Question

37. Efficiency in a market is achieved when cial planner intervenes and sets the quantity of output after evaluating buyers willingness to pay and sellers' costs the sum of producer surplus and consumer surplus is maximized all firms are producing the end at the same low cost per unit. no buyer is willing to pay more than the equilibrium price for any unit of the good. C ( 38. Total surplus in a market will increase when the government a imposes a binding price floor ora binding price ceiling on that market. imposes a tax on that market. c. Both a and bare correct. d. Neither a norb is correct. 39. To fully understand how taxes affect economic well-being, we must compare the decrease in consumer and producer surplus to the increase in revenue raised by the government. 5 profits earned by firms to the losses incurred by consumers. c. price paid by buyers to the price received by sellers d. benefit to buyers with the loss to sellers. 40. Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss? a. The greater the price elasticities of supply and demand, the greater the deadweight loss b. The greater the price elasticity of supply and the smaller the price elasticity of demand, the greater the deadweight loss c.) The smaller the decreases in quantity demanded and quantity supplied, the greater the deadweight loss d. The smaller the wedge between the effective price to sellers and the effective price to buyers, the greater the deadweight loss. 41. Taxes cause deadweight losses because taxes a cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. b. prevent buyers and sellers from realizing some of the gains from trade. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue, a. All of the above are correct. 42. Deadweight loss is the a. loss of profits to business firms when a tax is imposed. b. decline in consumer surplus when a tax is placed on buyers. C. decline in government revenue when taxes are reduced in a market. a decline in total surplus that results from a tax. 43. The supply curve for motor oil is the typical upward sloping straight line, and the demand curve for motor oil is the typical downward sloping straight line. When motor oil is taxed, the area on the relevant supply-and- demand graph that represents the deadweight loss is a larger than the area that represents government's tax revenue. b.) larger than the area that represents consumer surplus in the absence of the tax. c. a triangle d. All of the above are correct. 44. In general, as the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the a. tax revenue always increases, and the deadweight loss always increases. b. tax revenue always decreases, and the deadweight loss always increases. tax revenue increases at first, but it eventually peaks and then decreases. d. deadweight loss increases at first, but it eventually peaks and then decreases

I need help with these Mcq's please. Thank you

Answer 1

37. The correct answer is B- the sum of consumer and producer surplus is maximized.
Economic efficiency happens when the surplus of one party cant be improved without imposing a cost on the second party. When both surpluses are maximized this condition is achieved.

38. The answer is D- neither a nor b is correct.
Whenever government imposes a tax or subsidy or price floor etc., its only trying to move surplus from one party to another. It always affects the market equilibrium in a negative way and always results in some surplus being loss (called deadweight loss). It never increases the total surplus.

39. Option A is correct. As discussed in part 38, whenever government imposes a tax, it always results in some deadweight loss. To see how much deadweight loss is, we must see the total loss of surplus to the buyers+sellers and the tax earned by the government. The tax will always be lesser than the total loss of surplus and that will give us the deadweight loss.

40. The answer is A.
This is because the deadweight loss depends on how much the total surplus loss would be. And total surplus loss depends on by how much would the supply and demand reduce once a tax is imposed. The reduction in supply and demand is directly proportional to the price elasticity of demand and supply, as their definition is literally this only- the % change in demand in response to % change in price.

41. Option D is correct. Effectively, taxes cause option A which causes option B which causes Option C- resulting in deadweight loss.

42. D is correct. It is the decrease in total surplus.

43. Answer is C- a triangle. As discussed above, deadweight loss is the difference between surplus lost and tax gained. So it cant be greater than tax or earlier surplus.

44. C is correct. If continuous increase in tax rate is done, after a point it will discourage from the production itself to happen and tax will start decreasing. See Laffer curve for more information.