Microeconomics HW 3 & 4

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

$0.20

Refer to Figure 7-15. The efficient price is

$16, and the efficient quantity is 80.

Refer to Table 6-1. Suppose the government imposes a price ceiling of $5 on this market. What will be the size of the shortage in this market?

0 units

Refer to the graph below. To achieve economic efficiency, which output level should be produced?

15,000 cups per month, because at this level of output, marginal benefit is equal to marginal cost.

Refer to Figure 4-2. What is the area that represents producer surplus at price P2 ?

A + B + C

Refer to Figure 6-7. Which of the following statements is correct?

A price floor set at $16 will be binding and will result in a surplus of 12 units.

Refer to Figure 4-6. What is the area that represents the deadweight loss after the imposition of the price floor?

C + D

Refer to Figure 4-5. What is the area that represents the deadweight loss after the imposition of the ceiling?

C + E

Refer to Figure 7-18. Sellers whose costs are greater than the equilibrium price are represented by segment

CH.

A minimum wage that is set below a market's equilibrium wage will result in

None of the above is correct.

Refer to Table 4-1. According to the lecture, what is one consequence of a minimum wage of $8?

There is increased time spent in job search.

Which of the following is not likely to happen when a rent control is in place?

Which of the following is not likely to happen when a rent control is in place?

When the government uses price supports in agriculture:

government sometimes buys up the extra food that is produced

Suppose consumer income increases. If iPods are normal goods, the equilibrium price of an iPod will ________, and producer surplus in the iPod marked will ________.

increase; increase

Under rent control, tenants can expect:

lower rent and lower quality housing.

Refer to Figure 6-2. A binding price floor is shown in

panel (b) but not panel (a).

In the housing market, rent control cause

quantity supplied to fall and quantity demanded to rise.

If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will

increase producer surplus.

Which of the following statements best describes the concept of consumer surplus?

"I was all ready to pay $300 for a new leather jacket that I has seen in Macy's but I ended up paying only $180 for the same jacket."

Refer to Figure 4-1. If the market price is $2.50,what is Kendra's consumer surplus on the second ice-cream cone?

$0.50

Refer to Figure 4-1. If the market price is $2.50, what is Kendra's total consumer surplus (for all ice cream purchased)?

$1.50

Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase. How much does Brett value his cell phone?

$180

If the average price that cable subscribers are willing to pay for cable television is $208, but the actual price they pay is $81, how much is consumer surplus per subscriber?

$208 - $81

Refer to Figure 4-1. Kendras marginal benefit from consuming the second ice cream cone is

$3.00

Refer to Table 6-1. Which of the following price floors would be binding in this market?

$4

Refer to Table 7-1. If the price of the product is $18, then the total consumer surplus is

$46.

Refer to Figure 4-1. If the market price is $2.50, what is Kendra's total expenditure on ice-cream cones?

$7.50

Refer to Figure 4-1. What is the total amount that Kendra would be willing to pay for 3 ice-cream cones?

$9.00

At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of selling three cakes, Nick experiences a producer surplus in the amount of $19.50. Nick must be selling his cakes for

$9.50 each.

Refer to Table 4-1. The minimum wage of $7.50 results in how much unemployment?

20,000 people

Refer to Table 6-1. Compared to equilibrium, how many units will be produced and sold in this market under a price floor of $5?

4 units less than equilibrium

Refer to Table 6-1. Suppose the government imposes a price ceiling of $1 on this market. What will be the size of the shortage in this market?

8 units

Refer to Figure 4-6. What is the area that represents consumer surplus after the imposition of the price floor?

A

Refer to Figure 4-2.What is the area that represents the increase in producer surplus when the market price rises from P1 to P2 ?

A + B

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 B + C?

A deadweight loss.

Refer to Table 6-2. Which of the following statements is correct

A price ceiling set at $5 will be binding and will result in a shortage of 125 units.

Figure 6-7Refer to Figure 6-7. Which of the following statements is correct?

A price ceiling set at $6 will be binding and will result in a shortage of 8 units.

Refer to Table 6-2. Which of the following statements is correct?

A price floor set at $20 will be binding and will result in a surplus of 250 units.

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

All of the above.

Refer to Figure 4-5. What is the area that represents the producer surplus after the imposition of the ceiling?

F

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

Suppose that in a free market, 15,000 patients receive a kidney transplant. Although the organ is donated to the patients, the price of a transplant is still a hefty $250,000 to cover hospital and doctors' fees. And advocate of medical care reform argues that the government should put a maximum price of $80,000 on kidney transplants to make the surgery more affordable. Suppose patients will die without a kidney transplant. What is likely to happen if a ceiling of $80,000 is imposed, ceteris paribus? Compared to the free market outcome with no government intervention.

More patients will now die from kidney problems.

Refer to Figure 4-5. With the rent control, the quantity supplied is Q1. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get?

R1

Which of the following is the definition of producer surplus?

The difference between the lowest price a firm would have been willing to accept and the price it actually receives.

Refer to the graph below. Which is most likely to happen, were a price floor of $125 to be instituted in this market?

The government could set a quota of 18.5 million printers, to prevent overproduction.

Refer to the graph below. The graph shows the market demand for satellite TV service. If the market price is $81, which consumers receive consumer surplus in this market?

Those willing to pay more than $81.

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. Harpo, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Chico, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a shortage of oranges is to take no action at all. Which of your three advisors is most likely to have studied economics?

Zeppo

Refer to Figure 6-8. When the price ceiling applies in this market and the supply curve for gasoline shifts from S 1 to S 2,

a shortage will occur at the new market price of P 2.

Figure 6-2Panel (a)Panel (b) Refer to Figure 6-2. In panel (b), there will be

a surplus of wheat.

The imposition of a binding price ceiling on a market causes quantity demanded to be

greater than quantity supplied.

Which of the following is the definition of consumer surplus?

he difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

According to the lecture, agricultural price supports are sometimes combined with:

import restrictions, to prevent other countries from bringing the good into the home country

If the government removes a binding price ceiling from a market, then the price paid by buyers will

increase and the quantity sold in the market will increase

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply wi

increase consumer surplus.

Refer to Figure 6-8. When the price ceiling applies in this market and the supply curve for gasoline shifts from S 1 to S 2, the resulting quantity of gasoline that is bought and sold is

less than Q 3.

An economically efficient output level is achieved when

the marginal benefit of the last unit produced equals the marginal cost of producing that unit.

Refer to Figure 7-17. If 10 units of the good are produced and sold, then

the marginal cost to sellers exceeds the marginal value to buyers.

An example of a price floor is

the minimum wage.

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price floor of $250 per physical. As a result of the price floor,

the quantity demanded of physicals decreases and the quantity supplied of physicals increases.

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized.

If a price floor is not binding, then

there will be no effect on the market price or quantity sold.