Exam 2 Flashcards
4 and 7
Producer surplus is the difference between
the minimum prices producers are willing to accept for a product and the higher equilibrium price.
Economic growth can be portrayed as
an outward shift of the production possibilities curve.
The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called
consumer surplus
Marginal cost is
the additional cost to a firm of producing one more unit of a good or service
The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market
above; below
Refer to Figure 4-1. Arnold’s marginal benefit from consuming the third burrito is
$1.50
Refer to Figure 4-1. If the market price is $1.00, what is the consumer surplus on the third burrito?
$0.50
Refer to Figure 4-1. If the market price is $1.00, what is Arnold’s consumer surplus?
$3.00
Suppliers will be willing to supply a product only if
the price received is at least equal to the additional cost of producing the product.
The additional cost to a firm of producing one more unit of a good or service is the
marginal cost.
In a competitive market equilibrium
the marginal benefit equals the marginal cost of the last unit sold.
Economic efficiency in a competitive market is achieved when
the marginal benefit equals the marginal cost from the last unit sold.
________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium.
Deadweight loss
Economic surplus
is equal to the sum of consumer surplus and producer surplus.
In a competitive market, the demand curve shows the ________ received by consumers and the supply curve shows the ________.
marginal benefit; marginal cost
Refer to Figure 4-5. The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $3, what changes in the market would result in an economically efficient output?
The price would increase, the quantity demanded would decrease, and the quantity supplied would increase.
If equilibrium is achieved in a competitive market, then
there is no deadweight loss.
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. What area represents consumer surplus at P2?
A
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. Refer to Figure 4-6. What area represents producer surplus at P2?
B + D
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. Refer to Figure 4-6. What area represents the deadweight loss at P2?
C + E
The sum of consumer surplus and producer surplus is equal to
the economic surplus.
Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. Refer to Figure 4-6. What area represents the deadweight loss at the equilibrium price of P1?
There is no deadweight loss at the price of P1.
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. What is the equilibrium hourly wage (W) and the equilibrium quantity of labor (Q)?
W* = $10.50; Q* = 590,000
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor demanded?
570,000
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. If a minimum wage of $11.50 an hour is mandated, what is the quantity of labor supplied?
610,000
Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. Refer to Table 4-7. If a minimum wage of $11.50 is mandated, there will be a
surplus of 40,000 units of labor.
Rent control is an example of
a price ceiling.
To affect the market outcome, a price ceiling
must be set below the equilibrium price.
Economists refer to a market where buying and selling take place at prices that violate government price regulations as
a black market.
Which term refers to a legally established minimum price that firms may charge?
a price floor
Figure 4-9 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. Refer to Figure 4-9. What area represents consumer surplus after the imposition of the price floor?
A
Figure 4-9 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. Refer to Figure 4-9. What is the area that represents producer surplus after the imposition of the price floor?
B + E
Figure 4-9 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. Refer to Figure 4-9. What area represents the deadweight loss after the imposition of the price floor?
C + D
The minimum wage is an example of
a price floor.
To affect the market outcome, a price floor
must be set above the equilibrium price.
Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. Refer to Figure 4-10. What is the area that represents consumer surplus after the imposition of the ceiling?
A + B + D
Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. Refer to Figure 4-10. What is the area that represents the producer surplus after the imposition of the ceiling?
F
Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. Refer to Figure 4-10. What area represents the deadweight loss after the imposition of the ceiling?
C + E
Figure 4-15 shows the market for beer. The government plans to impose a per-unit tax in this market.
$5
Figure 4-15 shows the market for beer. The government plans to impose a per-unit tax in this market.
$27
Figure 4-15 shows the market for beer. The government plans to impose a per-unit tax in this market. Refer to Figure 4-15. For each unit sold, the price sellers receive after the tax (net of tax) is
$20
Figure 4-15 shows the market for beer. The government plans to impose a per-unit tax in this market. Refer to Figure 4-15. How much of the tax is paid by sellers?
$2
Many economists support trade agreements, maintaining that the agreements improve economic efficiency because they result in goods being produced
at the lowest opportunity cost.
Workers in industries protected by tariffs and quotas are likely to support these trade restrictions because
they believe the restrictions will protect their jobs.
A tariff is a tax imposed by a government on
imports
Goods and services bought domestically but produced in other countries are referred to as
imports
Exports are domestically produced goods and services
sold to other countries.
A tax imposed by a government on imports of a good into a country is called
a tariff
Imports are goods and services bought domestically
but produced in other countries.
Domestically produced goods and services sold to other countries are referred to as
exports
Absolute advantage is
the ability to produce more of a good or service than competitors when using the same amount of resources.
________ is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
Comparative advantage
An economic principle that explains why countries produce different goods and services is
comparative advantage.
If the opportunity costs of production for two goods is different between two countries, then
mutually beneficial trade is possible.
If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?
Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.
A situation in which a country does not trade with other countries is called
autarky
Autarky is a situation in which a country
does not trade with other countries.
A numerical limit imposed by a government on the quantity of a good that can be imported into the country is called a
quota
Which of the following is the best example of a tariff?
a $150 fee imposed on all imported residential air conditioners
Which of the following is the best example of a quota?
a limit on the quantity of tires that can be imported from a foreign country
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Refer to Figure 9-2. The tariff revenue collected by the government equals the area
E
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Refer to Figure 9-2. Without the tariff in place, the United States produces
9 million pounds of rice.
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Refer to Figure 9-2. With the tariff in place, the United States consumes
31 million pounds of rice.
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Refer to Figure 9-2. With the tariff in place, the United States
imports 16 million pounds of rice.
An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called
a voluntary export restraint
The main purpose of most tariffs and quotas is to
reduce the foreign competition that domestic firms face.
Which of the following is the best example of a quota?
a limit imposed on the number of sport utility vehicles that the United States can import from Japan
Which of the following is the best example of a voluntary export restraint?
a limit set by the Korean government on the number of cell phones that the United States can import from Korea
In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to voluntary export restraints. With voluntary export restraints, foreign producers
limit their exports to a country.
The “Buy American” provision in the 2009 stimulus package required that stimulus money be spent only on U.S.-made goods, effectively acting as a quota of zero imports when stimulus money was being spent. In the market for steel, the “Buy American” provision would ________ the price of steel in the United States and ________ the quantity of steel demanded in the United States.
increase; decrease
Figure 9-4 shows the U.S. demand and supply for leather footwear. Refer to Figure 9-4. Under autarky, the equilibrium price is
$30.
Figure 9-4 shows the U.S. demand and supply for leather footwear. Refer to Figure 9-4. Under autarky, the consumer surplus is area
R
Figure 9-4 shows the U.S. demand and supply for leather footwear. Refer to Figure 9-4. Under autarky, the producer surplus is area
S + V
Figure 9-4 shows the U.S. demand and supply for leather footwear. Refer to Figure 9-4. Suppose the government allows imports of leather footwear into the United States. What will the market price be?
$24
Figure 9-4 shows the U.S. demand and supply for leather footwear. Refer to Figure 9-4. Suppose the government allows imports of leather footwear into the United States. What will be the quantity demanded?
Q2
In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to limit their exports to a country. What are these types of agreements called?
voluntary export restraints
Protectionism
is the use of trade barriers to protect domestic firms from foreign competition.
Economists believe the most persuasive argument for protectionism is to protect infant industries. But the argument has a drawback. What is this drawback?
Protection lessens the need for firms to become productive enough to compete with foreign firms; this often results in infant industries never “growing up.”
Suppose that American firms claim that protectionism in Canada is on the rise as the Canadian government attempts to protect its infant industries. This protectionism will cause the greatest harm to
manufacturers who export to Canada
The selling of a product for a price below its cost of production is called
dumping
Dumping refers to
selling a product for a price below its cost of production
It is difficult to determine if foreign companies are selling their products for prices below their costs of production because
the true costs of production are difficult to calculate
