1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States.

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1 1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. the effect of income redistribution on work effort. d. how the allocation of resources affects economic well-being. 2. With respect to welfare economics, the equilibrium price of a product is considered to be the best price because it a. maximizes total revenue to firms and total utility to buyers. b. maximizes the total welfare of buyers and sellers. c. minimizes costs and maximizes profits of sellers. d. minimizes the level of welfare payments to those who no longer live below the poverty line. 3. Consumer surplus is a. a buyer s willingness to pay minus the price. b. a buyer s willingness to pay plus the price. c. the price of the product minus the buyer s willingness to pay. d. when the buyer s willingness to pay and the price of the product are equal. 4. If a consumer is willing and able to pay $15.00 for a particular good but the price of the good is $17.00, then the a. consumer would have consumer surplus of $2.00. b. consumer would increase his/her willingness and ability to pay by earning more. c. consumer would not purchase the good and would not have any consumer surplus. d. market must not be a perfectly competitive market. 5. Shannon buys a new CD player for her car for $135. She receives consumer surplus of $25 on her purchase. Her willingness to pay is a. $25. b. $110. c. $135. d. $ On a graph, consumer surplus would be the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve to the right of equilibrium price. 7. A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers costs. d. the amount that will be purchased by consumers in the market. 8. A seller would be willing to sell a product ONLY IF the price received is a. less than the cost of production. b. at least as great as the cost of production. c. equal to the cost of production. d. at least double the cost of production. 9. According to the graph shown, when the price is P 2, producer surplus is a. A. b. A + C. c. A + B + C. d. D + E. 10. According to the graph shown, when the price falls from P 2 to P 1, producer surplus a. decreases by an amount equal to A. b. decreases by an amount equal to A + C. c. decreases by an amount equal to A + B. d. increases by an amount equal to A + B.

2 11. According to the graph shown, area B represents a. producer surplus to new producers entering the market as the result of price rising from P 1 to P 2. b. the increase in consumer surplus that results from an upward-sloping supply curve. c. an increase in producer surplus to every producer in the market. d. an increase in total surplus when sellers are willing and able to increase supply from Q 1 to Q According to the graph shown, area A represents a. producer surplus to new producers entering the market as the result of price rising from P 1 to P 2. b. the increase in consumer surplus that results from an upward-sloping supply curve. c. an increase in total surplus when sellers are willing and able to increase supply from Q 1 to Q 2. d. the increase in producer surplus to those producers already in the market when price rises from P 1 to P At Nick s Bakery, the cost to make his homemade chocolate cake is $3 per cake. He sells three and receives a total of $21 worth of producer surplus. Nick must be selling his cakes for a. $2 each. b. $7 each. c. $8 each. d. $10 each. 14. Which of the following is NOT correct? a. consumer surplus = value to buyers amount paid by buyers b. producer surplus = amount received by sellers cost of sellers c. total surplus = value to buyers amount paid by buyers + amount received by sellers costs of sellers d. total surplus = value to sellers costs of sellers 15. Inefficiency exists in an economy when a good is a. being produced with less than all available resources. b. not distributed fairly among buyers. c. not being produced by the lowest-cost producers. d. being consumed by buyers who value it most highly. 16. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus a. would necessarily increase even if the higher price resulted in a surplus of widgets. b. would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected. 17. A simultaneous increase in both the demand for and the supply of radios would imply that a. both the value of radios to consumers and the cost of producing radios has increased. b. both the value of radios to consumers and the cost of producing radios has decreased. c. the value of radios to consumers has decreased and the cost of producing radios has increased. d. the value of radios to consumers has increased and the cost of producing radios has decreased. 18. If a tax is imposed on a market with elastic demand and inelastic supply, a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared. 19. A tax levied on the buyers of a product shifts the a. supply curve upward (or to the left). b. supply curve downward (or to the right). c. demand curve downward (or to the left). d. demand curve upward (or to the right). 20. Deadweight loss measures the a. loss in a market to buyers and sellers that is not offset by an increase in government revenue. b. loss in revenue to the government when buyers choose to buy less of the product. c. loss of efficiency in a market as a result of government intervention. d. lost revenue to businesses because of higher prices to consumers from the tax.

3 21. When evaluating the size of the deadweight loss due to a tax we know that the a. greater the elasticities of supply and demand, the greater the deadweight loss. b. smaller the elasticities of supply and demand, the greater the deadweight loss. c. smaller the decrease in both quantity demanded and quantity supplied, the greater the deadweight loss. d. primary factor that determines the size of the deadweight loss in the percentage the tax is of price. 22. In the graph shown, the equilibrium price before the tax is b. $ In the graph shown, the price that will be paid after the tax is b. $ In the graph shown, the price sellers receive after the tax is 25. In the graph shown, the per unit burden of the tax on buyers is a. $16. c. $8. d. $6.

4 26. In the graph shown, the per unit burden of the tax on the sellers is a. $16. c. $8. d. $ Assume that a tax is levied on a good and that the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people. In this case which of the following would NOT occur? a. a decrease in consumer surplus to consumers of the taxed good b. a decrease in producer surplus to producers of the taxed good c. a probable increase in the total economic welfare of society d. a decrease in the total economic welfare of society 28. If a country allows trade and the domestic price of a good is higher than the world price, a. the country will become an exporter of the good. b. the country will become an importer of the good. c. the country will neither export nor import the good. d. additional information about demand is needed to determine whether the country will export or import the good. 29. If the United States exports cars to France and imports cheese from Switzerland, a. the United States has a comparative advantage in producing cars, and Switzerland has a comparative advantage in producing cheese. b. the United States has a comparative advantage in producing cheese, and Switzerland has a comparative advantage in producing cars. c. the United States and France would both be better off if they each produced cars and cheese. d. Comparative advantage cannot be determined without knowing absolute prices. 30. Trade raises the economic well-being of a nation in the sense that a. the gains of the winners exceed the losses of the losers. b. everyone in an economy gains from trade. c. since countries can choose what products to trade, they will pick those products that are most beneficial to society. d. trade increases a country s gross domestic product (GDP). 31. The world price of yo-yo s is $4.00 each. The pre-trade price of yo-yo s in Taiwan is $3.50 each. If Taiwan allows trade in yo-yo s we know that Taiwan will a. import yo-yo s and the price in Taiwan will be $4.00 each. b. import yo-yo s and the price in Taiwan will be $3.50 each. c. export yo-yo s and the price in Taiwan will be $4.00 each. d. export yo-yo s and the price in Taiwan will be $3.50 each.

5 32. According to the graph, without trade, the equilibrium price of carnations would be a. $8 and equilibrium quantity would be 300. b. $6 and equilibrium quantity would be 200. c. $6 and equilibrium quantity would be 400. d. $4 and equilibrium quantity would be According to the graph, with free trade a. the domestic price will equal the world price. b. carnations will be sold at $8 in this market. c. this country will import 200 carnations. d. there will be a shortage of 400 carnations in this market. 34. According to the graph, before the tariff is imposed, this country will a. import 200 carnations. b. import 400 carnations. c. export 200 carnations. d. export 400 carnations. 35. According to the graph, the size of the tariff on carnations is a. $2. b. $4. c. $6. 1)d, 2)b, 3)a, 4)c, 5)d, 6)b, 7)c, 8)b, 9)c, 10)c, 11)a, 12)d, 13)d, 14)d, 15)c, 16)c, 17)d, 18)b, 19)c, 20)a, 21)a, 22)b, 23)a, 24)c, 25)c, 26)d, 27)d, 28)b, 29)a, 30)a, 31)c, 32)a, 33)a, 34)b, 35)a