TUTORIAL 5 Welfare economics and application

TUTORIAL 5
Welfare economics and application
QUIZ
1. All of the following occur when a tax is levied on a good, EXCEPT:
a. consumer surplus decreases.
b. producer surplus decreases.
c. total surplus increases.
d. the government obtains revenue from the tax.
2. When a tax is imposed, the quantity traded in a market will ________ and total
surplus will ________.
a. increase, increase
b. increase, decrease
c. decrease, increase
d. decrease, decrease
Use the figure below to respond to the next two questions.
3. The competitive market equilibrium is at point C. If a per unit excise tax is imposed
on the production of this good, the dead weight loss is
a. the area BDE.
b. the area BADH.
c. the area GDH.
d. the area DAC.
e. the area GDAB.
4. The competitive market equilibrium is at point C. If a per unit excise tax is imposed
on the production of this good, the revenue collected by the government is
a. the area BDE.
b. the area BADH.
c. the area GDH.
d. the area DAC.
e. the area GDAB.
5. Deadweight loss in a taxed market occurs because:
a. the tax causes the market to trade more than the optimal units, so all the
surplus of the excess units traded is lost.
b. the tax causes the market to trade less than the optimal units, so all the surplus
of the units not traded is lost.
c. the government's revenue from the tax is lost to consumers and producers.
d. of the cost of administering the tax, in the form of paper work that needs to be
done.
6. A given tax will cause a bigger deadweight loss if demand and supply are:
a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.
7. Which of the following will cause the deadweight loss of taxation to be bigger?
a. A bigger tax.
b. An increase in demand.
c. An increase in supply.
d. Less elastic demand and supply.
8. Good X is exchanged in a competitive market. Which of the following is true if an
excise tax is now imposed on the production of good X ?
a. If the demand curve is perfectly elastic, the price rises by the amount of the
tax.
b. The consumer's burden of the tax rises, as the demand curve is more elastic.
c. Consumer surplus rises as a result of the tax.
d. The consumer's burden of the tax rises, as the demand curve is less elastic.
e. If the demand curve is perfectly inelastic, the price does not rise as a result of
the tax.
9. According to the Laffer curve, if the government wants to increase its revenue from
taxes:
a. sometimes the way to do so will be by lowering the size of the tax.
b. it will have to increase the size of the tax.
c. it will have to impose the tax on sellers.
d. it will have to impose the tax on buyers.
10. A bigger tax will cause the deadweight loss in the market to:
a. increase, and will always cause the tax revenue to increase.
b. decrease, and it will always cause the tax revenue to increase.
c. increase, and it might cause the tax revenue to decrease.
d. decrease, and it might cause the tax revenue to decrease.
PROBLEMS
Mankiw, Chapter 8: Problem 3,4 & 11, pp.173-174
TUTORIAL 5b
International Trade
QUIZ
1. In the diagram, what area represents the total surplus when there is no international
trade?
a. A + B + C + D
b. C + D
c. A + B + E
d. A + B + C + D + E
2. In the diagram, what area represents the gains from free international trade?
a. A + B + C + D
b. C + D
c. A + B + E
d. A + B + C + D + E
3. In the diagram, what area represents the total surplus when there is free international
trade?
a. A + B + C + D
b. C + D
c. A + B + E
d. A + B + C + D + E
4. Which of the following statements is true regarding the diagram?
a. The diagram represents the situation of an importing country.
b. 'C + D' represents the deadweight loss of engaging in free international trade.
c. The country will be exporting 1,000 units.
d. Consumers will want to buy 700 units more if there is free international trade
than if there isn't.
5. Which of the following statements is true regarding international trade?
a. The exporting country gains at the expense of the importing country.
b. The importing country is worse off with free international trade than without
it.
c. For the importing country, the gains from international trade outweigh the
losses.
d. The importing country should restrict trade, but not eliminate it completely.
6. Which of the following statements is true about tariffs?
a. Tariffs reduce the welfare of importing countries.
b. Tariffs bring more gains than losses to the importing countries that use them.
c. Tariffs allow nations to trade more with other nations.
d. Tariffs are used mainly by exporting countries and rarely by importing
countries.
PROBLEMS
Mankiw, Chapter 9: Problem 9, 11 pp.197-199

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