Excise Taxes and Efficiency Theory of Consumer Choice Sample Questions AP Economics Mr Bordelon Consumer Surplus and The Nutcracker Student Willingness to Pay Lois 100 Miguel 90 Nancy ID: 313726
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Consumer and Producer SurplusExcise Taxes and EfficiencyTheory of Consumer ChoiceSample Questions
AP Economics
Mr. BordelonSlide2
Consumer Surplus and The Nutcracker
Student
Willingness to PayLois$100Miguel90Nancy65Oscar50Pat15
If the price of a ticket to see
The Nutcracker
is $50 and there is no other market for tickets, then total consumer surplus for the five students is:
$105.
$130.
$270.
$320.
$200.Slide3
Consumer Surplus and The Nutcracker
Student
Willingness to PayLois$100Miguel90Nancy65Oscar50Pat15
If the price of a ticket to see
The Nutcracker
is $50 and there is no other market for tickets, then total consumer surplus for the five students is:
$105.
$130.
$270.
$320.
$200.Slide4
Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $50 for the third, and $30 for the fourth. If shoes cost $50, Jeanette will buy _____ pairs of shoes and her total consumer surplus equals _____.4; $1103; $230
3; $80
4; $802; $80Slide5
Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $50 for the third, and $30 for the fourth. If shoes cost $50, Jeanette will buy _____ pairs of shoes and her total consumer surplus equals _____.4; $1103; $230
3; $80
4; $802; $80Slide6
This graph represents one individual’s monthly demand for ice cream cones. At a price of $5 per cone, this individual will consume 10 cones in a month. How much consumer surplus does this consumer receive?$100$50$150
$500
$75Slide7
This graph represents one individual’s monthly demand for ice cream cones. At a price of $5 per cone, this individual will consume 10 cones in a month. How much consumer surplus does this consumer receive?$100$50
$150
$500$75Slide8
Total Number of Apples
Lowest Price Orchard is Willing to Accept
1$22638411515If the price of an apple is $11, what is the value of producer surplus for this firm?
$11
$17
$27
$40
$44Slide9
Total Number of Apples
Lowest Price Orchard is Willing to Accept
1$22638411515If the price of an apple is $11, what is the value of producer surplus for this firm?
$11
$17
$27
$40
$44Slide10
Mountain River Adventures offer white water rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip is $150, Mountain River Adventures will offer _____ trips per day and _____ will have producer surplus equal to _____.3; $90
3; $10
2; $2204; $803; $150Slide11
Mountain River Adventures offer white water rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip is $150, Mountain River Adventures will offer _____ trips per day and _____ will have producer surplus equal to _____.3; $90
3; $10
2; $2204; $803; $150Slide12
When the imposition of an excise tax causes the quantity demanded and quantity supplied to decrease, this will result in:deadweight loss.increases in producer surplus.increases in consumer surplus.
increases in both consumer and producer surplus.
decreases in consumer surplus and increases in producer surplus.Slide13
When the imposition of an excise tax causes the quantity demanded and quantity supplied to decrease, this will result in:deadweight loss.increases in producer surplus.increases in consumer surplus.
increases in both consumer and producer surplus.
decreases in consumer surplus and increases in producer surplus.Slide14
If the government imposes a $60,000 tax on yachts and collects it from the yacht consumers, the _____ curve will shift _____ by _____.supply; upward; $30,000supply; upward; $60,000demand; downward; $30,000
demand; upward; $60,000
demand; downward; $60,000Slide15
If the government imposes a $60,000 tax on yachts and collects it from the yacht consumers, the _____ curve will shift _____ by _____.supply; upward; $30,000supply; upward; $60,000demand; downward; $30,000
demand; upward; $60,000
demand; downward; $60,000Slide16
If the government imposes a $60,000 tax on yachts (collected from the producers), consumers will pay _____ of the tax and producers will pay _____.$30,000; $30,000
$40,000; $20,000
$20,000; $40,000$10,000; $50,000$0; $60,000Slide17
If the government imposes a $60,000 tax on yachts (collected from the producers), consumers will pay _____ of the tax and producers will pay _____.$30,000; $30,000
$40,000; $20,000
$20,000; $40,000$10,000; $50,000$0; $60,000Slide18
If the government imposes a $30,000 tax on yachts and collects it from the yacht suppliers, the _____ curve will shift _____ by _____.demand; downward; $15,000
supply; upward; $15,000
supply; upward; $30,000demand; downward; $30,000supply; downward; $30,000Slide19
If the government imposes a $30,000 tax on yachts and collects it from the yacht suppliers, the _____ curve will shift _____ by _____.demand; downward; $15,000
supply; upward; $15,000
supply; upward; $30,000demand; downward; $30,000supply; downward; $30,000Slide20
Prior to any taxes, suppose the equilibrium price of gasoline is $3 per gallon. A $1 tax is levied on each gallon of gas that is supplied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is:$0.25 paid by consumers, $0.75 paid by producers.$0.50 paid by consumers, $0.50 paid by producers.
$1.00 paid by producers, $0 paid by consumers.
$0.75 paid by consumers, $0.25 paid by producers.$0 paid by producers, $1.00 paid by consumers.Slide21
Prior to any taxes, suppose the equilibrium price of gasoline is $3 per gallon. A $1 tax is levied on each gallon of gas that is supplied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is:$0.25 paid by consumers, $0.75 paid by producers.$0.50 paid by consumers, $0.50 paid by producers.
$1.00 paid by producers, $0 paid by consumers.
$0.75 paid by consumers, $0.25 paid by producers.$0 paid by producers, $1.00 paid by consumers.Slide22
Paying a tax on $10 on an income of $100, a tax of $20 on an income of $200, and a tax of $30 on an income of $300 is an example of a:regressive tax.proportional tax.progressive tax.
benefits tax.
lump-sum tax.Slide23
Paying a tax on $10 on an income of $100, a tax of $20 on an income of $200, and a tax of $30 on an income of $300 is an example of a:regressive tax.proportional tax.progressive tax.
benefits tax.
lump-sum tax.Slide24
Paying a tax on $10 on an income of $100, a tax of $25 on an income of $200, and a tax of $60 on an income of $300 is an example of a:regressive tax.proportional tax.progressive tax.
benefits tax.
lump-sum tax.Slide25
Paying a tax on $10 on an income of $100, a tax of $25 on an income of $200, and a tax of $60 on an income of $300 is an example of a:regressive tax.proportional tax.progressive tax.
benefits tax.
lump-sum tax.Slide26
Paying a tax on $20 on an income of $100, a tax of $15 on an income of $200, and a tax of $12 on an income of $300 is an example of a:regressive tax.proportional tax.progressive tax.
benefits tax.
lump-sum tax.Slide27
Paying a tax on $20 on an income of $100, a tax of $15 on an income of $200, and a tax of $12 on an income of $300 is an example of a:regressive tax.proportional tax.progressive tax.
benefits tax.
lump-sum tax.Slide28
Coffee and tea are substitutes. If there is an increase in the price of coffee, total surplus in the tea market:will increase.will decrease.will not change.
may change, but we cannot determine the change without more information.
will fall to zero.Slide29
Coffee and tea are substitutes. If there is an increase in the price of coffee, total surplus in the tea market:will increase.will decrease.will not change.
may change, but we cannot determine the change without more information.
will fall to zero.Slide30
Scenario 1. Budget Constraint. Tom is trying to decide how to allocate his $50 budget for CD purchases and DVD rentals when the price of a CD is $10 and the price of a DVD rental is $5.Which of the following combinations of CD purchases and DVD rentals lies inside Tom’s budget line?
5 CDs and 10 DVDs
5 CDs and 0 DVDs0 CDs and 5 DVDs10 CDs and 5 DVDs2 CDs and 7 DVDsSlide31
Scenario 1. Budget Constraint. Tom is trying to decide how to allocate his $50 budget for CD purchases and DVD rentals when the price of a CD is $10 and the price of a DVD rental is $5.Which of the following combinations of CD purchases and DVD rentals lies inside Tom’s budget line?
5 CDs and 10 DVDs
5 CDs and 0 DVDs0 CDs and 5 DVDs10 CDs and 5 DVDs2 CDs and 7 DVDsSlide32
Units of Good X
MU Good X
Units of Good YMU Good Y120112216210312
3
8
4
8
4
6
5
4
5
4
6
0
6
2
Assume that the price of both goods is $1 per unit, and you consume 3 units of Good X and 3 units of Good Y. To maximize utility, assuming that the goods are divisible, you would consume:
less of both X and Y.
more of both X and Y.
less of X and more of Y.
more of X and less of Y.
the current quantity of both goods.Slide33
Units of Good X
MU Good X
Units of Good YMU Good Y120112216210312
3
8
4
8
4
6
5
4
5
4
6
0
6
2
Assume that the price of both goods is $1 per unit, and you consume 3 units of Good X and 3 units of Good Y. To maximize utility, assuming that the goods are divisible, you would consume:
less of both X and Y.
more of both X and Y.
less of X and more of Y.
more of X and less of Y.
the current quantity of both goods.Slide34
Units of Good X
MU Good X
Units of Good YMU Good Y120112216210312
3
8
4
8
4
6
5
4
5
4
6
0
6
2
Assume that the price of both goods is $1 per unit, and you consume 4 units of Good X and 2 units of Good Y. To maximize utility, assuming that the goods are divisible, you would consume:
less of X and more of Y.
more of both X and Y.
less of both X and Y.
more of X and less of Y.
the current quantity of both goods.Slide35
Units of Good X
MU Good X
Units of Good YMU Good Y120112216210312
3
8
4
8
4
6
5
4
5
4
6
0
6
2
Assume that the price of both goods is $1 per unit, and you consume 4 units of Good X and 2 units of Good Y. To maximize utility, assuming that the goods are divisible, you would consume:
less of X and more of Y.
more of both X and Y.
less of both X and Y.
more of X and less of Y.
the current quantity of both goods.Slide36
Units of Good X
MU Good X
Units of Good YMU Good Y120112216210312
3
8
4
8
4
6
5
4
5
4
6
0
6
2
Assume that the price of Good X is $2 per unit and the price of Good Y is $1 per unit, and you consume 3 units of Good X and 3 units of Good Y. To maximize utility, assuming that the goods are divisible, you would consume:
less of both X and Y.
more of both X and Y.
less of X and more of Y.
more of X and less of Y.
the current quantity of both goods.Slide37
Units of Good X
MU Good X
Units of Good YMU Good Y120112216210312
3
8
4
8
4
6
5
4
5
4
6
0
6
2
Assume that the price of Good X is $2 per unit and the price of Good Y is $1 per unit, and you consume 3 units of Good X and 3 units of Good Y. To maximize utility, assuming that the goods are divisible, you would consume:
less of both X and Y.
more of both X and Y.
less of X and more of Y.
more of X and less of Y.
the current quantity of both goods.Slide38
Units of Good X
MU Good X
Units of Good YMU Good Y120112216210312
3
8
4
8
4
6
5
4
5
4
6
0
6
2
Assume that the price of Good X is $1 per unit and the price of Good Y is $2 per unit, and you consume 4 units of Good X and 2 units of Good Y. To maximize utility, assuming that the goods are divisible, you would consume:
less of both X and Y.
more of both X and Y.
less of X and more of Y.
more of X and less of Y.
the current quantity of both goods.Slide39
David’s marginal utilities for milkshakes and burgers are given in the accompanying table. The price of milkshakes is $2, and the price of burgers is $5. If Max’s income is $10, how many milkshakes and how many burgers does he buy to maximize his utility?1 shake and 1 burger0 shakes and 2 burgers
5 shakes and 0 burgers
2 shakes and 1 burger6 shakes and 2 burgers.Slide40
David’s marginal utilities for milkshakes and burgers are given in the accompanying table. The price of milkshakes is $2, and the price of burgers is $5. If Max’s income is $10, how many milkshakes and how many burgers does he buy to maximize his utility?1 shake and 1 burger0 shakes and 2 burgers
5 shakes and 0 burgers
2 shakes and 1 burger6 shakes and 2 burgers.Slide41
If a consumer buys more of Good X and less of Good Y, the _____ of Good X will _____, and the ______ of Good Y will _____.marginal utility; fall; marginal utility; risemarginal utility; rise; marginal utility; falltotal utility; fall; marginal utility; rise
marginal utility; rise; total utility; rise
total utility; rise; total utility; riseSlide42
If a consumer buys more of Good X and less of Good Y, the _____ of Good X will _____, and the ______ of Good Y will _____.marginal utility; fall; marginal utility; risemarginal utility; rise; marginal utility; fall
total utility; fall; marginal utility; rise
marginal utility; rise; total utility; risetotal utility; rise; total utility; riseSlide43
If a consumer purchases a combination of commodities A and B such that MUa/Pa = 50 and MUb/Pb = 30, to maximize utility, the consumer should:
buy less of both A and B.
buy more of both A and B.buy more of A and less of B.buy less of A and more of B.make no changes to the current combination of A and B.Slide44
If a consumer purchases a combination of commodities A and B such that MUa/Pa = 50 and MUb/Pb = 30, to maximize utility, the consumer should:
buy less of both A and B.
buy more of both A and B.buy more of A and less of B.buy less of A and more of B.make no changes to the current combination of A and B.Slide45
If a consumer purchases a combination of commodities A and B such that MUa/Pa = 100 and MUb/Pb = 80, to maximize utility, the consumer should:
buy less of both A and B.
buy more of both A and B.buy more of A and less of B.buy less of A and more of B.make no changes to the current combination of A and B.Slide46
If a consumer purchases a combination of commodities A and B such that MUa/Pa = 100 and MUb/Pb = 80, to maximize utility, the consumer should:
buy less of both A and B.
buy more of both A and B.buy more of A and less of B.buy less of A and more of B.make no changes to the current combination of A and B.Slide47
Generally, each successive unit of a good consumed will cause marginal utility toincrease at an increasing rate.increase at a decreasing rate.increase at a constant rate.
decrease.
either increase or decrease.Slide48
Generally, each successive unit of a good consumed will cause marginal utility toincrease at an increasing rate.increase at a decreasing rate.increase at a constant rate.
decrease.
either increase or decrease.Slide49
Assume there are two goods, good X and good Y. Good X costs $5 and good Y costs $10. If your income is $200, which of the following combinations of good X and good Y is on your budget line?0 units of good X and 18 units of good Y0 units of good X and 20 units of good Y20 units of good X and 0 units of good Y
10 units of good X and 12 units of good Y
all of the above.Slide50
Assume there are two goods, good X and good Y. Good X costs $5 and good Y costs $10. If your income is $200, which of the following combinations of good X and good Y is on your budget line?0 units of good X and 18 units of good Y0 units of good X and 20 units of good Y
20 units of good X and 0 units of good Y
10 units of good X and 12 units of good Yall of the above.Slide51
The optimal consumption rule states that total utility is maximized when all income is spent andMU/P is equal for all goods.MU is equal for all goods.P/MU is equal for all goods.
MU is as high as possible for all goods.
The amount spent on each good is equal.Slide52
The optimal consumption rule states that total utility is maximized when all income is spent andMU/P is equal for all goods.MU is equal for all goods.P/MU is equal for all goods.
MU is as high as possible for all goods.
The amount spent on each good is equal.Slide53
A consumer is spending all of her income and receiving 100 utils from the last unit of good A and 80 utils from the last unit of good B. If the price of good A is $2 and the price of good B is $1, to maximize total utility the consumer should buymore of good A.more of good B.less of good B.
more of both goods.
less of both goods.Slide54
A consumer is spending all of her income and receiving 100 utils from the last unit of good A and 80 utils from the last unit of good B. If the price of good A is $2 and the price of good B is $1, to maximize total utility the consumer should buymore of good A.more of good B.
less of good B.
more of both goods.less of both goods.Slide55
The optimal consumption bundle is always represented by a pointinside the consumer’s budget line.outside the consumer’s budget line.at the highest point on the consumer’s budget line.
on the consumer’s budget line.
at the horizontal intercept of the consumer’s budget line.Slide56
The optimal consumption bundle is always represented by a pointinside the consumer’s budget line.outside the consumer’s budget line.at the highest point on the consumer’s budget line.
on the consumer’s budget line.
at the horizontal intercept of the consumer’s budget line.