Liberty University ECON 213 InQuizitive chapter 5 complete solutions correct answers updated

Liberty University ECON 213 InQuizitive chapter 5 complete solutions correct answers updated

Chapter 5: Market Outcomes and Tax Incidence

Select the two situations with the highest total surplus. Bonnie buys flowers for $2.25 less than she was willing to pay. She bought them from a seller would have been willing to receive $3 less from the sale. Don wanted to buy a scooter for no more than $5, but was only able to find a producer who would sell for $15. Kevin wanted to spend $50 on a dishwasher and bought one at $45 from a producer who was hoping to receive $40. Jay buys a house for $40,000 less than he was willing to pay. He bought his home from sellers who received $2,000 more than they were willing to sell for.

Which of the following are examples of excise taxes? Select all that apply.

Pedro wants to buy a new car. The most he is willing to pay is $21,000. If he finds a car for $18,000, what will his consumer surplus be?

Assume that the government places a tax on the buyers of televisions, and the demand curve decreases. What is the price without the tax, and what prices do the consumers pay and producers receive after the tax is imposed? Drag the labels to the corresponding dotted gray lines on the graph.

Determine whether each of the following actions is based on equity or efficiency. Match the correct term with each action. A children’s baseball league makes a rule that all team members must receive some amount of playing time in every game. A doughnut shop offers a discount on all doughnuts purchased after 5 p.m. to reduce the number of doughnuts the shop must discard at the end of the day. A university adopts a policy to make sure that there are no unused classrooms during the school day.

Suppose the government imposes a tax on car producers. Which graph would most likely illustrate the result?

Taxes don’t always cause deadweight loss.

Nick wants to buy a box of crackers for $1.75. Cracker producers want to sell their product for $1.25. When Nick gets to the store, he finds that the crackers he wants to buy are marked $1.68. What is the total surplus generated from this transaction?

Raising tax rates will always raise tax revenue.

What might happen if the government raised the excise tax on televisions from $5 to $15? The government will not be able to collect any more tax revenue. Deadweight loss for televisions would increase because producers would sell fewer units at a higher price. Consumer surplus would increase. Producer surplus would increase.

The price of a car wash is $20. Jeff is willing to wash a car for $10, while the lowest amount Steve will accept to wash a car is $15. Drag the labels to the correct part of the graph to indicate each producer’s surplus.

Eric enjoys making pizza. When he makes pizza for his friends, sometimes Eric cares about how the pieces are distributed, and sometimes he doesn’t. Which of Eric’s actions are associated with equity, and which of his actions are associated with efficiency?

Jennifer, Tony, and Becky are students in a history class. All three plan on selling their textbooks back at the end of the year. The bookstore will buy each textbook back for $95. Jennifer’s willingness to sell is $87. Tony wants to get at least $45 for his book, and Becky wants to sell her book back for $105. Place each student’s producer surplus in order, from highest to least.

Suppose that the government wants to discourage spray paint sales, in an effort to eliminate graffiti. Which graph illustrates the type of tax that would be effective?

The graphs below show the impact of a $6 excise tax on each good. Based on the elasticity of demand for each good, how much tax revenue and deadweight loss will result from the tax?

The good in graph A has – demand, which yields tax revenue of – and a deadweight loss of –. The good in graph B has – demand, which creates tax revenue of – and – of deadweight loss. If the government places an equal tax on two goods, there will be – tax revenue and – deadweight loss generated by the good that has the more inelastic demand.

How would the consumer notice if the government decided to levy a new $2 tax on potato chips? The price of potato chips would rise. There would be no change in price and the consumer would not notice. The government would tax individuals who bought too many potato chips. Consumers would pay the same price for potato chips, but would notice the $2 tax at the register.

Calculate the deadweight loss for refrigerators if a $2 excise tax is imposed on refrigerators, and quantity demanded falls from 500 to 300. Use the figure for reference as needed.

When total surplus is maximized, the market will be efficient.

What are two reasons the government might choose to levy an excise tax on a product?

The government might levy an excise tax on a product if it wants to collect – from the purchase of that particular good or service. The government would prefer to tax goods with a – demand. The government might also tax a product to incentivize consumers to –. If taxes are too high on a certain good or service, many consumers will – that good.

Explain how consumer and producer surplus affect economic well-being.

When the price of a good or service is – enough, it will encourage consumers to buy. However, the price also has to be – enough to encourage producers to sell. In this way, both parties benefit from the sale. In order to calculate producer surplus, sellers must understand their direct costs and their – costs, while consumers must consider their – price based on the value they place on a particular good or service.

Initially, Alice’s willingness to pay for milk is $7.00 per gallon, point A; and Betty’s is $5.00, point B. Drag new labels to the graph to show what it might look like if Alice and Betty lose their jobs, so that Alice’s new willingness to pay, A', is $6.00 and Betty’s, B', is $4.00. The price of milk stays the same at $4.00 a gallon.

Drag the product to the graph that would represent its supply and demand after a tax has been added.

Suppose a scathing medical study is released that describes the detrimental effects of drinking soda. Because of this, consumers switch their preferences toward healthier drinks and buy less soda. What will happen to the consumer and producer surplus? Drag each label to the appropriate graph.

Suppose the government imposes a tax on three products with differing demand elasticities. Match the product to the group that will most likely bear the incidence of the tax.

What is likely to happen to consumer and producer surplus when taxes increase on computers?

It is likely that consumer surplus will – and producer surplus will – because demand for computers is –. Consumers will – the tax burden –.

If a price is low enough to attract buyers, it will always encourage producers to sell.

A television costs $100, but a new excise tax law imposes a $5 tax on the sale of the set. If Takeshi wants to buy a television, what would have to be his minimum willingness to pay?

Judy purchased a speedboat for $120,000. She was willing to pay $150,000. After a few years, she wanted to sell the boat for $85,000 and ended up selling it to Gary for $90,000. What is true about the surplus generated by the speedboat? Select all that apply.

Emily works in the stockroom at a retail store for $10/hour on Saturdays. The store is within near walking distance of her home. She can make $15/hour by babysitting on Saturday, but she must spend $2 on gas to drive to her babysitting job. What costs must Emily consider when figuring out her willingness to sell? Select all that apply. The opportunity costs of not working at the store on a Saturday when she babysits. The $4 in direct costs she would spend to drive to and from her babysitting job. The cost of personal items (e.g., phone and clothes) Emily uses during babysitting

Order the products, from least to greatest, by how much of the tax incidence would fall on the consumer if an excise tax were to be levied.

How much tax revenue was collected if the government levied a $2 excise tax on air conditioners and 490 units were sold after the tax? Before the tax, 500 air conditioners were sold.

Joe wants to buy a baseball bat for no more than $30; the sporting goods store in town sells bats for $50. What can we assume about Joe’s decision to buy a bat?

Joe will act in a way that is – for him because Joe is a –. It is – that he will buy the bat. If Joe bought the bat, it would be an example of –.

Steve sells his home to Srivani and ends up with a producer surplus of $100,000. Srivani has a consumer surplus of $1,000 from the sale. What is true about the surplus from the sale?

What might be true if the government levied a 40% excise tax on alcohol? Select all that could apply.

Calculate the producer surplus for a landscaper who is hired to work for $50/hour, but is willing to work for $40/hour.

Apply the correct label to each of the four colored regions in the graph, which shows the results of a tax increase.