ECON Chap. 4

According to By the Numbers at the beginning of this chapter, how much would you earn in one year if you worked 2,000 hours (50 weeks × 40 hours) at the federal minimum wage?

$14,500

Consider the market shown in the figure below. Producer surplus is equal to:

$30,000.

Consider the market shown in the figure below. Consumer surplus is equal to:

$45,000.

Over the past few years, several U.S. states have either legalized recreational marijuana or at least decriminalized its use. Proponents argue that legalizing the use of marijuana would help the economy by boosting economic activity and reducing costs. Do you agree?

Yes, legalizing marijuana will move money from the underground economy and boost economic activity thereby maximizing consumer and producer surplus.

Consider the market shown in the figure below. Now assume that government puts a price floor on this product at $20 a unit. What will be the value of consumer surplus after the price floor is imposed?

$20,000

An effective price ceiling is:

set below equilibrium.

Luigi's is the only pizzeria in a small town in northern Alaska. It is constantly busy, but there is never a waiting time for a table. One of Luigi's friends suggests that he would earn much more money if he raises his menu prices by 25%, because no one is likely to open a new pizzeria in the near future. If Luigi follows his friend's advice, what would happen to consumer and producer surplus and efficiency in this market?

Consumers will lose consumer surplus and producers will gain more producer surplus.

All of the following are activities that generate external benefits EXCEPT:

Low-income apartments are built beside an affluent neighborhood.

According to By the Numbers at the beginning of this chapter, which state has the highest average in-state tuition and which state has the lowest average in-state tuition?

New Hampshire and Wyoming

The U.S. Department of Labor reports that of the roughly 150 million people employed, just over half are paid hourly, but less than 5% earn the minimum wage or less; 95% of wage earners earn more. And of those earning the minimum wage or less, 25% are teenagers living at home. All of the following are reasons why minimum wage remains an important issue EXCEPT:

People don't care about the minimum wage because it only affects teenagers and individuals not willing to increase their skill set.

Why can deadweight loss occur when a price is below the equilibrium even when some consumers benefit from it?

When a shortage occurs, some consumers are fortunate enough to benefit from a lower price if they purchase the good or service before the price increase occurs.

Which of the following describes what happens to consumer surplus when a new technology reduces the cost of production?

Consumer surplus increases.

Which of the following is an accurate description of how consumer surplus is measured?

Consumer surplus is the difference between the equilibrium price and the highest price of the good or service.

If a price floor is reduced toward equilibrium but not below it, do the surplus and deadweight loss in this market increase or decrease?

A decrease in the price floor will decrease the surplus of the good or service.

Over the past decade, many American candy companies, including Hershey Company, Brach's Confections, and Ferrara Pan Candy, opened factories in Mexico and Canada to produce candy that is then shipped back to the United States for sale. Although lower wages in Mexico might explain part of this move, wages in Canada are comparable to U.S. wages. How do U.S. price supports (price floors) in the sugar industry encourage these moves?

A price support will shift the supply curve to the left and raise the price of the input used to produce candy in the United States.

. In 2015, Governor Cuomo of New York approved a measure to raise the minimum wage for all fast-food workers to $15 per hour by 2018. Proponents argue that this policy helps the working poor who hold full-time jobs yet are not able to pull their families out of poverty. Meanwhile, opponents argue that the policy would cause harm in the labor market. Which of the following would support the decision?

An increase to $15 per hour will push an individual above the poverty threshold and assist individuals while providing external benefits to society.

An increasing number of charities have turned to online auctions as a way to raise money by selling unique experiences donated by celebrities (such as a meet-and-greet with a celebrity before a concert or a walk-on role on a television show). Why would the use of auctions lead to a better outcome for the charity as opposed to just setting a fixed price?

Consumers establish the prices they are willing to pay at auctions and the price they are willing to pay may be higher than the fixed price.

Examine the graph below. Suppose the government imposed a price ceiling of $6 per gallon. Would the price ceiling be effective?

No, a price ceiling is only effective if it is set below the equilibrium price.

In cities around the country, the government provides assistance to families with low incomes to rent apartments at prices capped by the U.S. Department of Housing and Urban Development (HUD), essentially setting a price ceiling on apartments. These designated apartments tend to rent quickly, and tenants are less likely to move once they find an apartment. How are incentives by landlords affected in terms of maintaining rent controlled and non-rent-controlled apartments?

Rent controls will cause a shortage of apartments and drive the prices of non-rent controlled apartments up.

Academic studies suggest that the amount people tip at restaurants is only slightly related to the quality of service, and that tips are poor measures of how happy people are with their service. Is this an example of market failure?

Yes, this could be considered a form of market failure. If consumers and markets were rational, tips would be based on the quality of service.