Mankiw Chapter 7 and 8 Test Review
MULTIPLE CHOICE
Note: Answer choices remaining below may or may not be the answer.
1. The particular price that results in quantity supplied being equal to quantity demanded is the best price
because it
a. maximizes costs of the seller.
b.
c.
d.
e.
Figure 7-2
Price
A
B
D
C
F
P1
G
P2
Demand
Q1
Q2
Quantity
2. Refer to Figure 7-2. Which area represents consumer surplus at a price of P1?
a. ABD
e. ACG
3. Refer to Figure 7-2. Which area represents consumer surplus at a price of P2?
a.
b.
c. BCDF
d.
e. BDGC
4. Refer to Figure 7-2. Which area represents the increase in consumer surplus when the price falls from
P1 to P2?
a. ABD
b.
c.
d.
e.
5. Refer to Figure 7-2. When the price falls from P1 to P2, which area represents the increase in
consumer surplus to existing buyers?
a.
b.
c.
d.
e. BCGD
6. Refer to Figure 7-2. When the price falls from P1 to P2, which area represents the increase in
consumer surplus to new buyers entering the market?
a. ABD
b. ACG
Figure 7-1
Price
A
P2
B
C
P1
D
F
Demand
Q2
Q1
Quantity
7. Refer to Figure 7-1. If P1 is an equilibrium price and P2 is an effective price floor, which of the
following statements is correct?
a.
b. At P2, consumer surplus would be equal to A+B+C.
c.
d. The imposition of the price floor would cause consumer surplus to fall.
e.
8. Refer to Figure 7-1. When the price is P2, consumer surplus is
a. .
b. B.
c.
d.
e. A+B+C.
9. Refer to Figure 7-1. When the price falls from P2 to P1, consumer surplus
a.
b. decreases by an amount equal to B+C.
c.
d.
e.
10. Refer to Figure 7-1. Area C represents the
a.
b.
c.
d. decrease in consumer surplus to each consumer in the market when the price increases
from P1 to P2.
e. consumer surplus to old consumers who exit the market when the price falls from P2 to
P1.
11. Refer to Figure 7-1. When the price rises from P1 to P2, which of the following statements is not
true?
a. The buyers who still buy the good are worse off because they now pay more.
b.
c.
d.
e.
12. When the demand for a good increases and the supply of the good remains unchanged, consumer
surplus
a.
b.
c.
d. may increase, decrease, or remain unchanged.
e. cannot be determined without information on producer surplus.
13. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. Consumer surplus increases.
b. Consumer surplus decreases.
c.
d.
e.
14. When there is a technological advance in the ice cream industry, consumer surplus in that market will
a.
b.
c. not change, seeing as technology affects producers and not consumers.
d.
e. not change because the price will not change.
15. Denise values a stainless steel dishwasher for her new house at $500. The actual price of the
dishwasher is $650. Denise
a.
b.
c.
d. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of
$0.
e. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of
$-150.
16. Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per
can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for
the third can, and $0.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy.
His consumer surplus is
a. $0.50.
b. $0.85.
c.
d.
e.
17. Suppose Lauren, Karen, and Julie all purchase bulletin boards for their rooms for $15 each. Lauren's
willingness to pay was $35, Karen’s willingness to pay was $25, and Julie’s willingness to pay was
$30. Total consumer surplus for these three would be
a.
b.
c. $45.
d. $90.
e.
18. Josh is willing to pay $40 for a haircut, but he is able to pay $25 at the local salon. His consumer
surplus is
a. $0 because the cost exceeds his maximum willingness to pay.
b.
c.
d.
e. $65.
Table 7-5
For each of three potential buyers of oranges, the table displays the willingness to pay for the first
three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and
only three oranges can be supplied per day.
Alex
Barb
Carlos
First Orange
$2.00
$1.50
$0.75
Second Orange
$1.50
$1.00
$0.25
Third Orange
$0.75
$0.80
$0
19. Refer to Table 7-5. If the market price of an orange is $1.20, the market quantity of oranges
demanded per day is
a.
b.
c.
d. 4.
e. 5.
20. Refer to Table 7-5. If the market price of an orange is $0.70, the market quantity of oranges
demanded per day is
a. 5.
b.
c. 7.
d.
e.
21. A deadweight loss is a consequence of a tax on a good because the tax
a. induces the government to increase its expenditures.
b.
c.
d.
e. increases both consumer and producer surplus.
22. The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to
increase the quantity of labor they supplied became known as
a.
b.
c. supply-side economics.
d.
e. demand-side economics.
Figure 8-10
The vertical distance between points A and B represents the original tax.
Price
12
11
F
10
S
A
9
8
C
7
6
5
D
4
B
3
G
2
1
D
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Quantity
23. Refer to Figure 8-10. If the government changed the per-unit tax from $5.00 to $2.50, then the price
paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the
market would be 1.5 units. Compared to the original tax rate, this lower tax rate would
a.
b.
c.
d. decrease government revenue and decrease the deadweight loss from the tax.
e. decrease government revenue and leave the deadweight loss from the tax the same.
24. Refer to Figure 8-10. If the government changed the per-unit tax from $5.00 to $7.50, then the price
paid by buyers would be $10.50, the price received by sellers would be $3, and the quantity sold in the
market would be 0.5 units. Compared to the original tax rate, this higher tax rate would
a. increase government revenue and increase the deadweight loss from the tax.
b. increase government revenue and decrease the deadweight loss from the tax.
c.
d.
e.
25. When the government imposes taxes on buyers or sellers of a good, society
a.
b. gains efficiency but loses equality.
c.
d. moves from an elastic supply curve to an inelastic supply curve.
e.
26. The deadweight loss from a $1 tax will be smallest in a market with
a.
b. inelastic supply and inelastic demand.
c.
d.
e. inelastic supply and unit elastic demand.
27. The deadweight loss from a $3 tax will be largest in a market with
a.
b. inelastic supply and inelastic demand.
c.
d. elastic supply and inelastic demand.
e.
Table 8-1
Market
A
B
C
D
Characteristic
Demand is very inelastic.
Demand is very elastic.
Supply is very inelastic.
Supply is very elastic.
28. Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the
markets described in the table. Which of the markets will allow the government to minimize the
deadweight loss(es) from the tax?
a.
b. markets A and C only
c.
d. market C only
e.
29. Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the
markets described in the table. Which of the markets will maximize the deadweight loss(es) from the
tax?
a.
b. markets A and C only
c. markets B and D only
d.
e.
30. The government’s benefit from a tax can be measured by
a.
b.
c.
d. deadweight loss.
e. All of the above are correct.
31. What happens to the total surplus in a market when the government imposes a tax?
a. Total surplus increases by the amount of the tax.
b.
c. Total surplus increases but by more than the amount of the tax.
d.
e.
32. A tax levied on the sellers of a good shifts the
a.
b.
c.
d. demand curve downward (or to the left).
e. supply upward (or to the left) and demand upward (or to the right).
33. A tax levied on the buyers of a good 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).
e. demand (or to the right) and supply upward (or to the left).