COMM 171 Week 3.2

Question 1

Consumer surplus:

Answer 1

Consumer surplus: Willingness to pay - price

The total consumer surplus
is the entire shaded area—the
sum of the individual consumer
surpluses of Aleisha, Brad, and
Claudia ($29 + $15 + $5 =
$49

Question 2

Consumer surplus

Answer 2

Cosumer surplus is the area below the demanded but above the price

10 UNDERNEATH DEMAND URVE
2) LEFT OF THE EQULIBRIUM POINT
3) ABOVE PRICE

Question 3

What is prodcer surplus

Answer 3

Producer surplus: the difference between market price
and the price at which firms are willing to supply the
product.
* Individual producer surplus is the net gain to an
individual seller from selling a good. It is equal to the
difference between the price received and the seller’s
cost.
* Total producer surplus is the sum of the individual
producer surpluses of all the sellers of a good in a market.
* Economists use the term producer surplus to refer both
to individual and to total producer surplus.

Question 4

Total surplus:

Answer 4

Total surplus: the sum of the producer and consumer surpluses

Question 5

Price controls:

Answer 5

Price controls: legal restrictions on how high or low a
market price may go. There are two main types:

– Price ceiling: a maximum price sellers are allowed to
charge for a good or service (usually set BELOW
equilibrium).
– Price floor: a minimum price buyers are required to pay
for a good or service (usually set ABOVE equilibrium).

Question 6

Why do gverments control prices

Answer 6

Market prices do not necessarily please buyers or
sellers: they may lobby the government to help them by
altering the price

Question 7

HOW PRICE CEILINGS CAUSE INEFFICIENCY

Answer 7

Price ceilings cause predictable side effects:
– Inefficiently low quantity
– Inefficient allocation to customers
– Wasted resources, time and effort
– Inefficiently low quality
– Black markets

Question 8

Price floors cause predictable side effects:

Answer 8

Price floors cause predictable side effects:
* Inefficient allocation of sales among sellers
* Wasted resources
* Inefficiently high quality
* Temptation to break the law by selling below the legal price

Question 9

What does all comtrol create

Answer 9

ALL CONTROLS CREATE DEADWEIGHT LOSS

Question 10

what is quota

Answer 10

Quota: an upper limit, set by the government, on the
quantity of some good that can be bought or sold; also
referred to as a quantity control.
– Quota limit: the total amount of a good under a quota or
quantity control that can be legally transacted.
– License: the right, conferred by the government, to supply
a good.