Chapter Four ECO 2023 UTSA

Rent controls:

Make tenants less mobile

Black markets may arise if:

Price ceilings exist

A legally determined minimum price that sellers must receive is known as a:

Price floor

Consider the market for gasoline illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium.

The gasoline tax is: efficient in that the tax revenue is greater than the excess burden (correct choice)

In the diagram to the​ right, marginal benefit _______ marginal cost at output level Upper Q 2. This output level is considered economically _____

is equal to; efficient

Tim mows the neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $13, a second lawn for $17, and a third lawn for $22. Also, suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay $32 to have her lawn mowed, Mr. Wilson would be willing to pay $28, and Ms. Smith would be willing to pay $22. If Tim offers to mow lawns for $22 each, what will his producer surplus be? Considering Mrs. Jones, Mr. WIlson, and Ms. Smith together, what will their consumer surplus be?

$14 $16

When the government imposes price floors or price​ ceilings,

1. Some people win. 2. Some people lose. 3. There is a loss of economic efficiency.

The diagram to the right shows a market in which a price floor has been imposed. Identify the following: The deadweight loss is $_____ The transfer of consumer surplus to producers is $______ Producer surplus with this price floor is $______ Consumer surplus with this price floor is $______

20,000 20,000 50,000 10,000

Economic efficiency is

C; 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

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 ______ and the deadweight loss is equal to areas _____

C; B and D

The difference between the highest price a consumer is willing to pay for a good or service, and the price they actually pay is called:

Consumer surplus

______ 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

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

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 & F; E & G

Suppose that the government sets a price floor for milk that is above the competitive equilibrium price. With the price floor, consumers are willing to purchase the quantity indicated where the price floor intersects the _____ curve. With the price floor, the deadweight loss is equal to the area:

Demand Under the demand curve and above the supply curve for units between the quantity with the price floor and market equilibrium quantity.

in the diagram to the right, the marginal benefit is _____ marginal cost at output level Q3. This output level is considered economically ______.

Less than Inefficient

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

If an effective minimum wage is imposed, then:

More workers will be unable to find jobs

Some people believe there should be a legally determined minimum price for farm products such as milk. A limit on the price of milk would be an example of:

Price floor

Do producers tend to favor price floors or ceilings? Why? Producers favor

Price floors, because, when binding, price floors increase price above the equilibrium and increase producer surplus

__________ is the difference between what a producer receives for a good or service and the lowest amount they would accept for that good or service.

Producer surplus

______ 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

A numerical limit on the quantity of a good that can be imported is a:

Quota

Price performs a(n) __________ function. Inputs or outputs go to the __________ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction.

Rationing, highest

Prolonged agricultural surpluses can arise if governments:

Set the price above equilibrium

Price controls that put a price ceiling on goods and services create __________.

Shortages

Consider the market for gasoline. Suppose the market is perfectly competitive and initially in equilibrium. Now, suppose the government a gasoline tax of $2.00 to be paid for by producers. Explain how the tax affects the market for gasoline. The tax will shift the ____ curve. In particular, the tax will shift the supply curve to the ____. Suppose that producers supply 30.00 gallons of gasoline. The gasoline generates $____ in government revenue. The gasoline tax is _____

Supply Left $60 Efficient in that the tax revenue is greater than the excess burden

According to this graph the existence of a minimum wage in the market for low-skilled workers results in a:

Surplus of workers

Price controls that put a price floor on goods and services create __________.

Surpluses

Consider the market for orange juice. Suppose the government begins providing orange juice producers a per-pound subsidy. What are the effects of this subsidy on the market for orange juice? The initial market equilibrium is where: The subsidy shifts the: The new market equilibrium is where:

The initial demand curve intersects the initial supply curve. Supply curve to the right. The demand curve intersects the new supply curve with the subsidy.

Briefly explain whether you agree with the following statement. "If consumer surplus in a market increases, producer surplus must decrease."

The statement is incorrect. Consumer surplus (and producer surplus) could increase by decreasing deadweight loss.

Which of the following statements about a shortage is correct?

There is no shortage of most scarce goods.

​"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.

According to this graph the existence of a minimum wage in the market for low-skilled workers results in:

An increase in wages but lower employment

Which of these graphs best describes a minimum price imposed for milk?

Graph A

For markets to generate the greatest benefit and function in the most efficient manner they must:

be perfectly competitive

Consumer and producer surplus measure the​ _____ benefit rather than the​ _____ benefit.

net; total

Prolonged shortages arise if:

prices are not allowed to rise to equilibrium

Tax incidence is

the actual division of the burden of a tax between buyers and sellers in a market.

Use the information in the following table on the market for apartments in Bay City to answer the following questions. Rent: 300, 400, 500, 600, 700, 800 Quantity Demanded: 325k, 300k, 275k, 250k, 225k, 200k Quantity Supplied: 175k, 200k, 225k, 250k, 275k, 300k In the absence of rent control, what is the equilibrium rent and the equilibrium quantity of apartments rented? Equilibrium rent is ___ and the equilibrium quantity is ____ thousand apartments. In equilibrium, will there be any renters who are unable to find an apartment to rent or any landlords who are unable to find a renter for an apartment? Suppose the government sets a ceiling on rents of $500 per month. What is the quantity of apartments demanded, and what is the quantity of apartments supplied? With the ceiling, the QD is ____ thousand apartments, and the QS is ____ thousand apartments. Assume that all landlords abide by the law. Compare the economic surplus in this market when there is no price ceiling to when there is a price ceiling. With the rent controls, the change in economic surplus is: Furthermore, economic surplus represented by the area: Assume the quantity of apartments supplied is the SAME as you determined above. But now assume that landlords ignore the law and rent this quantity of apartments for the HIGHEST rent they can get. Briefly explain what this rent will be: If landlords supply only 225k apartments and ignore the price ceiling, then they can charge rent of $___.

$600 250 thousand apartments No 275 thousand and 225 thousand Deadweight loss equal to the area under the demand curve and above the supply curve for units between the quantity with the rent controls and market equilibrium quantity. Between the equilibrium price and the price ceiling for apartments provided with the price ceiling is transferred from producers to consumers. 700

According to the graph how much domestic sugar will be supplied at the $0.12 price under free trade?

0 pounds

In the diagram to the​ right, illustrating a binding price floor at P1​, the amount of consumer surplus transferred to producers is represented by area _____ and the deadweight loss is equal to areas _____

B; C and E

Quiz Use the information on the kumquat market in the following table to answer the questions. Price (per crate): $10, 15, 20, 25, 30, 35 Quantity Demanded: 140, 130, 120, 110, 100, 90 Quantity Supplied: 40, 80, 120, 160, 200, 240 The equilibrium price is ___ and the equilibrium quantity is ____ million crates. Suppose the federal government imposes a price floor of $25 per crate and purchases any surplus kumquats from producers. Now, how much revenue will kumquat producers receive? Kumquat producers will receive ____ billion in revenue. Revenue received by kumquat producers BEFORE the price floor can be represented by: Revenue received by kumquat producers AFTER the price floor can be represented by: The amount the government spends to purchase surplus kumquats can be represented by:

Equilibrium price: $20 Equilibrium quantity: 120 million crates They will receive $4 billion in revenue The area of the rectangle with a height equal to the equilibrium price and a base equal to the quantity sold. The area of a rectangle with a height equal to the price floor and a base equal to the quantity sold. The area of a rectangle with a height equal to the price floor and a base equal to the quantity bought by the government.

In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of a:

Price ceiling

The sugar quota in the United States creates winners and losers. The winners are __________ and the losers are __________.

US sugar producers, US sugar consumers

A black market is....

a market in which buying and selling take place at prices that violate government price regulations.

Consider the market for gasoline illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium. Now suppose the government imposes a gasoline tax of $0.75 to be paid for by producers. The effect of this tax is illustrated in the figure to the right. Who bears the burden of the tax? Consumers pay $____ of the $.75 tax. Producers pay $___ of the tax.

$0.50 and $0.25

If Damarius is willing to pay $100 for his economics textbook but instead only has to pay $80, his consumer surplus is:

$20

Which of the following terms corresponds to a market where buying and selling take place at prices that violate government price regulations?

Black Market

Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram to the​ right, deadweight loss is equal to the​ area(s):

C & E