ECON Q2

A binding price floor on the market for milk leads to: a. a higher price received by sellers b. a higher price paid by buyers c. a surplus of milk d. all of these are correct

d. all of these are correct

In a particular market, market demand is given by the equation Qd=60-P and market supply is given by the equation Qs=P Suppose a per-unit tax is imposed that reduces the number of units bought and sold in the market to 25 units. What is the size of the tax, and who bears the greater burden of the tax, buyers or sellers? Provide the number and show it also on the graph.

If the number of transactions falls to 25 units, plugging 25 into the demand and supply curves gives a price paid by buyers of $35 and an amount received by sellers of $25. Therefore, the tax is $10 per unit.( number 2.5, graph 2.5) In addition, since the initial equilibrium price in this market is $30, the buyers and the sellers share the burden of the tax equally.(answer 2.5 ,graph 2.5)

In your diagram, show what happens to consumer surplus and producer surplus. 4pts

The decline in the price of flat-screen TVs increases consumer surplus from area A to A + B + C + D, an increase in the amount B + C + D. Prior to the shift in supply, producer surplus was areas B + E (the area above the supply curve and below the price). After the shift in supply, producer surplus is areas E + F + G. So producer surplus changes by the amount F + G - B, which may be positive or negative. The increase in quantity increases producer surplus, while the decline in the price reduces producer surplus. Because consumer surplus rises by B + C + D and producer surplus rises by F + G - B, total surplus rises by C + D + F + G. Before falling production costs After falling production costs Consumer surplus A (1) A + B + C+ D (1) Producer surplus B + E (1) E + F + G. (1)

The cost of producing flat-screen TVs has fallen over the past decade. Let's consider some implications of this fact. a. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of flat-screen TVs sold. 4pts

The effect of falling production costs in the market for flat-screen TVs results in a shift to the right in the supply curve, as shown in Figure 11. As a result, the equilibrium price of flat-screen TVs declines and the equilibrium quantity increases.

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm B produces a monitor that David buys, then the market outcome illustrates which of the following principles? (i) Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. (ii) Free markets allocate the demand for goods to the sellers who can produce them at the least cost. a. (i) only b. (ii) only c. both (i) and (ii) d. neither (i) nor (ii)

a. (i) only

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? a. The effective price received by sellers is $0.40 per bottle less than it was before the tax. b. Sixty percent of the burden of the tax falls on sellers. c. This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. d. All of the above are correct.

a. The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the government's tax revenue a. increases by less than 50 percent and may even decline. b. increases by exactly 50 percent. c. increases by more than 50 percent. d. The answer depends on whether supply or demand is more elastic.

a. increases by less than 50 percent and may even decline.

Refer to Figure 1. At the equilibrium price, consumer surplus is a. $1,050. b. $1,225. c. $1,575. d. $2,450.

b. $1,225.

Refer to Figure 1. If the government imposes a price floor of $100 in this market, then consumer surplus will decrease by a. $150. b. $325. c. $650. d. $675.

b. $325.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of firms selling laptop computers decreases. c. Consumers' income decreases, and laptop computers are a normal good. d. The number of consumers buying laptop computers decreases.

b. The number of firms selling laptop computers decreases.

Q4. Producer surplus is the difference between the a. buyer's willingness to pay and the actual price paid. b. price and the seller's opportunity cost. c. price and the value of unsold inventories. d. buyer's willingness to pay and the seller's willingness to sell.

b. price and the seller's opportunity cost.

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes a. increases, and the consumer surplus in the market for red wine increases. b. increases, and the consumer surplus in the market for red wine decreases. c. decreases, and the consumer surplus in the market for red wine increases. d. decreases, and the consumer surplus in the market for red wine decreases.

d. decreases, and the consumer surplus in the market for red wine decreases.

Assume that the supply curve for undeveloped land is perfectly inelastic. A tax levied on undeveloped land will a. be borne entirely by buyers of land. b. generate no tax revenue for government because land sales will fall to zero. c. be borne equally by buyers and sellers of land. d. result in no deadweight loss for society.

d. result in no deadweight loss for society.