Tax Problems and Applications
1) What happens to consumer and producer surplus when the sale of a good is taxed? How
does the change in consumer and producer surplus compare to the tax revenue? Explain.
2) Draw a supply-and-dema
The Costs of Production
Total Revenue, Total Cost, Profit
We assume that the firms goal is to maximize
the amount a
from the sale
of its output
value of the
inputs a firm
Exam Review 4
1) Factors of production are
a. Used to produce goods and services
b. Also called output
c. Abundant in most economies
d. Assumed to be owned by firms in the circular-flow diagram
2) In the circular-flow diagram, w
Exam Review 3
1) When a factory is operating in the short run
a. It cannot alter variable costs
b. Total costs and variable costs are usually the same
c. Average fixed cost rises as output increases
d. It cannot adjust the quant
Exam Review 2
1) The burden of a luxury tax falls
a. More on the rich than on the middle class
b. More on the poor than on the rich
c. More on the middle class than on the rich
d. Equally on the rich, the middle class, and the p
1) When a free market for a good reaches equilibrium, anyone who is willing and able to
pay the market price can buy the good.
2) A price floor set below the equilibrium price causes quantity supplied to e
Practice Test 2
1) The tax burden will fall most heavily on buyers of the good when the demand curve
a. Is relatively steep, and the supply curve is relatively flat
b. And the supply curve are both relatively steep
c. Is relativ
1) Demand is said to be inelastic if the:
a. Quantity demanded changes proportionally more than the price.
b. Quantity demanded changes proportionally the same as price.
c. Price changes proportionally more than in
Consumer and Producer Surplus- Problems and Applications
1) An early freeze in California sours the lemon crop. Explain what happens to consumer
surplus in the market for lemonade. Illustrate your answers with diagrams.
Comparative Advantage and Absolute Advantage
1) Maria can read 20 pages of economics in an hour. She can also read 50 pages of
sociology in an hour. She spends 5 hours per day studying.
a. Draw Marias production possibilities fr
Supply, Demand, and Government Policies
1) Give an example of a price-ceiling and an example of a price-floor.
2) Which causes a shortage of a good? Justify your answer with a graph.
3) Suppose the government removes a tax on bu