Microeconomics Chap 4

Price ceiling

A legally determined maximum price that sellers may charge.

Price floor

A legally determined minimum price that sellers may receive.

Do producers tend to favor price floors or price​ ceilings? ​ Why? Producers favor A. price floors​ because, when​ binding, price floors increase price above the equilibrium and decrease deadweight loss. B. price floors​ because, when​ binding, price floors increase price above the equilibrium and may increase producer surplus. C. price floors​ because, when​ non-binding, price floors increase price above the equilibrium and may increase producer surplus. D. price ceilings​ because, when​ binding, price ceilings increase price above the equilibrium and may increase producer surplus. E. price floors​ because, when​ binding, price floors decrease price below the equilibrium and increase producer surplus.

B. price floors​ because, when​ binding, price floors increase price above the equilibrium and may increase producer surplus.

The gasoline tax is A. efficient in that the loss in consumer and producer surplus is less than the tax revenue. B. inefficient in that the tax revenue is less than the excess burden. C. efficient in that the tax revenue is greater than the excess burden. D. inefficient in that the gain in consumer and producer surplus is less than the tax revenue.

C. efficient in that the tax revenue is greater than the excess burden.

Consumer surplus

Consumer surplusThe difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Why do some consumers tend to favor price controls while others tend to oppose​ them? A. Price floors generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. B. Price ceilings generate surpluses.​ Consequently, consumers who obtain the product at a lower price​ win, but consumers who obtain the product at a higher price lose. C. Price ceilings generate shortages.​ Consequently, consumers surplus​ increases, but producer surplus decreases. D. Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. E. None of the above.

D. Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.

Briefly explain whether you agree with the following​ statement: ​"If at the current quantity marginal benefit is greater than marginal cost​, there will be deadweight loss in the market. ​ However, there is no deadweight loss when marginal cost is greater than marginal​ benefit." A. The statement is incorrect. If marginal benefit is greater than marginal​ cost, there will be no deadweight loss. ​ However, there is deadweight loss when marginal cost is greater than marginal benefit. B. The statement is correct. C. The statement is incorrect. There is always deadweight loss. D. The statement is incorrect. If marginal cost is greater than marginal benefit​ (just as when marginal benefit is greater than marginal​ cost), there will be deadweight loss. E. The statement is incorrect. There will only be deadweight loss when marginal cost equals marginal benefit.

D. The statement is incorrect. If marginal cost is greater than marginal benefit​ (just as when marginal benefit is greater than marginal​ cost), there will be deadweight loss.

Deadweight loss

Deadweight loss The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Do the people who are legally required to pay a tax always bear the burden of the​ tax? Briefly explain.

No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government! (Tiny bit of explanation) - Those who are legally required to send the tax payment to the government may or may not bear a portion of the tax burden.

Producer surplus

Producer surplusThe difference between the lowest price a firm is willing to accept for a good or service and the price it actually receives.

Consider the market for gasoline. Suppose the market is perfectly competitive and initially in equilibrium. Now suppose the government imposes a gasoline tax of ​$2.002.00 to be paid for by producers. Explain how the tax affects the market for gasoline. Will The tax will shift the supply or demand curve?

Supply curve (to the left)

Economic surplus

The sum of consumer surplus and producer surplus.

Tax incidence indicates

the actual division of the burden of a tax.