Quiz 4 - Chapter 4: Markets and Government

consider the accompanying supply and demand graph. a. what is the value of consumer surplus? b. what is the value of producer surplus? c. what is the value of total (also called social or economic) surplus?

a. $11.25 b. $8.75 c. $20

the graph shows the market for corn with a price ceiling of $7. fill in the blanks with the correct terms and numbers. after the price ceiling is in place, how many bushels of corn are bought or sold?

5 bushels the market is not in equilibrium after the price ceiling is imposed. rather, there is a shortage of how many units? 5.86 bushels

undrea wants to sell her motorcycle, and ryan is looking for a used motorcycle to buy. ryan takes it for a test drive. undrea knows that the clutch is going out on her motorcycle, the fuel filter is leaking, and the tires will need to be replaced soon.

if she does not disclose this information to ryan and he cannot tell from his test drive, this is an example of: asymmetric information.

according to the textbook, which state has a minimum wage that is higher than Oregon's?

washington

suppose that policy makers are concerned that the price of corn may get too low. the market for corn is depicted in the accompanying diagram. a. what type of price control would policy makers use to keep the price of corn from getting too low? b. suppose that the government implements the price control that you have selected. which of these prices would be binding?

a. a price floor b. $7

for each scenario, decide whether it results in a producer or consumer surplus. then calculate the resulting surplus. a. alice is willing to spend $30 on a pair of jeans and has a coupon for $10 off. she purchases a pair of jeans that costs $35 pre-discount. b. jeff finds steak in the supermarket priced at $16 but that he would have been willing to pay $20 for. the butcher notices the meat is near the expiration date and gives him an extra 75% off. c. nicole has a hockey puck from the 2018 winter olympic games and puts it up for sale on ebay. she will only sell the puck if the winning bid is greater than or equal to $500. after the bidding closes, the last bid stands at $501.

a. alice receives a consumer surplus. alice's surplus: $5 b. jeff receives a consumer surplus. jeff's surplus: $6 c. nicole receives a producer surplus. nicole's surplus: $1

the lease on allison's apartment will expire next month, and she wants to move closer to campus. there are two apartments that she likes. both are close to campus and in her price range. the first one is next door to a garage where local bands often practice late at night. the second one is next door to a donut shop that opens at 5 a.m. a. if she likes to stay up late and loves listening to all kinds of music, she will view the bands practicing as a(n) b. if she is a morning person and loves the smell of donuts, she will view the donut shop as a(n) c. if her roommate hates loud music, and the smell of donuts makes her sick, she will reject both apartments due to what she sees as

a. external benefit b. external benefit c. external cost

the ministry of misallocation has decreed that the production of widgets must be 2000 each month and that the production of gizmos must be 14000 each month. calculate the deadweight loss in each market caused by these restrictions. note that the scale of the quantity axis is in thousands.

deadweight loss of the widgets market: $4000 deadweight loss of the gizmos market: $0

a. sports team t-shirt b. the air we breathe c. atlantic bluefin tuna in the mediterranean sea d. a toll road in normal traffic

a. rivalrous and excludable b. nonrivalrous and nonexcludable c. rivalrous and nonexcludable d. nonrivalrous and excludable

a. producer surplus is the difference between b. producer surplus is shown graphically as the area

a. the market price and the minimum price a seller is willing to accept. b. above the supply curve and below the market price.

a. consumer surplus is equal to the difference between b. consumer surplus is shown graphically as the area

a. the maximum price a buyer is willing to pay and the market price. b. under the demand curve and above the market price.

a. the difference between what a person is willing to pay for a good and what the person actually pays b. a measure of the reduction in social welfare (total surplus) associated with an inefficient outcome c. when the government makes it illegal to charge a price above a certain threshold d. when the price of a good is forced above the equilibrium price e. the difference between the price a firm receives for a good and the actual cost of that good

a. consumer surplus b. deadweight loss c. price ceiling d. price floor e. producer surplus

a. price ceilings result in resources being allocated to activities with the highest possible value. b. price ceilings result in a reduction in mutually beneficial exchanges. c. though they may face higher prices, consumers usually see an increase in product quality when price ceilings are imposed. d. a problem with price ceilings is that they lead to surpluses. e. when price ceilings are imposed, consumers pay lower explicit prices but often face higher costs in terms of waiting in line for goods and services.

a. false b. true c. false d. false e. true

a. market failure can occur only in the presence of external costs. b. the government sometimes intervenes when market failure occurs. c. market failure occurs when a free market provides a suboptimal quantity of goods and services. d. market failure occurs when external costs or benefits are present. e. market failure occurs when external benefits but not when external costs are present. f. market failure occurs when external costs but not when external benefits are present.

a. false b. true c. true d. true e. false f. false

which of the following situations could be considered examples of price gouging? a. a deadly tornado strikes oklahoma city, destroying the homes of 50% of its population. immediately afterward the price of sleeping bags increases by 150%. b. the exchange rate between u.s. dollars and the papua new guinea kina increases sharply as the summer olympics in paris, france, approach. c. a new model of sunglasses become the hottest overnight fashion trend after several movie stars wear them to the academy awards. as a result, producers increase their price by 300%.

a. price gouging b. not price gouging c. not price gouging d. at what level would you expect prices to settle during a period of price gouging? the price would settle ABOVE the pre-gouging market price

suppose that michelle buys a cappuccino from paul's cafe and bakery for $4.75. michelle was willing to pay up to $8.75 for the cappuccino, and paul's cafe and bakery was willing to accept $2.75 for the cappuccino. based on this information, answer the following questions.

michelle's consumer surplus: $4 paul's cafe and bakery's producer surplus: $2