1 . The welfare loss associated with an excise tax is measured by

a. the reduction in consumer surplus plus the reduction in profits due to the tax.

b. the reduction in producer surplus plus the reduction in consumer surplus minus the tax revenue.

c. the reduction in producer surplus plus the reduction in consumer surplus due to the tax.

d. the reduction in producer surplus plus the reduction in consumer surplus plus the reduction in total surplus.

2. An indifference curve shows _____.

a. all the combinations of two products between which the consumer is indifferent

b. all possible combinations of the two products available to the consumer that can be purchased with a given level of income

c. the single best bundle of consumption for the consumer given two products and a particular income level

d. how the total satisfaction derived from consuming alternative market baskets changes along the curve

3. The cross-price elasticity of demand between substitutes

a. is negative.

b. s positive.

c. is negative if the price elasticity of each good is inelastic, but positive if the price elasticity of each good is elastic.

d. is zero.

4. When a price ceiling is imposed on a competitive market at a level above the equilibrium price

a. both producers and consumers lose surplus.

b. total surplus is not changed by the price ceiling.

c. consumers lose some or all of consumer surplus.

d. producers lose some or all of producer surplus.

5. Which of the following statements about demand elasticity is correct?

a. If demand is price-elastic, an increase in price will leave total revenues unchanged.

b. If demand is price-inelastic, an increase in price will increase total expenditures.

c. If demand is price-inelastic, an increase in price will reduce total expenditures.

d. If demand is price-elastic, an increase in price will increase total expenditures.

6. Suppose red onions are on the horizontal axis and white onions on the vertical axis. If both are perfect substitutes with two white onions worth one red onion, and the price of red onions falls from four to three times the price of white onions, the consumer:

a. decreases her consumption of white onions and increases her consumption of red onions.

b. increases her consumption of white onions and decreases her consumption of white onions.

c. moves to a higher indifference curve

d. makes no change in his/her consumption of onions and experiences no income effect as a result of the price change.

7. In 1997, Sony introduced the DVD player, replacing the VHS videotape and shepherding in a new era of high-definition movie viewing. Soon, there were over 100 different player models competing. DVD became the standard, preferred way to watch movies at home; VHS movies became increasingly difficult to rent and/or purchase. Then, in 2010, Netflix introduced streaming video that allowed users to watch movies on their television or mobile device.

1. Explain in detail why the consumer surplus gained by those purchasing DVD players was likely to be quite high between 1997 and 2010.
2. Describe in length how the introduction of streaming video likely altered the consumer surplus received by purchasers of DVD players after 2010.
3. Do you believe the consumer surplus received by movie viewers increased or decreased after 2010? Explain