Part 2

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What causes the price paid by buyers to be different than the price received by sellers?

A tax on the good

If an allocation of resources is efficient, then

All potential trades between buyers and sellers are being realized

When tariffs are imposed on imports, the loser include

Domestic consumers and foreign producers

Rent seeking is

Inefficient and increases the role of government in the market

Taxes cause deadweight losses because taxes

Reduce the sum of producer and consumer surpluses. Prevent buyers and sellers from realizing some of the gains from trade. Cause marginal buyers and sellers to leave the market, causing the quantity sold to fall

Suppose the demand curve for a good is elastic and the supply curve for the good is inelastic. If the government taxes this good,

Sellers will bear a larger share of the tax burden compared to buyers

A market in equilibrium

The price determines which buyers and sellers participate in the market. Those buyers who value the good more than the price choose to buy the good. Those sellers whose costs are less than the price choose to produce and sell the good

If the current allocation of resources in the market for hammers is inefficient, then it must be the case that

The sum of consumer surplus and producer surplus could be increased by moving to a different allocation of resources

What are the common results between import quotas and tariffs produce?

Total surplus in the domestic country falls. Producer surplus in the domestic country increases. The domestic country experiences a DWL

Trade enhances the economic well-being of a nation in the sense that

Trade results in an increase in total surplus


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