The supply curve and the demand curve for cigars are straight lines. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?
a. The demand for cigars is less elastic than the supply of cigars.
b. The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50.
c. the deadweight loss of the tax is $12.50.
d. All of the above are correct.
Answer: D
Microeconomics
- An increase in the price level may be caused
- Which of the following events can cause short-term interest rates to increase?
- Suppose that wages increase sharply this year. Other things being equal a wide-spread increase in wages will have which of the following consequences for the U.S. economy?
- An unanticipated increase in inflation this year will
- If the US economy falls into a recession, then which of the following is likely to happen?
- In 1998, the U.S. economy was at full employment which means that
- Last year, real GDP grew by 5% in the U.S. which implies that
- The current wage paid for carpenters in Raleigh is $15 per hour. At that wage there are 10,000 labor hours supplied per week while the number of labor hours demanded is 12,000. It follows that
- The home building industry in Raleigh is perfectly competitive and currently in long-run competitive equilibrium. Which of the following statements is true?
- The price elasticity of demand for flights between RDU and Washington DC is equal to -3. A 20 percent decrease in air fare between RDU and D.C. will therefore result in
- Which of the following changes in the market for loanable funds can cause interest rates to go up?
- Which of the following is an example of a contractionary fiscal policy that can be used to decrease aggregate demand and prevent inflation?
- Which of the following statements about the federal budget deficit is true?
- As the economy expands the demand for money typically increases. Other things being equal, which of the following is a likely consequence of the increase in the money demand?
- Suppose the equilibrium GDP is greater than potential real GDP. Which of the following is likely?
- Current equilibrium GDP is less than potential real GDP. According to the classical model of macroeconomic equilibrium, which of the following is true?
- Suppose the price of a key productive resource such as fuel increases. Other things being equal, which of the following will be a consequence of the increase in fuel price?
- Other things being equal, which of the following can cause a recession?
- An unanticipated increase in the inflation rate during this year will
- Which of the following statements is true?
- The marginal product of textile workers in a factory is currently 3 yards of cloth while the average product is 5 yards of cloth. If another worker is hired.
- Other things being equal, an increase in the average product of labor in steel production will
- A corporation earns $10 million in revenue this year. Accounting costs are $5 million for the year. The corporation owns assets valued at $20 million and has no debts. If the opportunity cost of capital for shareholders of the corporation is 10% it follows that the corporation's economic profit is
- A $1 per gallon tax is levied on gasoline consumption. If the supply of gasoline is perfectly elastic in the long run then
- The supply of land is perfectly inelastic when