Unit 3- Chapter 4

Question 1

when the government imposes a price ceiling or a price floor, the amount of the economic surplus in a market is

Answer 1

reduced

Question 2

which of the following is the definition of consumer surplus

Answer 2

the difference between the highest price of consumer is willing to pay and the price the consumer actually pays

Question 3

precisely what does consumer surplus measure?

Answer 3

the net benefit to consumers from participating in the market

Question 4

which of the following is the definition of marginal cost

Answer 4

the additional cost to a firm of producing one more unit of a good or service

Question 5

Refer to the graph below. when market price is $2.00, how much is the producer surplus obtained from selling the 40th cup?

Answer 5

$.20

Question 6

The sum of consumer surplus and producer surplus equals

Answer 6

economic surplus

Question 7

refer to the graph below. after a price of $3.50 is imposed by government in this market, what meaning do we give to area A.

Answer 7

Area A is consumer surplus transferred to producers

Question 8

which of the following is correct about the minimum wage?

Answer 8

the minimum wage creates a deadweight loss in the unskilled labor market

Question 9

refer to the graph below. after the rent control is imposed, which area represents a deadweight loss?

Answer 9

the yellow…B & C

Question 10

Suppose that this market is operating under the established rent control of $1,000 per month. Then, a black market for rent-controlled apartments develops, and the apartments then rent for $2,000 per month. What meaning does the sum of areas A+E have in this case?

Answer 10

Consumer surplus transferred from renters to landlords`

Question 11

the term tax incidence refers to

Answer 11

the actual division of the burden of a tax

Question 12

refer to the graph below. what area corresponds to the excess burden (or deadweight loss) from the tax?

Answer 12

ABC (the ones with bullets on them)

Question 13

when the government imposes price floors or price ceilings, which of the following occurs?

Answer 13

alllll of the above :)

Question 14

producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays

Answer 14

False

Question 15

The total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price

Answer 15

True

Question 16

there will be no deadweight loss if the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized

Answer 16

True

Question 17

the difference between consumer surplus and producer surplus in a market is equal to the deadweight loss

Answer 17

False

Question 18

equilibrium in a competitive market results in the greatest amount of economic surplus from the production of a good or service

Answer 18

False

Question 19

the minimum wage is an example of a price ceiling

Answer 19

False

Question 20

rent control is an example of a price ceiling

Answer 20

True

Question 21

what is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price, where must price ceilings and price floors be set to have an effect on the market.

Answer 21

price cieling is a legally determined maximum price that sellers may charge for a good or service.

price floor is a legally determined MINIMUM that sellers may receive for a product or service.

to have an effect on a market, price ceilings must be set below competitive equilibrium price, and price floors must be set above the competitive equilibrium price.

Question 22

what is deadweight lost? when is deadweight loss equal to zero?

Answer 22

deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. Deadweight loss is equal to zero when the sum of consumer surplus and producer surplus is maximized, which occurs when the market is in competitive equilibrium.

Question 23

assume the market price for tangerines is 18.00 per bushel. at the market price, tangerine growers are willing to supply a quantity of 12,000 bushels per week. the quantity supplies drops to zero when the price falls to 5.00 per bushel. construct a graph showing this data, calculate the total producer surplus in the market for tangerines and show the total producer surplus on the graph.

Answer 23

the total producer surplus is (1/2 x $13 x 12,000)

subtract top from 5 which is 13 times that by quantity and times is by half.

Question 24

the market price for coffee is 2.25 per cup. austin is willing to pay 5.00 per cup, colin is willing to pay 4.00 per cup, lucy is willing to pay 3.00 per cup and Ike is willing to pay 2.00 per cup. Construct a graph showing the consumer surplus for each cup of coffee purchased. How many cups of coffee will be purchased. What is the value of consumer surplus each of the four consumers received from their coffee purchase?

Answer 24

3 cups of cofee will be purchased. 
Austins consumer surplus is 2.75
colins in 1.75
lucys is .5
ike received no consumer surplus since he isn't willing to pay

Question 25

what is consumer surplus? Why would policy makers be interest in consumer surplus?

Answer 25

consumer surplus is the difference between what a consumer is willing to pay for a product and what she actually pays for the product. Since consumer surplus measures the benefit that consumers receive from a good as they themselves perceive it, it serves as a good measure of economic well-being. Thus, if policy makers care about consumer preferences, they could use this measure to make a normative judgement about market outcomes.

Question 26

the graph below represents the market for alfalfa. the equilibrium price is $7 per bushel, but the market price is $9 per bushel. Identify the areas representing consumer surplus, and deadweight loss at the equilibrium price of $7 and at the market price of $9

Answer 26

at the equilibrium price of $7

consumer surplus is represented by area A+B=C
producer surplus is represented by area D+E
there is no deadweight lost.

at the market price of $9
consumer surplus is represented by area A
producer surplus is represented by B+D
deadweight loss is represented by C+E

Question 27

the figure above represents demand and supply in the market for gasoline. use the diagram to answer the following questions.

How much is the government tax on each gallon of gas?
What poriton of the unit tax is paid by consumers?
what portion of the unit tax is paid by producers?
what is the quantity sold after the imposition of the tax?
what is the after tax revenue collected by the government?
what is the total tax revenue collected by the government?
what is the value of the excess burder of the tax?
is this gasoline tax efficient?

Answer 27

Tax=.6 (bottom to top)
by consumers?=.4 ( the middle to top)
producers? .2(the middle to bottom)
after impositiion of tax=30 billion (first one)
tax by gov. =3.2 (one connected to 30 bill)
18 billion (.6 x 30 billion)
1.5 billion (1/2 x .6 x 5 billion—-that comes from the difference of the bottom two)
yes, a tax is efficient if it imposes a small excess burden relative to the tax revenue it raises