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