibit 7-9
98. Refer to Exhibit 7-9. The deadweight loss of a tax is area:

a. a + b + c
b. d + e + f
c. c + e
d. a + b + d + f
ANSWER: c
POINTS: 1
99. Refer to Exhibit 7-9. Deadweight loss occurs because:

a. the price to buyers is lower than before the tax.
b. quantity exchanged increases to Q1.
c. the tax reduces the quantity exchanged below the original output level.
d. the size of the total surplus realized from trade increases.
ANSWER: c
POINTS: 1
100. Refer to Exhibit 7-9. The amount of consumer surplus after the tax is area:
a. f
b. a
c. b c
d. c d
ANSWER: b
POINTS: 1
101. Refer to Exhibit 7-9. The amount of producer surplus after the tax is area:
a. f
b. a
c. b + d
d. b + c + d + e
ANSWER: a
POINTS: 1
102. Refer to Exhibit 7-9. The amount of tax revenue after the tax is area:
a. a + b + d + f
b. b + d
c. c + e
d. d + e + f
ANSWER: b
POINTS: 1
103. Refer to Exhibit 7-9. The total welfare after the tax is the area:
a. a + b + d + f
b. b + d
c. c + e
d. d + e + f
ANSWER: a
POINTS: 1

Exhibit 7-10
104. Refer to Exhibit 7-10. The consumer surplus before the subsidy is area
a. c + d
b. a + b + e
c. a + b
d. a + b + c + g
ANSWER: c
POINTS: 1
REFERENCES: p. 197
Subsidies
105. Refer to Exhibit 7-10. The consumer surplus after the subsidy is area
a. a + b + c
b. a + b + c + g
c. a + b + c + d
d. c + g
ANSWER: b
POINTS: 1
REFERENCES: p. 197
Subsidies
106. Refer to Exhibit 7-10. The producer surplus before the subsidy is area
a. a + b
b. a + b + c + d
c. c + d
d. a + b + e
ANSWER: c
POINTS: 1
REFERENCES: p. 197
Subsidies
107. Refer to Exhibit 7-10. The producer surplus after the subsidy is area
a. c + d + b + g
b. a + b + c + d
c. c + g
d. c + d + b + e
ANSWER: d
POINTS: 1
REFERENCES: p. 197
Subsidies
108. Refer to Exhibit 7-10. The cost to government (tax payers) after the subsidy is area
a. b + e
b. b + e + f
c. b + e + f + c + g
d. zero
ANSWER: c
POINTS: 1
REFERENCES: p. 197
Subsidies
109. Refer to Exhibit 7-10. The total welfare after the subsidy is the area
a. b + e
b. a + b + c + d
c. a + b + c f
d. a + b + c + d f
ANSWER: d
POINTS: 1
REFERENCES: p. 197
Subsidies
110. Refer to Exhibit 7-10. The deadweight loss from the subsidy is area
a. e + f + g
b. b + e + f + c + g
c. f
d. zero
ANSWER: c
POINTS: 1
REFERENCES: p. 197
Subsidies
Exhibit 7-11
111. Refer to Exhibit 7-11. The consumer surplus before the price ceiling is area:
a. a + b + d + f
b. a
c. a + b
d. a + b + c
ANSWER: d
POINTS: 1
Effects
112. Refer to Exhibit 7-11. The consumer surplus after the price ceiling is area
a. a + b + d
b. a + b + c
c. a + b + d + f
d. a
ANSWER: a
POINTS: 1
Effects
113. Refer to Exhibit 7-11. The producer surplus before the price ceiling is area:
a. f
b. a + b + d + f
c. d
d. d + e + f
ANSWER: d
POINTS: 1
Effects
114. Refer to Exhibit 7-11. The producer surplus after the price ceiling is area
a. d + e
b. f
c. a
d. a + b + d + f
ANSWER: b
POINTS: 1
Effects
115. Refer to Exhibit 7-11. If area d is larger than area ____, the consumer is better off from the price ceiling.
a. a
b. c + e
c. c
d. a + b + d
ANSWER: c
POINTS: 1
Effects
116. Refer to Exhibit 7-11. The deadweight loss from the price ceiling is area:
a. d + e + f
b. d + e
c. b + c
d. c + e
ANSWER: d
POINTS: 1
Effects
Exhibit 7-12

117. Refer to Exhibit 7-12. When the price floor is implemented, the price changes to ____ and the output bought by
consumers changes to ____.
a. P1; Q1
b. P2; Q1
c. P2; Q2
d. P1; Qs
ANSWER: c
POINTS: 1
118. Refer to Exhibit 7-12. The deadweight loss when the government buys the surplus is:
a. b + c
b. d
c. c + f + g + h + i + d
d. c + f + g + h + i
ANSWER: d
POINTS: 1
119. Refer to Exhibit 7-12. Consumer surplus before the price floor is area
a. a
b. a + b + c
c. e + f
d. a + b + e
ANSWER: b
POINTS: 1
120. Refer to Exhibit 7-12. Consumer surplus after the price floor is area
a. a + b + c
b. b + c
c. a
d. a + b + e
ANSWER: c
POINTS: 1
121. Refer to Exhibit 7-12. Producer surplus before the price floor is area:
a. e + f + b + c + d
b. a + b + c
c. e + f
d. b + c + d + e + f
ANSWER: c
POINTS: 1
122. Refer to Exhibit 7-12. Producer surplus after the price floor is area:
a. e + f + b + c + d
b. e + f
c. a + b + c
d. b + c + d
ANSWER: a
POINTS: 1
123. Refer to Exhibit 7-12. The cost to government (tax payers) after the price floor is area:
a. g + h + i
b. d
c. c + f + g + h + i
d. c + d + f + g + h + i
ANSWER: d
POINTS: 1

Exhibit 7-13
124. Refer to Exhibit 7-13. With the deficiency payment program, producers will supply ____ output.
a. Q1
b. Q2
c. zero
ANSWER: b
POINTS: 1
REFERENCES: p. 203
TOPICS: 7.2 The Welfare Effects of Taxes, Subsidies, and Price Controls | Deficiency Payment
Program
125. Refer to Exhibit 7-13. Under this program, the producers will sell all they can at ____.
a. P2
b. P1
c. PM
ANSWER: c
POINTS: 1
REFERENCES: p. 203
Program
126. Refer to Exhibit 7-13. Under this deficiency payment program, the deadweight loss is:
a. f
b. e
c. g
d. e + g
ANSWER: a
POINTS: 1
REFERENCES: p. 203
Program
127. Refer to Exhibit 7-13. After the implementation of the deficiency payment program, the total welfare is the area:
a. a + b + c + d
b. c + d + b + e
c. f
d. a + b + c + d f
ANSWER: d
POINTS: 1
REFERENCES: p. 203
Program
128. Refer to Exhibit 7-13. The deadweight loss occurs because the program:
a. produces the efficient level of output at Q1.
b. decreases the output to less than the efficient level of output.
c. increases the output beyond the efficient level of output.
d. the cost to government is less than the gains in producer and consumer surpluses.
ANSWER: c
POINTS: 1
REFERENCES: p. 203
Program
129. A government payment to producers for the difference between a target price and the price at which producers were
able to sell their goods is known as a:
a. subsidy.
b. deficiency payment.
c. producer surplus.
d. price support.
ANSWER: b
POINTS: 1
REFERENCES: p. 203
Program
130. Could a price ceiling decrease consumer surplus?

ANSWER: Yes, a price ceiling could decrease consumer surplus if the loss from the customers no longer
purchasing the good is greater than the gain to the customers who continue to purchase the good. In the
graph below, consumers surplus would decrease if area c is larger than area d.

POINTS: 1
Effects
Exhibit 7-14
131. Refer to Exhibit 7-14. Identify the areas of consumer and producer surplus when the market price equals $20.
ANSWER: Consumer surplus equals Area D + E + F. Producer surplus equals Area A + B + C.
POINTS: 1
Consumer Surplus
132. Refer to Exhibit 7-14. Identify the areas of consumer and producer surplus when a price floor equal to $30 is
imposed.
ANSWER: Consumer surplus equals Area F. Producer surplus equals Area A + B + E.
POINTS: 1
133. Refer to Exhibit 7-14. Identify the deadweight loss in the above diagram when a price floor equal to $30 is imposed.
ANSWER: The deadweight loss due to the price floor equals Area D + C.
POINTS: 1

134. Refer to Exhibit 7-14. Identify the areas of consumer and producer surplus when a price ceiling equal to $10 is
imposed.
ANSWER: Consumer surplus equals Area B + E + F. Producer surplus equals Area A.
POINTS: 1
Effects
135. Refer to Exhibit 7-14. Identify the deadweight loss in the above diagram when a price ceiling equal to $10 is
imposed.
ANSWER: The deadweight loss due to the price floor equals Area D + C.
POINTS: 1
Effects
136. Ceteris paribus, explain why it is that when a lower ceiling price is imposed below equilibrium price, a greater
deadweight loss results.
ANSWER: When a lower price ceiling is imposed below equilibrium price, there is a greater disincentive for
sellers to produce output. The quantity of output supplied to the market is reduced, and a greater
deadweight loss results. Despite the fact that these units of output are valued by consumers in excess of
their production cost, sellers have no private incentive to produce them.
POINTS: 1
Effects
137. How does the size of the deadweight loss from a tax depend on the price elasticities of supply and demand?
ANSWER: Other things being equal, the less elastic the demand curve, the smaller the deadweight loss. Similarly,
the less elastic the supply curve, other things being equal, the smaller the deadweight loss. However,
when the supply and/or demand curves become more elastic, the deadweight loss becomes larger,
because a given tax reduces the quantity exchanged by a greater amount.
POINTS: 1
the Deadweight Loss
138. How do taxes distort the incentives of buyers and sellers in a market?
ANSWER: A tax drives a "wedge" between the price paid by buyers and that received by sellers. In general, a tax
will both increase the price paid by buyers and decrease the price received by sellers, causing both the
quantity of output demanded and the quantity supplied to decrease.
POINTS: 1

139. How does the deadweight loss occur in a deficiency payment program?
ANSWER: The deadweight loss occurs because the program increases the output beyond the efficient level of
output. From the efficient level of output to the new level of output, the marginal cost to sellers for
producing the good is greater than the marginal benefit to consumers.
POINTS: 1
REFERENCES: p. 203
Program

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Exploring Economics 7th Edition Sexton Test Bank 1

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Exploring Economics 7th Edition by Sexton

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6. Consumer surplus increases whenever the price of a good decreases.

7. Consumer surplus increases whenever the price of a good increases.

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20. Welfare economics is the study of how

22. Marginal willingness to pay

25. Graphically, consumer surplus is measured by:

32. Gains from trade are measured by:

38. Consumer surplus is:

48. Consumer surplus measures:

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53. As the market price of a good falls, consumer surplus:

54. Which of the following statements is always true?

55. As a result of a per-unit tax on output in a market:

56. As a result of the imposition of a tax on a product:

57. A tax on a product causes a deadweight loss because:

59. A deadweight loss occurs as a result of a per-unit tax because:

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74. Which of the following is true about consumer surplus?

75. Which of the following is true about producer surplus?

78. A subsidy in an industry would result in:

79. A tax in an industry would result in:

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84. After a tax is imposed,

85. If a tax is increased,

86. Which of the following is true?

89. A tax would not impose a welfare cost only if:

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98. Refer to Exhibit 7-9. The deadweight loss of a tax is area:

99. Refer to Exhibit 7-9. Deadweight loss occurs because:

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130. Could a price ceiling decrease consumer surplus?

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