Exam 2 distortions

Question 0

-“too much” output (MC > MWTP) (Disposal Problem)

Answer 0

Price Floors

Shifts Price Up

Question 1

“too little” output (MC < MWTP)

Rationing Problem

Answer 1

Price Ceilings
Short Run: Shifts Price Down
Long Run: Shifts Supply Left

Question 2

“too little” output (MC [in terms of scarce resources] < MWTP)

Answer 2

Taxes

Question 3

“too much” output (MC > MWTP [in terms of “true” benefit])

Answer 3

Subsidies

Question 4

MC = MWTP but “too little” produced because capital cannot move to markets with economic profits so there is no long-run supply response

Answer 4

Barrier to entry

Question 5

Enforcement problem

Different price and revenue effects when enforcing against suppliers and/or demanders

Answer 5

Prohibited Markets

Question 6

“too little” specialization (loss in consumer surplus exeeds any gains in producer surplus

Answer 6

Tariffs

Question 7

“Too little” specialization (loss in consumer surplus exceeds any gain in producer surplus)

Answer 7

Quotas