Download Review Questions Chapter 8

REVIEW QUESTIONS CH. 8-11
CHAPTER 8
1. Evaluate the following two statements. Do you agree? Why or why not?
a. “A tax that has no deadweight loss cannot raise any revenue for the
government.”
b. “A tax that raises no revenue for the government cannot have any
deadweight loss.
2. Suppose the government imposes a tax on heating oil.
a. Would the deadweight loss from this tax likely be greater in the first year
after it is imposed or the fifth year? Explain.
b. Would the revenue collected from this tax likely be greater in the fist year
after imposed or the fifth year? Explain.
3. What happens to consumer and producer surplus when the sale for a good is
taxed? How does the change in consumer and producer surplus compare to tax
revenue? Explain.
CHAPTER 9
1. Define world price. Define tariff. What are the effects of a tariff? Define import
quota. What are the effects of an import quota?
2. What are the arguments for restricting trade? What are the benefits of trade?
3. The world price of cotton is below the no-trade price in country A and above the
no-trade price in country B. Using supply and demand diagrams and welfare
tables such as those in the chapter, show the gains from trade in each country.
Compare your results for the two countries.
4. Draw the supply and demand diagram for an importing country. What is the
consumer surplus and producer surplus before trade is allowed? What is consumer
surplus and producer surplus with free trade? What is the change in total surplus?
CHAPTER 10
1. Define Gross Domestic Product (GDP); Real GDP; Nominal GDP. What are the
components of GDP? What is the GDP deflator? How do you calculate the GDP
deflator? Define GDP per capita.
2. Why do economists prefer real GDP as a measure of economic well being?
3. Why doesn’t GDP include the value of used goods that are resold? How has the
increase of women in the workforce affect the GDP?
4. Why must an economy’s income equal its expenditure?
CHAPTER 11
1. What is the consumer price index (CPI)? How is it calculated? What is the
inflation rate? How is it calculated? What is the producer price index (PPI)?
2. What are some of the problems involved in the measuring the cost of living?
3. What are some differences between the GDP deflator and the CPI?
4. Define nominal interest rate and the real interest rate. How would you calculated
each? (Hint: inflation is involved).