ECON Ch. 4 HW

Refer to the graph to the right. When the market price of a cup of tea is​ $2.00, what is the producer surplus from selling the 40th cup of​ tea?

$0.20

Consider the market for gasoline illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium. Now suppose the government imposes a gasoline tax of $1.00 to be paid for by producers. Show how the tax affects the market for gasoline. Use the line drawing tool to add either a new supply or demand curve. Properly label this line. How much government revenue does the gasoline tax​ generate?

$40

The figure to the right illustrates the market for apples in which the government has imposed a price floor of ​$11 per crate. How many crates of apples will be sold after the price floor has been​ imposed? _____ million crates of apples per year. ​(Enter your response as an​ integer.) Will there be a shortage or​ surplus? If there is a shortage or​ surplus, how large will it​ be? There will be a _____ of _____ million crates of apples per year. ​(Enter your response as an​ integer.) Will apple producers benefit from the price​ floor?

- 14 - Surplus - 12 - Apple producers who are able to sell their apples at the ​$11 price per crate will benefit. Apple producers who are not able to sell their apples will not benefit. Total revenue for apple producers as a group will decrease from ​$162 million to ​$154 million.

A Wall Street Journal article about drought in California indicated that one result would be a smaller tomato crop. Use a demand and supply graph of the tomato market to illustrate what happens to consumer surplus and producer surplus as a result of the drought. Refer to the graph at​ right, and the shaded areas designated by letters A through N. - The impact of the drought results in a consumer surplus in the market for tomatoes represented by​ area(s) - The impact of the drought results in a loss of producer surplus equal to areas - There is a gain of producer surplus equal to​ area(s)

- A - J, F, and G - B

Using the graph to the​ right, determine the effect on consumer surplus and producer surplus of a shift in the supply curve from S1 to S2. - Consumer surplus increases by areas - Producer surplus changes from areas - Economic surplus changes from areas

- BCD - BE to areas EFG. - ABE to areas ABCDEFG.

The graph to the right shows the market demand and supply for eggs. Assume that the market for eggs is perfectly competitive. Suppose the egg producers organize themselves and establish a system of quotas. Each​ farmer's output is restricted by an amount indicated in the graph. - Compared with the​ market-clearing equilibrium, is the quota system​ efficient? - Illustrate the loss of efficiency that results from the quota system. Use the triangle drawing tool to shade in the deadweight loss. Label the shaded area​ 'Deadweight Loss'.

- No - Middle triangle of the graph, point facing sideways in areas consumer and producer surplus

- Use the point drawing tool to indicate the quantity of kidneys supplied at the legal maximum price of zero. Properly label this point. - Do you agree with the​ argument? Should the government treat kidneys like other goods and allow the market to determine​ price?

- Point at bottom of supply line - Yes. Legalizing the exchange of kidneys would increase the quantity​ supplied, benefiting those who need a kidney but are unable to obtain one due to the shortage. No. Legalizing the exchange of kidneys would hurt those who otherwise would have been supplied a kidney at no cost.

University towns are not the only places that face peak and​ non-peak "seasons." Which of the following locations may also face a large increase in demand for hotel rooms during particular times of the​ year?

- Resorts - Beach - Parks

Country Talmar produces​ 100,000 cars during a particular year. The market price of cars in Talmar is​ $5,000. In a recent meeting of the Economic​ Council, an​ economist, Carl Anderson claimed the​ nation's production of cars was inefficiently high because the industry seemed to have positive inventory every year. Another​ economist, Tara​ Henderson, felt that the production was inefficiently low because there is a huge segment of the population that does not own cars. Which, if​ true, would support​ Tara's view?

A rapid increase in​ two-earner households has increased the demand for personal modes of transport.

Over​ time, the city​ council's law may cause the supply of hotel rooms to

Decrease

A price ceiling

Does not increase the amount of the product that consumers buy because it creates a shortage.

The gasoline tax​ is:

Efficient in that the tax revenue is greater than the excess burden.

According to your​ graph, the market for hotel rooms during weekends with home football games

Experiences a shortage of rooms.

_____ surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram to the right by area _____.

Producer; A (Top middle triangle of graph)

According to an article in the New York Times​, the Venezuelan government​ "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to​ find." ​ Imposing price controls on goods would make them hard to find because

Producers would not want to supply as much as they did before the price controls.

Why would economists use the term deadweight loss to describe the impact on consumer and producer surplus from a price​ control? Deadweight loss measures the amount of surplus

That is​ lost, being transferred to​ noone, as a result of a price control.

Tax incidence is

The actual division of the burden of a tax between buyers and sellers in a market.

Refer to the graph to the right. After the government imposes a price of​ $3.50 in this​ market, area A represents

The consumer surplus transferred to producers.

Which of the following is the definition of consumer​ surplus?

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

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 to the right. After rent control is​ imposed, area A represents

The producer surplus transferred from landlords to renters.

A country that imports a substantial amount of gasoline every year imposed a​ $1.2 per gallon excise tax on​ gasoline, to be paid by sellers. The equilibrium price of gasoline prior to the tax was​ $4 per gallon. Gasoline being a necessary​ good, its demand curve is steep and the consumers had to bear the bulk of the tax burden. The​ post-tax price of gasoline went up to​ $5 per​ gallon, causing the​ country's media to claim that it was unfair that people should have to pay so high a price for such an important consumption item. They further believed that such a high tax was inefficient and could not be justified. Which inference can be drawn from this​ information?

The sellers of gasoline now receive 20 cents less than the​ pre-tax price.

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

Those willing to pay more than​ $81.

Economic surplus is the sum of consumer surplus and producer surplus.

True

We do not typically see laws limiting the prices hotels can charge during peak seasons since those prices

merely offset low prices and very high vacancy rates experienced during the off season.

Would this tax on soft drinks be considered​ efficient?

​Yes, because it imposes a small excess burden​ (deadweight loss) relative to the tax revenue it raises.

If the prices of hotel rooms are not allowed to​ increase, out-of-town football fans will

- Be less inclined to visit in the future. - Possibly engage in bribery. - Not all be able to find rooms. - Look elsewhere for lodging.

In the diagram to the​ right, illustrating a​ per-unit tax equal to P2 minus P3​, - Tax revenue is represented by the areas D and F and the excess burden of the tax is represented by areas E and G .

- D and F - E and G

The market supply and market demand curves for a magazine highlighting events and happenings for a metropolitan area are illustrated in the figure to the right. If the magazine publisher charges a weekly subscription price of ​$3.50​, what will be the resulting deadweight​ loss, if​ any?

- Deadweight loss will be $2000 (Area of triangle)

Consider the market for sugar illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of p2 and a quantity of Q2. - Now suppose the government applies a price floor of p3. Compared with the​ market-clearing equilibrium, consumer surplus would - In​ turn, producer surplus would - Consequently, with the price floor​, deadweight loss would equal

- Decrease by areas B and E - Increase by area B and decrease by area F - Areas E and F

Consider the market for eggs illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of 5 cents and a quantity of 50​ (thousand). - If the price were 7 cents instead of 5​ cents, then consumer surplus would - In​ turn, producer surplus would - ​Consequently, at a price of 7 ​cents, deadweight loss would equal

- Decrease by areas B and E - Increase by area B and decrease by area F - Areas E and F

- In the diagram to the​ right, marginal benefit _____ marginal cost at output level Q1. - This output level is considered economically _____.

- Greater than - Inefficient

Consider the market for​ corn, illustrated in the figure to the right. Suppose the government regulates a price floor of ​$11.00 per bushel to help corn farmers. What will be the effect of this price regulation on the market for​ corn? ​1.) Using the point drawing​ tool, indicate the market price and the quantity demanded with the​ government's price floor. Label this point ​'QD​'. ​2.) Using the triangle drawing tool​, indicate the deadweight loss created by the​ government's price floor relative to the competitive equilibrium. Label this​ 'DWL'.

- QD point at top point of triangle - Deadweight loss sideways triangle

Suppose the figure to the right represents a local cattle market. What would be the effect on this market of the local government regulating a price ceiling of ​$0.80 per​ pound? The market would have a _____ of nothing _____ thousand pounds.

- Shortage - 40

Consider the market for natural gas​, depicted in the figure to the right. Suppose a price ceiling of p1 is imposed by the government. As a result of the price ceiling​, there is a _____of natural gas. Compared with the​ market-clearing equilibrium, is the price ceiling efficient? What area represents the loss in efficiency in terms of consumer and producer surplus resulting from the price ceiling​?

- Shortage - No - Shade deadweight loss

Are consumers made better off by the price ceiling than without​ it? Briefly explain.

- The consumers who would like to buy gasoline but are unable to are worse off. - The consumers who are able to buy gasoline are better off because they pay a lower price.

Related to Solved Problem ​#4​] Suppose the federal government decides to levy a sales tax on pizza of ​$3.00 per pie. A representative of the pizza industry makes the following​ statement: "The pizza industry is very competitive. As a​ result, pizza sellers will have to pay the whole tax because they are unable to pass any of it on to customers in the form of higher prices.​ Therefore, a sales tax of ​$3.00 per pie will result in pizza sellers receiving ​$3.00 less on each pie​ sold, after paying the​ tax."Tax incidenceShow how a ​$3.00 tax on pizza to be paid by producers affects the market for​ pizza, illustrated in the figure to the right.Use the line drawing tool to draw either a new pizza supply curve or a new pizza demand curve. Properly label this line.Carefully follow the instructions​ above, and only draw the required objects.Briefly explain whether you agree with the pizza industry​ representative's statement​ (above).

Draw a line 3 spots away (from 9 to 12) from S1, name it Stax B. The representative is​ incorrect: consumers will bear the entire tax burden

A deadly hurricane caused substantial damage to corn produced in the eastern region of a small​ country, which is its main​ corn-producing belt. This resulted in acute shortage of corn in this country and the price increased. The government decided to introduce a price ceiling for corn in an attempt to prevent an abnormal price hike.​ Kyra, a student of​ economics, believed that this was not a good idea as it was likely to increase the shortage and create a huge deadweight loss. Her​ friend, Dona, however felt that the resultant deadweight loss may not be too high. - Which, if​ true, would support​ Dona's claim?

Increased incidence of diabetes is causing many people to shift from corn to soybean consumption.

A country that imports a substantial amount of gasoline every year imposed a​ $1.2 per gallon excise tax on​ gasoline, to be paid by sellers. The equilibrium price of gasoline prior to the tax was​ $4 per gallon. Gasoline being a necessary​ good, its demand curve is steep and the consumers had to bear the bulk of the tax burden. The​ post-tax price of gasoline went up to​ $5 per​ gallon, causing the​ country's media to claim that it was unfair that people should have to pay so high a price for such an important consumption item. They further believed that such a high tax was inefficient and could not be justified. Which, if​ true, could support the imposition of the tax even if it is​ inefficient?

The revenue generated from this tax is being used to develop alternative sources of energy.