Econ Chapter 9
Joe's demand for spring water can be represented as p=10-Q (where p is measured in $/gallon and Q is measured in gallons). He recently discovered a spring where water can be obtained free of charge. His consumer surplus from this water is
$50
Mary purchased a stuffed animal toy for $5. After a few weeks, someone offered her $100 for the toy. Mary refused. One can conclude that Mary's consumer surplus from the toy is
at least $95
Tariffs and quotas create a loss in social welfare because
consumer surplus declines
The total welfare associated with a market that includes a government sales tax equals
consumer surplus plus producer surplus plus government tax revenue
A ban on imports, a tariff, or a quota raises the price to domestic consumers. This means that consumers will buy less
consumption distortion loss
The difference between producer surplus and profit is always the associated with
fixed costs
A firm that generates zero economic profit usually has
positive business profit
A competitive market maximizes social welfare because in a competitive market,
price equals marginal cost of the last unit produced
Assume government policy increases the demand for corn
the producer surplus of corn growers will increase
The larger the US imposed per unit import tariff on a good imported and produced in the United States,
the smaller the US consumer surplus, the larger the government revenue, and the larger the US producer surplus
In the long-run, competitive firms MUST be profit maximizers because if they do not maximize profits,
they will not survive
Producer surplus equals
total revenue minus total variable cost, profit plus fixed cost, and total revenue minus the sum of all marginal cost
If a city decides to restrict the number of pizza parlors,
total welfare will decrease, the price of pizza will increase, and pizza parlors will make higher profits
You enter a store and buy a bottle of soda. Do you usually receive consumer surplus?
yes, because you wouldn't buy the soda if your willingness to pay would be less than the price
Does a competitive long-run equilibrium require cost-minimization?
yes, if firms fail to be as efficient as their competitors, they are driven out of the market
In a perfectly competitive market the long-run demand and supply curves are Q=12-P and Q=5P respectively. Producer surplus in this market equals
10
Suppose the market supply curve is p=5Q. At a price of 10, producer surplus equals
10
In a competitive market, the demand and supply curve are Q=12-P and Q=5P, respectively. If output is fixed at Q=11, what is the amount of the resulting deadweight loss?
11.4
Without restrictions, the market supply curve is horizontal at P=5, and the inverse demand curve for taxi cab rides is P=20-Q in a competitive market. Subsequently, only 10 taxi cabs are allowed in the market. This results in a deadweight loss of
12.5
Suppose the market supply curve is p=5+Q. At a price of 10, producer surplus equals
12.50
Which of the following characterizes long-run equilibrium in perfect competition?
P=MC=ATC
If a city government enacts a maximum price on rent,
allocational problems develop, quantity demanded will increase, and quantity supplied will decrease
In economics, welfare analysis is useful to
determine who gains and who loses in a particular policy option
Assume a consumer has a horizontal demand curve for a product. His consumer surplus from buying the product
equals zero
What is one reason perfectly competitive firms wish to be ever more efficient?
individual firms can better control their costs than the price they can charge
What is one reason existing firms might lobby the government to increase regulation in their industry?
it increases entry and exit costs, thereby potentially increasing producer surplus to existing firms
If a market produces a level of output that exceeds the competitive equilibrium output, then
marginal cost will exceed price
The welfare loss from an import quota is greater than that of an equivalent tariff because
tariff revenues can be used to society's benefit
Producer surplus is equal to
the difference between price and marginal cost for all units sold
If a firm is in a perfectly competitive world but decides to charge a higher price than its competitors,
the firm's profits will be zero or negative, and the firm will fail in the long run
Deadweight loss occurs when
the maximum level of total welfare is not achieved
