ECON 2023 Market Efficiency
Referring to the graph, what is the value of the economic surplus generated in this market?
$27,000
Refer to the graph to calculate the amount of producer surplus generated in the market after the imposition of the $3 tax. Producer surplus is $
100
Refer to the graph to calculate the amount of consumer surplus generated in the market after the imposition of the $3 tax. Consumer surplus is $
200
According to the graph, if a $3 tax is imposed in the market, what percentage of this $3 tax is borne by the producers?
33.3%
You paid $25 for a concert ticket and received a consumer surplus of $10. You were willing to pay $
35
Suppose the government imposes a tax on suppliers of energy drinks equal to $1 per can. Before the tax, 10,000 cans were sold. After the tax, 8,000 cans are sold. The tax revenue is equal to $
8000
At equilibrium, economic surplus is represented by the area
A + B + C + D + E + F
___ efficiency means producing the level of output at which the marginal benefit of the last unit is equal to the marginal cost of that unit.
Allocative
If a binding price floor of P4 is imposed on the market for tomatoes, which of the following areas represents producer surplus?
Area B + C + D
According to the graph, if a binding price ceiling of $40 was imposed in this market, which area would represent the deadweight loss?
Area E + Area F
___ surplus can be thought of as the wealth that trade creates for consumers in a market.
Consumer
___ surplus will always be less with a binding price floor than without.
Consumer
Suppose the price of sunglasses falls to $40. What would happen to consumer surplus?
Consumer surplus would increase.
___ loss is the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.
Deadweight
________ is a branch of economics that focuses on measuring the well-being of market participants and how changes in the market affect their well-being.
Welfare economics
welfare economics
a branch of economics that focuses on measuring the welfare of market participants and how changes in the market change their well-being
price ceiling
a maximum legal price at which a good, service, or resource can be sold
A price floor is:
a minimum legal price at which a good a service or a resource can be sold.
excise tax
a tax based on the number of units purchased, not the price paid for a good or service.
Graphically producer surplus is the area ___ the supply curve and ____ the market price from zero to the quantity traded.
above; below
When the marginal benefit of the last unit equals the marginal cost of the last unit, production is ____ efficient.
allocative
When there is ___ efficiency, the ideal combination of production is based on consumer preferences.
allocative
___ efficiency refers to producing the goods people want most.
allocative
Graphically consumer surplus is the area ___ the demand curve and ___ the equilibrium price from zero to the quantity traded.
below; above
Graphically consumer surplus is the area ____ the demand curve and ____ the equilibrium price.
below; above
The market is allocatively efficient and is maximizing economic surplus in market equilibrium where marginal ___ equals marginal ___
benefit; cost
When calculating consumer surplus for an entire market:
calculate the area below the demand curve and above the equilibrium price from zero to the quantity traded.
Consumer surplus:
can increase or decrease as a result of a price ceiling.
A maximum legal price at which a good, a service, or a resource can be sold is a price
ceiling
Consumers may gain a little but society as a whole will be worse off with a price ___ because of the deadweight losses.
ceiling
When a tax is imposed on market participants the result will most likely be tax revenue for the government and a ___ loss for the market.
deadweight
Marginal benefit is measured by ___ the curve.
demand
Producer surplus is the:
difference between the price producers receive for a good or service and the minimum price they are willing and able to accept
To estimate how efficient a tax is at raising revenue ___ the deadweight loss by the total tax revenue generated.
divide
Producer surplus is measured in
dollars
The value of the ___ surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is the deadweight loss.
economic
If the rectangular area representing the tax revenue collected by the government is large and the deadweight-loss area is small the tax is relatively ___ at raising revenue.
efficient
The production possibilities frontier (PPF) shows how much of two goods an economy can produce when it is using all available resources as ____ as possible.
efficiently
Producers may gain a little but society as a whole will be worse off with a price ___ because of the deadweight losses.
floor
Assuming supply and demand are not perfectly elastic, if an excise tax doubles, the deadweight loss increases by a factor of
four
High prices are good for producers:
if they occur naturally in a market.
Consumer surplus is measured:
in terms of price.
All else equal, as the price of a good decreases, consumer surplus
increases
A person will purchase a good or service so long as the person's:
marginal benefit is greater than the marginal cost.
if production exceeds equilibrium quantity:
more output is being produced than the amounts that consumers want at the equilibrium price.
If production occurs below the equilibrium quantity:
potentially beneficial trades are not occurring.
Allocative and productive efficiency occur when the equilibrium ____ is such that the quantity demanded equals the quantity supplied.
price
A minimum legal price at which a good a service or a resource can be sold is a
price floor
A person will purchase a good or service as long as the person's willingness to pay is greater than the:
price of the good.
All else equal ___ surplus is higher at higher prices.
producer
All else equal ____ surplus is higher at higher prices.
producer
Sam is willing to sell his used car for $3000 but Bill pays $3500 for it. Sam will receive a ____ surplus of $500.
producer
___ surplus will always be less with a binding price ceiling than without.
producer
surplus can be thought of as the wealth that trade creates for producers in a market.
producer
If you were willing to sell your used bike for $400 but someone paid you $500 for it you received:
producer surplus of $100.
With a binding price ceiling:
producers always lose
productive efficiency
producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.
Allocative efficiency means:
producing such that the marginal benefit of the last unit is equal to the marginal cost of that unit.
allocative efficiency
producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost marginal benefit of last unit = marginal cost of last unit (MB=MC)
If an economy is getting as much output as possible from its resources it must be:
producing them at the lowest possible cost.
It is more efficient to tax:
several different markets at low rates than to tax fewer markets at higher rates.
When markets are taxed at low rates it generates a ___ amount of deadweight loss in each of the markets.
small
___ welfare is not maximized if the amount of output produced is greater than the equilibrium quantity.
social
Economic surplus is also known as:
social welfare or total surplus
Producer surplus for an individual firm is calculated by ___ the minimum price at which a producer is willing to sell from the market price.
subtracting
When calculating tax revenue, calculate the area between the total price paid by ___ and the net price received by ___ from zero to the quantity traded.
supply curve to the left
A tax on suppliers shifts the:
supply curve up vertically
Graphically producer surplus is the area above ____ the curve and below the equilibrium price from ___ to the quantity traded.
supply; zero
Graphically, producer surplus is the area above the ____ curve and below the equilibrium price from ____ to the quantity traded.
supply; zero
All else equal producer ___ increases at higher prices.
surplus
All else equal producer ____ increases at higher prices.
surplus
The difference between the maximum price consumers are willing and able to pay for a good or a service and the price they actually pay is the consumer
surplus
The difference between the price producers receive for a good or a service and the minimum price they are willing and able to accept is producer
surplus
When a market is not allowed to adjust to the equilibrium price and quantity traded some economic ___ will be lost.
surplus
When marginal benefit equals marginal cost the market is allocatively efficient and is therefore maximizing economic
surplus
When a tax is imposed on market participants the result will most likely be:
tax revenue for the government and a deadweight loss for the market.
consumer surplus
the difference between the maximum price consumers are willing and able to pay for a good or service and the price they actually pay. wealth of trade creates for consumers in a market
producer surplus
the difference between the price producers receives for a good or service and the minimum price they are willing and able to accept. wealth that trade creates for producers in a market.
A price ceiling is:
the maximum legal price at which a good a service or a resource can be sold.
economic surplus
the sum of consumer surplus and producer surplus; a measure of the total welfare, or wealth, that trade creates for consumers and producers in a market. also known as social welfare or total surplus.
The revenue collected from a tax equals:
the tax times the quantity traded
Social welfare is not maximized if the amount of output produced is greater than the equilibrium quantity because:
unsold production results in a waste of resources that could have been employed to produce other goods and services more wanted by consumers.
___ economics is a branch of economics that focuses on measuring the well-being of market participants and how changes in the market affect their well-being.
welfare
Graphically consumer surplus is the area below the demand curve and above the equilibrium price from ___ to the quantity traded.
zero
Graphically consumer surplus is the area below the demand curve and above the equilibrium price from ____ to the quantity traded.
zero
Graphically producer surplus is the area above the supply curve and below the equilibrium price from ____ to the quantity traded.
zero
Fill in the blank question. Producing output at the lowest possible total cost of production per unit is ___ efficiency.
productive
Producing output at the lowest possible total cost of production per unit is efficiency.
productive
Producing output at the lowest possible total cost per unit of production is:
productive efficiency
Points that are productively efficient would be located where on the production possibilities frontier (PPF)?
On the PPF
Referring to the graph, which point(s) is/are considered allocatively efficient?
Points B & C
price floor
A legal minimum on the price at which a good can be sold
Referring to the graph, identify the consumer surplus (CS) if a binding price floor of P4P4 was imposed in the market.
CS = Area A
Referring to the graph, identify the consumer surplus (CS) and producer surplus (PS) if a binding price ceiling of $40 was imposed in the market.
CS = Areas A + B; + C PS = Area D
If you are willing and able to pay up to $40 for a new pair of jeans and you then find out that they are on sale for $30 you will receive $10 in ___ surplus if you purchase the jeans.
consumer
When calculating ____ surplus for an individual the market price is subtracted from that person's willingness to pay.
consumer
____ surplus can be thought of as the wealth that trade creates for consumers in a market.
consumer
With a binding price floor ___ always lose.
consumers
The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the ____ loss
deadweight
The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is the ___ loss.
deadweight
The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is the ____ loss
deadweight
The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the:
deadweight loss.
