ECN UNITS 8 AND 11
true or false (when there is a 30% sales tax on salt to be paid by the supplier) "The tax is borne wholly by the producers."
false
true or false for a price taking firm "The demand curve faced by the firm is downward-sloping."
false
When is rent control not binding? (rent control is a price ceiling)
When it is established above the equilibrium price (neither a shortage or surplus) (ex if it is set at $1850 so you can't charge more than $1850 but the equilibrium pice is $1800)
When is minimum wage price floor not binding?
When the price floor/minimum wage is below the equilibrium price (If it is set at 9.50 but the equilibrium is $10)
when is a price ceiling binding
when it is below the equilibrium
when is a price ceiling binding?
when it is below the equilibrium price
when can points not be long run equilibria?
when the bakeries are making a positive economic rent. It needs to be where AC=MC because if not, more firms will keep entering the market
The figure shows the demand and supply curves in the salt market. The government now decides to impose a sales tax of 30% on the price of salt, to be paid by the suppliers. Which of the following statements is correct?
"Both consumer surplus and producer surplus decrease."
The figure shows the market demand curve for bread, together with original and new supply curves, where the curve has shifted due to new bakeries entering the market. All bakeries are identical, and there are no entry costs. Which of the following statements is correct?
"New bakeries will continue to enter until the price equals their average cost."
Which of the following statements about a competitive equilibrium allocation are correct?
"No buyer's or seller's surplus can be increased without reducing someone else's surplus."
If there is a shift in the supply curve, but the number of bakeries stays constant then
"The bakeries' marginal cost of production has fallen."
The figure shows a bakery's marginal and average cost curves, and its isoprofit curves. The bakery is a price-taker in a large bread market. Suppose the current market price is P_1. Based on this information, which of the following statements is correct?
"The bakery would be minimising its loss at A." and "If the bakery is not yet in the market then it would not enter the market."
what happens if the mayor sets a price ceiling below the equilibrium?
"The consumer surplus increases but the producer surplus decreases."
The market demand curve of a particular good is downward-sloping. Based on this information, which of the following statements is correct regarding a price-taking firm producing that good?
"The firm chooses its output such that the marginal cost equals the price."
The figure shows the hat market before and after a demand shift. Based on the figure, which of the following statements is correct regarding the initial disequilibrium when the demand shifts?
"The firms become price-makers and maximise their profits."
There are five students who are looking to buy one second-hand textbook each. Their willingness-to-pay are £5, £6, £8, £12, and £15, respectively. Based on this information, which of the following statements is correct?
"To sell three books, the maximum price that can be charged is £8."
calculating consumer surplus
1/2 (base * height)
consumer surplus equation
1/2 x base x height
Why do shortages develop under a binding price ceiling?
A ceiling makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.
on a graph with different color boxes which box represents the gains from trade?
A, B, D, F (the first column of boxes)
Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:
Andy's demand for beer to increase.
what happens if the income in the economy increases?
It shifts the demand curve out and to the right
What happens to the supply curve if there is a per unit tax imposed?
It shifts up in a parallel manner. If it is percentage, then it changes the whole slope
What is it called when the supply curve meets the demand curve
Nash equilibrium
Are markets always in equilibrium?
No, but if there is no outside interference, they tend to move toward equilibrium
A bakery is one of many that operate in the bread industry. The market demand curve for bread is downward-sloping. The bakery incurs fixed costs and has an upward-sloping marginal cost curve. Which of the following statements is correct?
The bakery faces a flat demand curve."
say the equilibrium price is $2 but the mayor sets a price ceiling at $1.50 (a lower price) what happens to the surpluses
The consumer surplus increases but the producer surplus decreases. and "The total surplus is lower than at the market equilibrium." and "The fall in price could have been caused by a shift in either curve."
What happens to the price and quantity of Apple iPhones if the price of Samsung smartphones increases and Apple develops a new technology that makes its iPhone production more efficient?
The equilibrium price will be interderminate and the equilibrium quantity will go up. The supply curve increases because it's easier to produce them Increase in iPhones demand because Samsung (substitutes) phones are more expensive -no matter what the magnitude of the shift is, the quantity will go up -price will go up or down depending on the size of the shift (if its a small shift of demand, then the price will go down)
What would happen to the equilibrium price and equilibrium quantity of cotton-knit sweaters if income increases and the cost of labor to produce sweaters increases? Assume that the sweaters are considered to be a normal good.
The equilibrium price will go up and equilibrium quantity will be indeterminate.
What happens to the equilibrium price and equilibrium quantity of a good if both the producers and the consumers of that good expect its price to be higher in the future?
The equilibrium price will go up and the equilibrium quantity will be indeterminate.
When is a firm not in a competitive market?
The point they pick is not at the equilibrium
Which of the following events would increase the demand for cruise vacations?
The popularity of cruises rises after a successful marketing campaign.
If the price of milk increases, what happens to cheese? (either the supply or the demand)
The supply of cheese will fall
If the government imposes a 30% tax to be paid by the supplier what happens?
The tax causes a fall in the quantity traded
As computing software to automate tasks and calculations has become cheaper, businesses have offered these to employees. What impact would this have on the market for what these businesses sell?
The technology will lead to a rightward shift of the supply curve.
"The tax causes...
a fall in the quantity traded."
what happens when cost of production falls?
a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right.
A less elastic supply curve will lead to..
a larger producer surplus
a less elastic supply curve will lead to
a larger producer surplus
example of a price ceiling
a limit on interest rates charged by lenders
"The market marginal cost (MC) curve is...
approximately the sum of the MC curves of all the producers of the chocolate bars."
calculating producer surplus
area below the price, above the MC, and to the left of the quantity. (shaped like Nevada if the price they picked is not at the equilibrium but above it) Find the area of the rectangle(BH), and area of the triangle (.5BH)
calculating deadweight loss
area to the right of the quantity (the two triangles above and below the equilibrium)
graph where tax is introduced
as a result of the tax, consumer surplus is reduced by (1/2)(Q1+Q)(P1-P)
(1/2)(P1 - P_0)(Q* - Q1)
deadweight loss equation
Which of the following statements will always be true for a higher tax rate?
deadweight loss is higher
The government now considers different tax rates. Which of the following statements will always be true for a higher tax rate?
deadweight loss is higher, also "The tax causes a fall in the quantity traded."
goods that are subsisututes
demand for one good decreases if the price of the substitute is decreasing (you'll buy less of one good if the price of a very similar good decreases because then you'll just buy that)
goods that are complements
demand for one good will decrease if the price of the complementary good increases (you'll buy less of right shoes if the price of left shoes becomes very high)
elastic means what kind of slope
flat
Which of the following would reduce the supply of microcomputers?
higher wage rates for the workers that assemble the computers
graph with decrease of supply and demand. The change in equilibirum is caused by...
increase in the price of an input increase in the price of a complement
The change in equilibrium shown in the below graph would be explained by a(n) ________ in the price of an input and a(n) ________ in the price of a ________.
increase, increase, complement
If firms expect the price to decrease
it shifts supply out and to the right. They want to get the supply out
inelastic demand leads to
larger consumer surplus
inelastic supply leads to
larger producer surplus
What happens when price and quantity both shift
one will be indeterminate
Is the minimum wage a price floor or a price ceiling?
price floor
elasticity of demand does not effect..
producer surplus
According to a supply and demand model for yoga pants, if the average household income decreases at the same time as a major manufacturer of yoga pants goes bankrupt, one would expect the equilibrium
quantity of yoga pants in the market to decrease and the price to be indeterminate.
(Same graph as the 30% tax introduced. This time there is a price cap. It is above the equilibrium.) This is always true when determining the surpluses
relative elasticities of demand and supply
graph with outward shift of demand curve (new supply curve is hypothetical)
shortage of 4,000 units
elastic demand leads to
smaller consumer surplus
elastic supply leads to
smaller producer surplus
inelastic means what kind of slope
steep
The marginal cost is the firm's...
supply curve
a very elastic supply curve implies
the incidence of tax falls mainly on consumers
"The very elastic supply curve implies that...
the incidence of the tax falls mainly on consumers."
The more elastic the supply curve
the smaller the price rise
the more elastic the supply curve...
the smaller the price rise
A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
the supply curve
If new manufacturers enter the computer industry, then
the supply curve shifts to the right.
If new manufacturers enter the computer industry, then (ceteris paribus):
the supply curve shifts to the right.
what change in the wheat flour market would shift the supply curve to the left?
the wage for employees in the wheat farming business increases (it increases the price of your input, which shifts supply to the left)
what section is the consumer surplus
triangle below the demand curve and above the price
true or false for a price taking firm "The firm chooses its output such that the marginal cost equals the price."
true
what type of supply curve is totally inelastic?
vertical line
A likely consequence of a price ceiling on bread is
waiting lines
when is a price floor binding?
when it is above the equilibrium price
