ECON 101: CH 4
Consumer surplus is the difference between
the willingness to pay for a good and the amount that is paid to get it
A market has reached an efficient outcome when
total surplus is maximized
Market for used cars: Demand: Qd = 154,000 - 86 P Supply: Qs = -100 + 14 P What would be the equilibrium price for used cars?
$1,541
What is the equilibrium price in the market for public transportation? Demanded 86,000 Supplied 86,000
$1.25
Muddy's Bakery and Lilly's Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.50. Muddy's is willing to sell a cupcake for as little as $1.65; Lilly's is willing to sell a cupcake for as little as $1.75. What is the total producer surplus for the two firms?
$1.60
Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. How much is total producer surplus in this market?
$1.85
Jamal is willing to pay $85 for a new jacket that sells for $70. Eddie is willing to pay $65 for that same jacket. What is the total consumer surplus for Jamal and Eddie?
$15
In the figure above, if the government imposes a price floor on wheat at $5 and agrees to purchase any surpluses, how much will the government be forced to spend?
$15 million
What will be the amount of government expenditure required if a price floor for corn is set at $4.50 and the government agrees to purchase the amount of disequilibrium?
$202,500
Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?
$25
What would be the equilibrium price in the market for corn? Demanded 169,000 Supplied 169,000
$3.50
Market for a new hardcover book: Demand: Qd = 325 - 8 P Supply: Qs = -60 + 3 P What would be the equilibrium price for hardcover books?
$35
In the table above, at what price level does the labor market reach equilibrium? Wage Rate $6 Labor demanded 153,300,020 Labor supplied 153,300,020
$6.00
Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total surplus (i.e., producer and consumer surplus) in this market?
$7.10
Refer to the accompanying figure. At what price would there be the LEAST pressure to form a black market?
$8
Market for a new hardcover book: Demand: Qd = 325 - 8 P Supply: Qs = -60 + 3 P What would be the equilibrium quantity for hardcover books?
45
Market for used cars: Demand: Qd = 154,000 - 86 P Supply: Qs = -100 + 14 P What would be the quantity demanded if a price ceiling is set at $1,000?
68,000
What is the quantity demanded when the price floor is $0.75 in the market for public transportation?
86,000
Market for a new hardcover book: Demand: Qd = 325 - 8 P Supply: Qs = -60 + 3 P What would be the quantity supplied if a price floor is set at $50?
90
What is the incentive to create a black market when a binding price floor exists?
A black market emerges because sellers need a way to dispose of surplus product
What is the long-run consequence of a price ceiling law?
A shortage will continue to exist and will grow larger over time
What will happen in a market where a non-binding price floor is removed?
The price or quantity of the product sold on the legal market will not change
What will happen in a market where a binding price ceiling is removed?
The products sold will improve in quality and become more plentiful
What would you expect the consequences to size and quality would be for a product sold under a binding price ceiling?
Both the quality and the size of the product will decrease
How do producers who are subject to a binding price ceiling respond as the time frame shifts from the short run to the long run?
Producers are increasingly willing to substitute away from producing the good, and their elasticity of supply becomes more elastic
Which of the following would be true in a city with rent-controlled apartments?
Rents for those fortunate enough to find an apartment are lower than rents in nearby cities that lack rent controls
If the price floor for corn is set at $5.00, what amount and type of disequilibrium will be present in the market for corn? Demanded 120,000 Supplied 223,000
There will be a surplus of 103,000
In the figure above, if the government imposes a price floor on wheat at $5, what would be the amount of disequilibrium?
There will be a surplus of 3 million
What will happen in a market where a binding price floor is removed?
There will be downward pressure on the prices
If the price ceiling for corn is $2.50, what amount and type of disequilibrium would be present in the market for corn? Demanded 186,000 Supplied 125,000
There would be a shortage of 61,000
In the table above, if a minimum wage is established at $7.50, what would be the amount of disequilibrium in the labor market? Labor demanded 139,630,000 Labor supplied 159,800,000
There would be a surplus of labor of 20,170,000
Which of the following is an accurate statement about the consequence of non-binding price ceilings?
They do not change the quantity of goods bought or sold in the legal market
Why are binding price floor laws passed?
They help producers receive higher prices for products sold in the legal market
Suppose you live in a community with no price controls. What do you expect to happen if your town borders a community where there is a non-binding price floor on most products?
The price and the quantity sold in the community without a non-binding price floor will be the same as the price and quantity in the community with a non-binding price floor
Market for used cars: Demand: Qd = 154,000 - 86 P Supply: Qs = -100 + 14 P What would be the quantity supplied if a price floor is set at $100?
21,474
Market for used cars: Demand: Qd = 154,000 - 86 P Supply: Qs = -100 + 14 P What would be the quantity supplied if a price floor is set at $2,000?
27,900
Market for flat-screen TVs: Demand: Qd = 2,600 - 5 P Supply: Qs = -1,000 + 10 P What would be the equilibrium quantity for flat-screen TVs?
1,400
What happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left)?
Consumer surplus declines and producer surplus declines
What will I do differently as a seller in the black market in the long run?
I will substitute away from producing the product
Which of the following is true, holding all other things constant, when comparing regions that impose a higher minimum wage to regions that impose a lower minimum wage?
In regions with the lowest minimum wage, the price control is non-binding; in the regions with the highest minimum wage, the price control is binding
Which of the following is a correct statement about a minimum wage law?
It causes prices to rise as producers pay more for labor
Imagine you find yourself in a heat wave and your air conditioner has broken. Unable to find a new one at the store because of a price gouging law, you purchase an air conditioner on the black market. What role did the price gouging law have?
It increased the incentive of individuals to supply the good on the black market
Why does a surplus exist under a binding price floor?
It makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market
Why do shortages develop under a binding price ceiling?
It makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market
The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity supplied change?
It would decrease by 18,000 units
Let's say that you have a friend who was caught illegally buying a good on the black market. When the judge asks you to describe your friend's motivation as a buyer, which of the following would most likely be your reply?
My friend bought the good on the black market because a binding price floor made the good too expensive to purchase on the legal market and it was cheaper on the black market
Do all sellers benefit from a binding price floor?
No. A binding price floor benefits only some sellers because not all are able to sell as much as they would like in the legal market
Cs=
TB-TC
Ps=
TB-TC
If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the availability of the good over time?
The availability of the good will fall over time as both the supply and demand curves become more elastic. (The shortage of the good will rise.)
You are a senator from Kansas who wants to help farmers. You have worked to encourage the passage of a law that would impose a binding price floor on wheat. What would you expect your critics to say?
The binding price floor will cause a surplus of wheat that farmers will be unable to sell
Suppose you live in a community with no price controls. What do you expect to happen if your town borders a community where there is a binding price floor on most products?
The black market in the community with a binding price floor would be larger
In some countries, a binding price ceiling is placed on prescription medicines. What would you expect the prescription medicine market to be like in these countries?
The legal maximum price would mean that not all consumers will have access to prescription medicines
How would an economist explain a teenager's continued unemployment where there exists a minimum wage?
The minimum wage law made it such that the quantity of labor willing to work at that wage was greater than the quantity of labor demanded at that wage
Setting a price ceiling below the equilibrium price can result in
a shortage, where the quantity demanded exceeds the quantity supplied
The government has imposed a price control for many agricultural products in an effort to support farmers. In the case of price floor P2 in the accompanying figure, how much of a disequilibrium in quantity exists?
a surplus of 30,000 units
When looking at a supply and demand graph, you would find producer surplus
below market price and above the supply curve
When looking at a supply and demand graph, you would find consumer surplus
below the demand curve and above market price
If a store is able to sell a good at the market price, even though the government authorities have set the maximum price that can be charged for it, the store is selling the good in a(n)
black market for a market price that is higher
If a store is able to sell a good at the market price, even though the government authorities have set the minimum price that can be charged, the store is selling the good in a(n)
black market for a market price that is lower
When looking at a graph, the area under the demand curve and above market price is defined as
consumer surplus
Holding all else constant, when the price of a good increases
consumer surplus decreases
Holding all else constant, when the price of a good decreases
consumer surplus increases
Producer surplus is defined as the
difference between the price the seller receives and the willingness to sell it
The minimum wage law is an example of a
price floor
When the price of a good decreases and all else is held constant
producer surplus decreases
As a politician, you would be more inclined to propose an increase in the minimum wage when you believe that the new minimum wage would
remain below the equilibrium wage and be non-binding
A real-life example of a binding price ceiling is
rent control
