ECON CH 7A

If an individual consumer is willing to pay $11 for one unit of a good but finds he can purchase it for $7, he has a consumer surplus of

$4.

Which of the following in not true when market distortions (e.g., price ceilings, price floors, or taxes) are introduced into the market?

Equity is always improved.

A price ceiling exists when price is set

below the equilibrium value.

The value of the deadweight loss due to the price floor measures the

extent to which the costs of producing QaQc units exceed the benefits of consuming QaQc units.

After a price ceiling is imposed, the total economic surplus in the market will

fall.

After a price floor is imposed, the total economic surplus in that market will

fall.

Price ceilings always result in

fewer mutually beneficial trades taking place

Deadweight loss is

positive in markets where equilibrium is distorted by price controls or taxes

Suppose a market is in equilibrium. The area between the market price and the supply curve is

producer surplus.

The cumulative difference between the price producers actually receive and the price they are willing to produce for is

producer surplus.

The more elastic supply is, the ______ the burden of the tax borne by ______.

smaller;producers

Suppose a price floor is imposed on the market at $8. The extent of the ________ is __________ units.

surplus; 14

If the demand curve fails to capture all of the benefits of consumption, then the

the equilibrium price is inefficiently low.

If the supply curve fails to capture all of the costs of production, then the

the equilibrium price is inefficiently low.

The deadweight loss of a per unit tax would tend to be larger

the greater the fraction of family income spent on the item.

Total economic surplus is

the sum of consumer and producer surpluses.

The sum of the economic surpluses accruing to buyers and sellers is

total economics surplus.

Based on demand curve D1 and supply curve S, the dollar value of the producer surplus is

$135.

If the market is unregulated, the value of producer surplus is

$18.

The value of the deadweight loss caused by the price floor is

$18.64.

The change in total economic surplus due to the imposition of the $4 price ceiling is

$18.68.

Suppose a price ceiling is imposed at $4. The value of the producers surplus is

$2.

Suppose a price ceiling is imposed at $4. The value of the consumer surplus is

$21.34.

If the market is unregulated, the value of consumer surplus is

$24.

Based on demand curve D and supply curve S, the dollar value of the total economic surplus is

$255.

After the $1 tax on sellers is imposed, the sum of consumer surplus, producer surplus, and tax revenue is

$31.50.

In the absence of a tax, the total economic surplus in the market is

$32.

The total economic surplus after the $4 price ceiling is imposed is

$34.68.

The value to consumers of consuming the 12th unit through the 20th

$37.36.

If the market is unregulated, the value of the total economic surplus is

$42.

Based on demand curve D1 and supply curve S, the dollar value of the consumer surplus is

$472.50.

Based on demand curve D1 and supply curve S, the dollar value of the total economic surplus is

$607.50

Based on demand curve D and supply curve S, the dollar value of the producer surplus is

$75.

Suppose a tax is imposed on sellers. The distance that represents the per unit amount the tax is

EG.

Suppose a $1 per unit tax is imposed on sellers. The new equilibrium price is _________ and the new equilibrium. quantity is __________.

$9.20;7

The total dollar value of the burden of the tax on producers is equal to

(AG)*(GJ).

If the original supply and demand curves are D and S, then the efficient outcome is a price equal to the distance______ and a quantity equal to the distance______.

0A;0B

Assume that the market is initially unregulated. The efficient outcome is represented by the distances ______ for price and ______ for quantity.

0B;0Q1

After the tax is imposed, the equilibrium price is the distance

0E.

After the tax is imposed, the equilibrium quantity is the distance

0F.

Assume that the market is initially unregulated. The efficient outcome is represented by the distances ____________ for quantity and ___________ for price.

0Qa; 0Z

The value of the deadweight loss equals

1/2*(PK)*(KW)+1/2*(RK)*(KW)

When the market is unregulated, consumer surplus equals

1⁄2*(AB)*(BC).

The consumer surplus after the price ceiling is imposed equals

1⁄2*(AJ)*(JE)+JEFG.

The value of the deadweight loss equals

1⁄2*(EH)*(HC)+1⁄2*(FH)*(HC).

When the market is unregulated, consumer surplus equals

1⁄2*(YZ)*(ZW).

Suppose a $1 per unit tax is imposed on sellers. The share of the tax burden borne by consumers is

40 cents.

Suppose a $1 per unit tax is imposed on sellers. The distribution of the tax burden between consumers and producers is

40%-60%.

Suppose a $1 per unit tax is imposed on sellers. The share of the tax burden borne by producers is

60 cents.

The total economic surplus when the market is unregulated is represented by the points

ACD

The burden of the tax to producers is measured by the distance

AG.

Suppose that the market price for rent is rising rapidly and political concern is expressed for the ability of the poor to afford apartments. Which of following statements is inconsistent with the use of efficiency as the first social goal?

Allowing rents to rise only serves to line the pockets of landlords with excessive profits and ignores the needs of the poor.

In the diagram, producer surplus is represented by the points

BCF.

The burden of the tax to consumers is measured by the distance

EA.

The deadweight loss due to the price ceiling is represented by the points

FEC.

Assume that a price ceiling is imposed at point G, i.e., the price is now represented by the distance 0G. The distance ______ measures the extent of the __________.

FI; shortage

Producer surplus after the tax is imposed is represented by the area

GJK.

The total benefit of the trades that do not occur after the tax is represented by the area

IFBC.

The total costs of the trades that do not occur after the tax is represented by the area

JFBC.

Consumer surplus after the tax is imposed is represented by the area

MEI.

The extent of total economic surplus with supply and demand curves S and D is represented by the points

MKC.

Under the first come, first served pricing policy for parking at What'sAMatterU, i.e., free parking, the deadweight loss is represented by

Q1AQ4.

Assume that a price floor is imposed at point V, i.e., the price is now represented by the distance 0V. The distance ______ measures the extent of the __________.

QbQc; surplus

Which of the following is not guaranteed by the efficiency of the market equilibrium?

Rich and poor will have adequate access to the good

The administration at What'sAMatterU rejected charging a price for parking spaces on the grounds it would favor the wealthier student. Which of the following types of students does the first come, first served allocation favor?

Students with 8:00 a.m.classes.

Which of the following statements best characterizes the inefficiency induced by a price floor?

The extra cost of the last unit produced is greater than the extra benefit of the last unit consumed.

The total economic surplus when the market is unregulated is represented by the points

XYW.

In general, a tax placed on each unit a producer sells results in

a deadweight loss.

As discussed in the textbook, rent controls in New York City are an example of

a price ceiling.

As discussed in the textbook, agricultural price supports are an example of

a price floor.

A price floor exists when price is set

above the equilibrium value.

If a market is in equilibrium then

all mutually beneficial transactions between consumers and producers have taken place.

The cumulative difference between what buyers are willing to pay and the price they actually pay is

consumer surplus.

Producer surplus is the

cumulative difference between the price producers receive and price they require in order to produce.

The triangle FEC represents the

deadweight loss due to the price ceiling.

The area that results from calculating (Q2ECQ1) -(Q2FCQ1) represents the

deadweight loss of the price ceiling.

The triangle WRP measures the

deadweight loss of the price floor.

Price floors always cause

deadweight loss.

After the price ceiling is imposed, producer surplus ___________ and is represented by the points _______.

decreases;DGF

The best explanation for placing taxes on tobacco products and alcohol is because

demand for tobacco and alcohol tends to be inelastic.

Congress is concerned that the incomes of farm families are too low and fluctuate wildly. Two proposals are suggested: a price floor on agricultural goods and an income subsidy to farm families. By the criteria of ______, Congress should pass______.

efficiency; income subsidies

Suppose the administration at What'sAMatterU abandons its first come, first served (free parking) policy and now relies on a free market price solution. The outcome is __________ with price and quantity of ______.

efficient;P1andQ1

Suppose one knows two facts: the market for automobile tires experiences chronic shortages and the government sets the price of automobile tires. One can infer

government has established a price ceiling for tires.

Given the relationship between the price elasticity of demand and the deadweight loss of a per unit tax, it is best to tax items that

have few substitutes.

Compared to the first come, first served allocation scheme airlines used in the past, the voluntary comparison scheme now in place

improves efficiency for all travelers.

The reason an efficiency market outcome may not be considered a "good" outcome is

incomes of consumers are taken as given.

A first come, first served pricing policy for parking at What'sAMatterU, i.e., free parking, results in

inefficiency because quantity demanded exceeds quantity supplied.

A first come, first served allocation mechanism results in a(n)

inefficient equilibrium.

When price is set by law or regulation above the equilibrium value

it is termed a price floor.

If a per unit tax is imposed, the more elastic supply curve, the

larger the deadweight loss.

The more elastic supply is, the ______ the burden of the tax borne by ______.

larger; consumers

The more elastic demand is the ______ the burden of the tax borne by ______.

larger;consumers

Market equilibrium is considered efficient because

no more trades remain that benefit some without harming others.

A tax of $1 on each unit a producer sells will

shift supply to the left.

Price ceilings result in

shortages.

If a per unit tax is imposed, the less elastic the supply curve, the

smaller the deadweight loss.

If a per unit tax is imposed, the more inelastic demand is, the

smaller the deadweight loss.

The more elastic demand is, the ______ the burden of the tax borne by ______.

smaller; consumers

The more inelastic demand is, the ______ the burden of the tax borne by ______.

smaller; producers

Choosing efficiency as the first social goal and equity as the second means

when equity is considered, the surplus available is as large as possible.