Microeconomics Ch. 4
Refer to the graph to the right. When the market price of a cup of tea is $2.00, what is the producer surplus from selling the 40th cup of tea?
$0.20
_______ surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram to the right by area_______
Consumer, A
Firm A is a new producer in the market for good X, which is characterized by linear demand and supply curves. Initially, to attract customers, the firm prices its product low at $8 per unit. While the firm sells 1,000 units of the product at this price, there is a shortage in the market. This shortage can be cleared if price is increased to $10 per unit. The quantity demanded and supplied at this higher price will be 1,500 units. Dan Taylor, the firm's financial head, thinks that consumer surplus will certainly decline if the price is increased to $10 because consumers prefer to pay lower prices. Which of the following is a flaw in Dan's reasoning?
He is not accounting for the new consumers who will benefit from being able to consume the product.
A price ceiling is a legally determined______ price that sellers may charge. A price floor is a legally determined_____ price that sellers may receive
Maximum, Minimum
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.
Net; total
______ surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram to the right by area_______
Producer, B
Economic surplus in a market is the sum of _____ surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _____.
consumer; producer; maximum; equilibrium
The graph at the right shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. What is the value of consumer surplus at a price of $18?
$60
The figure shows the market for beer. The government plans to impose a unit tax in this market. What is the size of the unit tax?
$7
In the diagram to the right, illustrating a per-unit tax equal to P2 minus P3, tax revenue is represented by the areas ___________ and the excess burden of the tax is represented by areas ___________ .
D and F; E and G
Uber is an app people use to arrange transportation with drivers who use their own cars for this purpose. Customers pay for their rides with the smartphone app. Uber's prices fluctuate with the demand for the service. This "surge pricing" can result in different prices for the same distance traveled at different times of day or days of the week. Annie Lowrey, a writer for the New York Times, explained that she paid $13 for a 10 p.m. two-mile trip in downtown Washington, D.C. on New Year's Eve. Three hours later she paid $47 for the return trip to her home. Source: Annie Lowrey, "Is Uber's Surge-Pricing an Example of High Tech Gouging?" New York Times, January 10, 2014. Did she receive negative consumer surplus on her return trip?
Her willingness to pay was no less than $47, so she did not receive negative consumer surplus from this trip.
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.
Briefly explain whether you agree with the following statement: "A lower price in a market always increases economic efficiency in that market."
I disagree, because economic efficiency declines if price falls below the market equilibrium.
Firm A is a new producer in the market for good X, which is characterized by linear demand and supply curves. Initially, to attract customers, the firm prices its product low at $8 per unit. While the firm sells 1,000 units of the product at this price, there is a shortage in the market. This shortage can be cleared if price is increased to $10 per unit. The quantity demanded and supplied at this higher price will be 1,500 units. Which of the following is most strongly supported by this information?
Producer surplus will increase if the price rises from $8 per unit to $10.
The table at the right shows the demand and supply schedules for the labor market in the city of Pixley. What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)?
W* = $10.50; Q* = 590,000
A black market is
a market in which buying and selling take place at prices that violate government price regulations.
Economic efficiency is
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.
econmic efficiency is
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.
Marginal benefit is equal to the ________ benefit a consumer receives from consuming one more unit of a good or service.
additional
As the price of a good rises, consumer surplus _________ and as the price of a good falls, consumer surplus ________
decreases, increases
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a
normative statement. The statement is concerned with what should be.
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
Tax incidence is
the actual division of the burden of a tax between buyers and sellers in a market.
Marginal benefit is
the additional benefit from consuming one more unit.
Marginal cost is
the additional cost of producing one more unit
Which of the following is the definition of consumer surplus?
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
Consumer surplus is
the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays
Which of the following is the definition of producer surplus?
the difference between the lowest price a firm would have been willing to accept and the price it actually receives
Economic efficiency in a competitive market is achieved when
the marginal benefit equals the marginal cost from the last unit sold.
In a competitive market equilibrium
the marginal benefit equals the marginal cost of the last unit sold.
Economic surplus is maximized when
the marginal benefit of consumption is equal to the marginal costs of production
Deadweight loss is
the reduction in economic surplus resulting from a market not being in competitive equilibrium.
When a competitive equilibrium is achieved in a market
the total net benefit to society is maximized.
Refer to the graph to the right. The graph shows the market demand for satellite television service. If the market price is $81, which consumers receive consumer surplus in this market?
those willing to pay more than $81
