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Policymakers use taxes

to raise revenue for public purposes, but not to influence market outcomes

When a tax is levied on buyers of tea,

buyers of tea and sellers of tea both are made worse off

If the government removes a tax on buyers of a good and imposes the same tax on sellers of the good, then the price paid by buyers will

not change and the price received by sellers will not change

Frank drinks purple cola. he can buy as many cans of purple cola as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Frank is rational in deciding how many cans to buy. His consumer surplus is


The burden of the luxury tax falls

more on the middle class than on the rich

which of the following will cause an increase in producer surplus?

the price of a substitute increases

Total surplus in a market is equal to

value to buyers-cost of sellers

We can say that the allocation of resources is efficient if

total surplus is maximized


the uncompensated impact of one person's actions on the well-being of a bystander

if it is illegal for a biochemical manufacturer to release its waste into a nearby stream, then this is an example of

command-and-control policy

when a good is rival in consumption

one person's use of the good diminishes another person's ability to use it

An AM radio transmission of a baseball game is

not excludable and not rival in consumption

When there is a technological advance in the ice cream industry, consumer surplus in that market will


If a binding price ceiling is imposed on the computer market, then

a shortage of computers will develop

in a free, competitive market, what is the rationing mechanism?


consumer surplus in a market can be represented by the

area below the demand curve and above the price

In the housing market, the implementation of a binding rent control policy would cause

quantity supplied to fall and quantity demanded to rise

a legal minimum on the price at which a good can be sold is called a price


a tax burden falls more heavily on the side of the market that

is more elastic

producer surplus

the amount a seller is paid minus the cost of production

a tax on a good

raises the price that buyers pay and lowers the price that sellers receive

if the size of the tax increases, tax revenue

may increase, decrease or remain the same

Arthur Laffer curve

an upside down U

The laffer curve relates

the tax rate to tax revenue raised by the tax

government intervention

may improve market outcome in the presence of externalities

externalities tend to cause the market to be


if education causes a positive externalities, we would expect

the government to subsidize education

two types of private solutions to the problem of externalities are

charities and the golden rule

coase theorem

in the absence of transaction costs, private parties can solve the problem of externalities on their own

if a road is congested, the road would be

a common resource

rent control laws dictate

a maximum rent that a landlord may charge

a legal maximum on the price at which a good can be sold is called a price


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