Post Midterm Quiz

Question 1

How would the division of the tax burden between consumers and producers change if the government instead collected the tax from consumers at the store?

Answer 1

• It doesn’t make any difference, the tax burden would be the same.
• The division of the tax burden is determined by the relative elasticities of supply and demand.

Question 2

Is the demand for soda more elastic for wealthy Mexicans or for low-income Mexicans? How do you know?

Answer 2

• Demand for soda is more elastic for lower income Mexicans because % change in price has a bigger effect than % change in quantity demanded.
• Declines in sales and Quantity demanded were biggest for low income Mexicans.

Question 3

Shifter Categories:

Advance in production technology

Answer 3

• Effect on supply curve: Shift right
• Effect on demand curve: No change
• Effect on Q*: Increases
• Effect on P*: Decreases

Question 4

Shifter Categories:

Changes in tastes and Preferences (More Popular)

Answer 4

• Effect on supply curve: No Change
• Effect on demand curve: Shift right
• Effect on Q*: Increase
• Effect on P*: Increase

Question 5

Shifter Categories:

Changes in tastes and Preferences (Less Popular)

Answer 5

• Effect on supply curve: No Change
• Effect on demand curve: Shift Left
• Effect on Q*: Decrease
• Effect on P*: Decrease

Question 6

Shifter Categories:

Change in price of a substitute (Increase)

Answer 6

• Effect on supply curve: No change
• Effect on demand curve: Shift right
• Effect on Q*: Increases
• Effect on P*: Increases

Question 7

Shifter Categories:

Change in price of a substitute (Decrease)

Answer 7

• Effect on supply curve: No change
• Effect on demand curve: Shift Left
• Effect on Q*: Decreases
• Effect on P*: Decreases

Question 8

Shifter Categories:

Change in price of a complement (Increases)

Answer 8

• Effect on supply curve: No change
• Effect on demand curve: Shift left
• Effect on Q*: Decreases
• Effect on P*: Decreases

Question 9

Shifter Categories:

Change in price of a complement (Decreases)

Answer 9

• Effect on supply curve: No change
• Effect on demand curve: Shift right
• Effect on Q*: Increases
• Effect on P*: Increases

Question 10

Shifter Categories:

Change in the price of an input (Increases)

Answer 10

• Effect on supply curve: Shift left
• Effect on demand curve: No change
• Effect on Q*: Decrease
• Effect on P*: Increase

Question 11

Shifter Categories:

Change in the price of an input (Decreases)

Answer 11

• Effect on supply curve: Shift right
• Effect on demand curve: No change
• Effect on Q*: Increases
• Effect on P*: Decreases

Question 12

What is deadweight loss?

Answer 12

-The consumer surplus and producer surplus lost after the tax is established (due to the reduction in quantity demanded).

Question 13

AC Pigou was a utilitarian, who also believed the marginal utility of income was diminishing. Explain how that belief affected his advice to policy makers.

Answer 13

-Utilitarian’s believed in aggregate utility, or the welfare and satisfaction of society. Diminishing marginal utility of income is the idea that money given to the wealthy has less of an impact than it would if given to the poor. A more equal distribution would increase the overall aggregate utility.

Question 14

Explain what the term “bounded rationality” means.

Answer 14

-Human beings are not completely rational. Instead, there are limits (bounds) to our rationality- we tend to make certain types of mistakes in predictable ways.