econ 102
Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $11, a second lawn for $17, and a third lawn for $20. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay $33 to have her lawn mowed, Mr. Wilson would be willing to pay $29, and Ms. Smith would be willing to pay $20. If Tim offers to mow lawns for $20 each, what will be his producer surplus? Part 2
$12
Once the price of a bottle of premium bottled water rises to $2.50, the total consumer surplus received by these consumers is $enter your response here.
$2.00
Considering Mrs. Jones, Mr. Wilson, and Ms. Smith together, what will be their consumer surplus?
$22
Consider the information given in the table on four consumers in the market for premium bottled water.
$4.50
Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to market) another barrel of oil is $81.60 and the marginal benefit is $80.40. If one more barrel of oil is produced and consumed, how will economic surplus change? Part 2 Economic surplus will
. decrease by $1.20.
Suppose the figure to the right represents the market for cotton. To help reduce debt, the government decides to levy a tax on cotton of $0.60 per pound to be paid by cotton farmers. Part 2 What is the incidence of this tax? Part 3 Producers pay $0.200.20 of the $0.60 tax and consumers pay $0.400.40. (Enter your responses rounded to two decimal places.)
0.20 .40
Suppose the figure to the right represents the market for cotton. To help reduce debt, the government decides to levy a tax on cotton of $0.90 per pound to be paid by cotton farmers. Part 2 What is the incidence of this tax?
0.30 .60
Use the graph of the market for cigarettes to answer the following questions. Part 2 According to the graph, how much is the government tax on cigarettes? DEPENDS WHICH ONE
1.50 5.00 21.00
Use the graph of the market for cigarettes to answer the following questions. Part 2 According to the graph, how much is the government tax on cigarettes? $1.501.50 per pack. (Enter your response rounded to two decimal places.) Part 3 What price do producers receive after paying the tax? $4.504.50 per pack. (Enter your response rounded to two decimal places.) Part 4 How much tax revenue does the government collect? $24.0024.00 billion dollars per year. (Enter your response rounded to two decimal places.) Part 5 If the tax were collected from the buyers of cigarettes, the graph would differ from the one shown here by having
1.50 4.50 24.00 demand shift down by the tax per pack instead of supply shifting up by the tax per pack.
Suppose the market demand for ethanol is QD=60−10P and market supply of ethanol is QS=20+10P. Part 2 If the government institutes a price ceiling of $1.00, what is the effect on economic efficiency? Part 3 The price ceiling will create deadweight loss of $10.0010.00. (Enter your response rounded to two decimal places.)
10.00
The figure illustrates the market for apples in which the government has imposed a price floor of $13 per crate. Part 2 How many crates of apples will be sold after the price floor has been imposed? 1212 million crates of apples per year. (Enter your response as an integer.) Part 3 Will there be a shortage or surplus? If there is a shortage or surplus, how large will it be? Part 4 There will be a surplus of 1818 million crates of apples per year. (Enter your response as an integer.) Part 5
12 18 all of above
The figure illustrates the market for apples in which the government has imposed a price floor of $14 per crate. Part 2 How many crates of apples will be sold after the price floor has been imposed? 1616 million crates of apples per year. (Enter your response as an integer.) Part 3 Will there be a shortage or surplus? If there is a shortage or surplus, how large will it be? Will apple producers benefit from the price floor? Part 6
16 surplus 18 all of abive
The figure illustrates the market for apples in which the government has imposed a price floor of $12 per crate. Part 2 How many crates of apples will be sold after the price floor has been imposed? 1616 million crates of apples per year. (Enter your response as an integer.) Part 3 Will there be a shortage or surplus? If there is a shortage or surplus, how large will it be? Part 4 There will be a surplus of 1818 million crates of apples per year. (Enter your response as an integer.) Part 5 Will apple producers benefit from the price floor?
18 surplus 12 all of above
Suppose market demand is QD=50−5P and market supply is QS=25+5P. Part 2 The market equilibrium price is $2.502.50 and the equilibrium quantity is 37.537.5 units. (Enter your responses rounded to two decimal places.) Part 3 Suppose the government institutes a price floor of $4.00. The price floor will results in a surplus of 1515 units. (Enter your response as a whole number.)
2.50 37.5 surplus 15
The diagram to the right shows a market in which a price floor has been imposed. Identify the following (enter all values as integers). Part 2 a. The deadweight loss is $25,00025,000. Part 3 b. The transfer of consumer surplus to producers is $25,00025,000. Part 4 c. Producer surplus with this price floor is $62,50062,500. Part 5 d. Consumer surplus with this price floor is $12,50012,500.
25000 25000 62500 12500
In Allentown, Pennsylvania, in the summer of 2014, the average price of a gallon of gasoline was $3.68—a 22-cent increase from the year before. Many consumers were upset by the increase. One was quoted in a local newspaper as saying, "It's crazy. The government should step in." Source: Sam Kennedy, "Valley Feeling Pain at the Pump," (Allentown, PA) Morning Call, June 21, 2014. Part 2 Suppose the government had stepped in and imposed a price ceiling equal to old price of $3.46 per gallon. a. Using the line drawing tool, draw and label the price ceiling. Carefully follow the instructions above, and only draw the required object. Part 3 a-i. Before the price ceiling is imposed, the equilbrium price is $3.683.68, and the equilbrium quantity is 1010 thousand gallons. After the price ceiling is imposed, the equilbrium price is $3.463.46. The quantity demanded is 2020 thousand gallons and the quantity supplied is 44 thousand gallons. (Enter your responses for price to two decimal places and for quantity as whole numbers.) Part 4 a.-ii. Remembering that the quantity is measured in thousands, before the price ceiling is imposed, the consumer surplus is $1,1001,100, and the producer surplus is $1,8001,800. (Enter your responses as whole numbers.) Part 5 After the price ceiling is imposed, the consumer surplus is $1,6001,600, and the producer surplus is $280280. (Enter your responses as whole numbers.) Part 6 a.-iii. Remembering that the quantity is measured in thousands, the deadweight loss after the price ceiling is imposed is $1,0801,080. (Enter your response as a whole number.) Part 7 b. Will the consumer who was complaining about the increase in the price of gasoline definitely be made better off by the price ceiling?
3.68 10 3.46 20 4 1100 1800 1600 280 1080 maybe if the consumer can get gasolune
Consider the market for gasoline illustrated in the figure. Suppose the market is perfectly competitive and initially in equilibrium. Part 2 Now suppose the government imposes a gasoline tax of $1.00 to be paid for by producers. Part 3 Show how the tax affects the market for gasoline. Use the line drawing tool to add either a new supply or demand curve. Properly label this line. Part 4 Carefully follow the instructions above, and only draw the required object. Part 5 How much government revenue does the gasoline tax generate? $40.0040.00. (Enter your response rounded to two decimal places.) Part 6 The gasoline tax is Part 7
40.00 A. efficient in that the tax revenue is greater than the excess burden
Suppose market demand is QD=100−5P and market supply is QS=40+5P. The market equilibrium price is $6.006.00 and the equilibrium quantity is 7070 units. (Enter your responses rounded to two decimal places.) Suppose the government institutes a price floor of $6.50.
6.00 70 surplus 5
Consider the market for gasoline illustrated in the figure. Suppose the market is perfectly competitive and initially in equilibrium. Part 2 Now suppose the government imposes a gasoline tax of $2.00 to be paid for by producers. Part 3 Show how the tax affects the market for gasoline. Use the line drawing tool to add either a new supply or demand curve. Properly label this line. Part 4 Carefully follow the instructions above, and only draw the required object. Part 5 How much government revenue does the gasoline tax generate? $60.0060.00. (Enter your response rounded to two decimal places.) Part 6 The gasoline tax is Part 7 A. efficient in that the loss in consumer and producer surplus is less than the tax revenue. B. inefficient in that the tax revenue is less than the excess burden. C. inefficient in that the gain in consumer and producer surplus is less than the tax revenue. D. efficient in that the tax revenue is greater than the excess burden. Your answer is correct.
60.00 efficient in that the tax revenue is greater than the excess burden
Refer to the graph. If a city imposes a rent ceiling of $1,000, then compared with its value in competitive equilibrium, producer surplus will be reduced by
975m
In the diagram, marginal benefit is equal to marginal cost at output level Q2. This output level is considered economically efficient.
= to efficient
Consider the market for electricity illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of p2 and a quantity of Q2. Part 2 Now suppose the government applies a price ceiling of p1. Compared with the market-clearing equilibrium, consumer surplus would
A. increase by area C and decrease by area E. A. decrease by areas C and F. E. areas E and F.
When the government imposes price floors or price ceilings, which of the following occurs?
All of the above occur.
How does consumer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, consumer surplus decreases , and as the price of a good falls, consumer surplus increases .
How does producer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, producer surplus increases , and as the price of a good falls, producer surplus decreases .
With prices kept low by price controls, shouldn't consumers in Venezuela have been buying more beef, pork, and chicken, (meat) not less?
B. A price ceiling set below the equilibrium price will cause consumers to increase their quantity demanded, but the quantity of meat farmers supply decreases. Consumers can only buy the quantity of meat farmers offer for sale, so the quantity of meat they consume declines.
The graph shows the effect of a tax imposed on soft drinks. Use this graph to answer the following questions. Part 2 Which areas in the graph represent the excess burden (deadweight loss) of the tax?
B. D + G
When the government imposes price floors or price ceilings, which of the following occurs?
B. There is a loss of economic efficiency.
Refer to the graph. After the government imposes a price of $3.50 in this market, area A represents
B. the consumer surplus transferred to producers.
Which areas represent the revenues collected by the government from the tax?
B + C + E + F
In the diagram to the right, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area C and the deadweight loss is equal to areas B and D .
C b and d
Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram, deadweight loss is equal to the area(s):
C & E
In deciding between consuming more goods now or saving money, consumers should do which of the following? Part 2
Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.
Using the graph to the right, determine the effect on consumer surplus and producer surplus of a shift in the supply curve from S1 to S2. Consumer surplus increases by areas
Consumer surplus increases by areas BCD. Producer surplus changes from areas BE to areas EFG. Economic surplus changes from areas ABE to areas ABCDEFG.
Refer to the graph. When 15,000 cups of tea are produced and consumed per month, which of the following is true? A. The marginal benefit to buyers of the last cup of tea is equal to the marginal cost of producing the last cup of tea. B. The sum of consumer and producer surplus is maximized. C. The level of output is economically efficient. D. All of the above are true.
D. All of the above are true.
Economic efficiency
D. both a and b.
Using the figure to the right, fill in the table under the assumption that the rent ceiling is $1,200 (enter all values in dollars and cents)..
DO LEFT SIDE FIRST 1280 640 0 1280 160.00 480.00
Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to market) another barrel of oil is $80.40 and the marginal benefit is $80.60. If one more barrel of oil is produced and consumed, how will economic surplus change? Part 2 Economic surplus will Part 3
E. increase by $0.20.
Do producers tend to favor price floors or price ceilings? Why? Part 2 Producers favor
E. price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus.
Consumer surplus is used as a measure of a consumer's net benefit from purchasing a good or service. Explain why consumer surplus is a measure of net benefit. Part 2 Consumer surplus gives us the benefit to consumers
E. that remains after subtracting the price.
The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off.
E. both a and b.
How does the fact that consumers apparently value fairness affect the decisions that businesses make?
Firms will not raise prices in response to an increase in demand.
Using the graph to the right, explain why economic surplusLOADING... would be smaller if Q1 or Q3 were the quantity produced than if Q2 is the quantity produced. Part 2 Economic surplus at Q1 would be smaller than at Q2 because if Q1 units of output were produced, then some units for which marginal benefit is greater than marginal cost would not be produced. Part 3 Economic surplus at Q3 would be smaller than at Q2 because if Q3 units were produced, then some units for which marginal cost is greater than marginal benefit would be produced.
GREATER THAN, NOT BE GREATER THAN, BE
Suppose William has $13.20 per week to spend on cake and Sprite. The price of a slice of cake is $1.80 and the price of a can of Sprite is $2.00. Part 4 If William wants to maximize his utility,
If William wants to maximize his utility, he should buy 4 slice(s) of cake and 3 can(s) of Sprite.
Consider the market for eggs illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of 5 cents and a quantity of 50 (thousand). Part 2 I
If the price were 3 cents instead of 5 cents, then consumer surplus would increase by area C and decrease by area E. In turn, producer surplus would decrease by areas C and F. Consequently, at a price of 3 cents, deadweight loss would equal areas E and F.
Why is the demand curve referred to as a marginal benefit curve?
It shows the willingness of consumers to purchase a product at different prices.
Why is the supply curve referred to as a marginal cost curve?
It shows the willingness of firms to supply a product at different prices.
Joe has $8.00 to spend on Twinkies and Ho-Hos. Twinkies have a price of $0.50 per pack and Ho-Hos have a price of $1.00 per pack. Use the information in the graphs to determine the number of Twinkies packs and the number of Ho-Hos packs Joe should buy to maximize his
Joe should buy 44 Twinkies packs and 66 Ho-Hos packs
n a column of forbes.com, Patrick Rishe, an economist at Washington University, notes that in recent years the National Football League has significantly expanded the number of games it broadcasts. As a result, he argues: "The NFL has oversaturated the market with its product.... TV ratings, consequently, have fallen. At least in part, diminishing marginal utility is a likely explanation as to why." Source: Patrick Rishe, "2016 NFL TV Ratings Decline: Has Diminishing Marginal Utility Set In?" forbes.com, December 6, 2016. Briefly explain his reasoning.
NFL fans experience less additional satisfaction as they watch more NFL
Do the people who are legally required to pay a tax always bear the burden of the tax? Briefly explain.
No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.
Why do some consumers tend to favor price controls while others tend to oppose them?
Price ceilings generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.
What is the definition of marginal utility? The law of diminishing marginal utility suggests that Marginal utility is more useful than total utility in consumer decision making because Part 6
The change in utility from consuming an additional unit of a good or service. consumers experience diminishing additional satisfaction as they consume more of a good or service. C. optimal decisions are made at the margin.
Suppose the market demand for ethanol is QD=60−5P and market supply of ethanol is QS=20+15P. Part 2 If the government institutes a price ceiling of $1.20, what is the effect on economic efficiency?
The price ceiling will create deadweight loss of $19.20
A student makes the following argument: "When a market is in equilibrium, there is no consumer surplusLOADING.... We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good." Part 2 Briefly explain whether you agree with the student's argument.
The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed.
n an opinion column in the New York Times, economists Luigi Zingales and Guy Rolnik of the University of Chicago write, "Google has about a 90 percent market share in searches, while Facebook has a penetration of about 89 percent of Internet users. Economists have a fancy name for this phenomenon: 'network externalities.'" Source: Luigi Zingales and Guy Rolnik, "A Way to Own Your Social-Media Data," New York Times, June 30, 2017. Part 2 Briefly explain how Google and Facebook may have benefitted from network externalities.
The usefulness of their products has increased with the number of consumers who use them.
LaToya is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utilityLOADING... of the fourth bag of corn chips is 10, and the marginal utility of the fifth bottle of soda is also 10. Is LaToya maximizing utility?
This cannot be determined because we do not know the price of corn chips and soda and whether or not she fully spent her budget allocated to corn chips and soda.
Explain how a downward-sloping demand curve results from consumers adjusting their consumption choices to changes in price.
When the price of a good rises, the ratio of the marginal utility to price falls, leading consumers to buy less of that good.
A black market is Black markets may arise
a market in which buying and selling occur at prices that violate government price regulations. in reaction to binding price ceilings.
economic efficiency
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
The diagram to the right shows a market in which a price floor has been imposed. Identify the following (enter all values as integers).
a. The deadweight loss is $30000 Part 3 b. The transfer of consumer surplus to producers is $30,000 Part 4 c. Producer surplus with this price floor is $75,000 Part 5 d. Consumer surplus with this price floor is $15,000
An article in the Wall Street Journal discussed research at Ohio State University that may lead to producing carbon black—an important input in automobile tire making—out of eggshells, tomato skins, and other food waste. According to the article, this research could lead to a reduction in the cost of producing tires. Source: Daniel Akst, "Making Tire Filler from Eggshells" Wall Street Journal, March 9, 2017. Part 2 Refer to the graph at right, and the shaded areas designated by letters A through N. Assume that S0 is the initial supply curve.
a. These falling costs result in a consumer surplus in the market for tires represented by areas A, B, C, D, E, F, G, H, I. b. These falling costs result in a loss of producer surplus equal to areas D, F, G. C. There is a gain of producer surplus equal to areas K, L, M. D. The actual net change in producer surplus A. depends on the actual size of the loss and gain.
A market demand curve is derived by Part 2
adding horizontally the individual demand curves.
Economists define economic efficiency in this way
all of the above
What affects the desirability of a product? Part 2 Products become more desirable when
all of the above
Are consumers only interested in making themselves as well off as possible in a material sense? Part 2 Consumers are
also concerned with fairness as exemplified by donations to charity
On a shopping trip, Sofia decided to buy a light blue coat that had a price tag of $79.95. When she brought the coat to the store's sales clerk, Sofia was told that the coat was on sale, and she would pay 20 percent less than the price on the tag. After the discount was applied, Sofia paid $63.96, $15.99 less than the original price. Part 2 The value of Sofia's consumer surplus from this purchase is
at least $15.99 since this is the difference between the price Sofia is willing to pay for the coat and the actual price she pays, but she could have be willing to pay more than $79.95 for the coat
A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments
both a and b
Someone who will be moving to Lowell next year and who intends to rent an apartment
both a and b
re consumers made better off by the price ceiling than without it? Briefly explain.
both a and b
In the presence of shortages, why would a firm, such as a restaurant with people waiting for a table or a theater with people waiting for a ticket, not raise prices when doing so would seem to increase profits? Part 2
both a and b.
In which of the following situations are social influences on consumer decision making likely to be greater: choosing a restaurant for dinner or choosing a brand of toothpaste to buy? Part 2 Consumer decision making is likely to be more affected by social influences when
choosing a restaurant for dinner because this takes place publicly.
Consider the market for sugar illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of p2 and a quantity of Q2. Part 2 Now suppose the government applies a price floor of p3. Compared with the market-clearing equilibrium,
consumer surplus would decrease by areas B and E. In turn, producer surplus would increase by area B and decrease by area F. increase by area e and f
Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve to shift to the left (from Supply1 to Supply2). Part 2 As a result, consumer surplus. Part 3
decreases by areas B, C, and D.
If the tax were collected from the buyers of cigarettes, the graph would differ from the one shown here by having
demand shift down by the tax per pack instead of supply shifting up by the tax per pack.
A price ceiling
does not increase the amount of the product that consumers buy because it creates a shortage.
A company is developing a new advertising campaign, and it is considering using a celebrity to endorse its product. Are celebrity endorsements effective at raising consumer demand? Part 2 Celebrity endorsements are typically
effective because consumers like to feel close to celebrities.
Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to market) another barrel of oil is $80.40 and the marginal benefit is $81.80. If one more barrel of oil is produced and consumed, how will economic surplus change? Part 2 Economic surplus will
increase by $1.40.
Producer surplus LOADING...
increases by area B and decreases by areas F and G.
A budget constraint: The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by
indicates the limited amount of income available to consumers to spend on goods and services. equalizing the marginal utility per dollar spent across goods and services.
According to the law of diminishing marginal utility, as the consumption of a particular good increases, Use the information in the following table to calculate the marginal utility from consuming the second ice cream cone.
marginal utility decreases 8
A price ceiling is a legally determined market clearing minimum maximum neutral price that sellers may charge. A price floor is a legally determined maximum market clearing minimum neutral price that sellers may receive.
max min
Assume the price of CDs is $14 and the price of DVDs is $20. At those prices, Isabel consumes 12 CDs and 17 DVDs. Her marginal utility from the last CD consumed is 164 and her marginal utility from the last DVD consumed is 212. Part 2 Without changing the combined amount spent on CDs and DVDs, Isabel can
more fewer
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.
net total
Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of $5.00 per movie and to purchase 5 CDs per month at a cost of $10.00 per CD. Your marginal utilityLOADING... from the fifth movie is 50 and your marginal utility from the fifth CD is 110. Part 2 Are you maximizing utility?
not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs. Cds movies
Consider the market for natural gas, depicted in the figure to the right. Suppose a price ceiling of p1 is imposed by the government. Part 2 As a result of the price ceiling, there is a shortageshortage of natural gas. Part 3 Compared with the market-clearing equilibrium, is the price ceiling efficient? No. Part 4 What area represents the loss in efficiency in terms of consumer and producer surplus resulting from the price ceiling? Use the triangle drawing tool to shade in deadweight loss. Label this shaded area 'Deadweight Loss'. Part 5 Carefully follow the instructions above, and only draw the required object
shortage no
Which of the following products is most likely to have significant network externalitiesLOADING...?
smartphones
Consumer surplus is used as a measure of a consumer's net benefit from purchasing a good or service. Explain why consumer surplus is a measure of net benefit. Part 2 Consumer surplus gives us the benefit to consumers Part 3
that remains after subtracting the price.
Tax incidence indicates
the actual division of the burden of a tax.
Marginal benefit is
the additional benefit from consuming one more unit.
Marginal cost is
the additional cost of producing one more unit.
Consumer surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
Producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives.
What is the economic definition of utility? Part 2 Utility is
the enjoyment or satisfaction people receive from consuming goods and services. No.
In a linear demand equation, the intercept on the price axis tells us
the lowest price at which the quantity demanded will be zero.
Similarly, the intercept on the price axis in a linear supply equation gives the
the lowest price at which the quantity supplied will be zero.
A landlord who intends to abide by the rent control law
will be worse off because he will be receiving less rent.
b. Will the consumer who was complaining about the increase in the price of gasoline definitely be made better off by the price ceiling?
Maybe, if the consumer can get gasoline.
Would this tax on soft drinks be considered efficient?
Yes, because it imposes a small excess burden (deadweight loss) relative to the tax revenue it raises.
