Econ 2000 midterm
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it
deadweight loss
the fall in total surplus that results from a market distortion, such as a tax
Deadwieght loss
the fall in total surplus that results from a market distortion, such as a tax (triangle)
Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the
smaller the deadweight loss from the tax.
government should
Tax goods with NEGATIVE externalities and subsidize goods with POSITIVE externalities
Will created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?
350
Suppose Peter, Paul, and Mary are the only three consumers in the market for tambourines. Peter values a tambourine at $30, Paul values a tambourine at $20, and Mary values a tambourine highest at $40. If the price of tambourines is $35, what is their consumer surplus?
5
Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell?
50
Suppose a tax of $4 per unit is imposed on a vaping liquid, and the tax causes the equilibrium quantity of vaping liquid to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is
600
Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo?
750
price ceiling
A legal maximum on the price at which a good can be sold
price floor
A legal minimum on the price at which a good can be sold
Which of the following is an example of a positive externality?
A neighbor plants beautiful flowers in her front yard.
Inealstic Demand
A situation in which an increase or a decrease in price will not significantly affect demand for the product
elastic demand
A situation in which consumer demand is sensitive to changes in price
Elastic Supply
Exists when a small change in price causes a major change in quantity supplied. (luxury)
Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?
The effective price received by sellers is $0.40 per bottle less than it was before the tax.
Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to consumers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?
The equilibrium quantity is greater than the socially optimal quantity.
positive externality
a benefit that is enjoyed by a third-party as a result of an economic transaction
When the price ceiling is enforced in this market and the supply curve for gasoline shifts from S1 to S2 ,
a shortage will occur at the new market price of P2 .
Which of the following would cause a shortage?
binding price ceiling is imposed on a market.
When the government places a new tax on a good,
both buyers and sellers are made worse off
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of lower prices to
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
Suppose the government puts a tax on a market with inelastic demand and elastic supply, then
buyers will bear most of the burden of the tax.
total surplus
consumer surplus + producer surplus
Introducing a binding price floor into a market will
decrease consumer surplus and have ambiguous implications for producer surplus. (benefits suppliers)
Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution
encourages the firms with the lowest costs of reducing pollution to reduce the most.
inelastic supply
exists when a change in a good's price has little impact on the quantity supplied (water, gasoline, food)
Suppose that a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will
increase producer surplus.
positive externality
is a benefit to someone other than the producer and consumer of the good.
A negative externality
is a cost to a bystander.
Suppose a tax is created that the buyers of a good must pay to the government. This will raise the
price paid by buyers and lower the equilibrium quantity.
Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the
smaller is the price elasticity of supply.
social optimum quantity
the level of output where the social costs equal social benefits: the market equilibrium reached fully takes into account all the costs and benefits associated with the production and consumption of the good
tax incidence
the manner in which the burden of a tax is shared among participants in a market
The majority of economists prefer corrective taxes to command-and-control regulation as a way to correct the problem of pollution because
the market-based solution raises revenue for the government., the market-based solution is less costly to society. the market-based solution can result in a greater reduction in pollution.
WTP
willingness to pay
