Exam 8: Welfare Economics and the Gains From Trade

The accompanying diagram shows an Edgeworth box economy. The initial endowment is point O. At current relative prices, Augie chooses point X and Bev chooses point Y -Refer to Edgeworth Box Economy.Based on the situation shown in the diagram,we can conclude that

The accompanying diagram shows an Edgeworth box economy. The initial endowment is point O. At current relative prices, Augie chooses point X and Bev chooses point Y -Refer to Edgeworth Box Economy.In an Edgeworth box,points within the region of mutual advantage represent allocations that

Price Ceiling The following questions refer to the accompanying diagram shows the effects of a price ceiling. The initial price and quantity are P0 and Q0, respectively, and the price ceiling is imposed at the price P1. Assume that none of the potential deadweight loss can be avoided. -Refer to Price Ceiling.After the price ceiling is imposed,consumers' surplus is equal to

If the marginal value of a third soda is $1.50 to Jackie,then

A normative criteria is a way of balancing benefits against costs.

Sales Tax The following questions refer to the accompanying diagram shows the effects of a sales tax imposed on consumers. The initial price and quantity are P0 and Q0, respectively. After the tax is imposed, the equilibrium quantity is Q1, firms receive the price Ps, and consumers pay the price Pd. -Refer to Sales Tax.Area C + D + F + G

The accompanying diagram shows an Edgeworth box economy. The initial endowment is point O. At current relative prices, Augie chooses point X and Bev chooses point Y -Refer to Edgeworth Box Economy.In an Edgeworth box,a point where two indifference curves are tangent represents

Sales Tax The following questions refer to the accompanying diagram shows the effects of a sales tax imposed on consumers. The initial price and quantity are P0 and Q0, respectively. After the tax is imposed, the equilibrium quantity is Q1, firms receive the price Ps, and consumers pay the price Pd. -Refer to Sales Tax.Prior to the sales tax,which of the following was false?

The efficiency criterion is normative in nature.

Even if total surplus is maximized,there is still a chance that there will be a deadweight loss.

Sales Tax The following questions refer to the accompanying diagram shows the effects of a sales tax imposed on consumers. The initial price and quantity are P0 and Q0, respectively. After the tax is imposed, the equilibrium quantity is Q1, firms receive the price Ps, and consumers pay the price Pd. -Refer to Sales Tax.After the tax is imposed,the deadweight loss is equal to

The gains from international trade are greatest when a country's autarkic relative prices are similar to the world relative prices.

According to the efficiency criterion,when a policy creates both winners and losers,it will be preferred to the status quo as long as the winners' gains outweigh the losers' losses.

The following questions refer to the accompanying diagram shows the effects of an excise subsidy given to firms. The initial price and quantity are P0 and Q0, respectively. After the subsidy is granted, the equilibrium quantity is Q1, firms receive the price Ps, and consumers pay the price Pd. -Refer to Excise Subsidy.The amount of the subsidy paid to firms is given by

The price of a good accurately reflects the total value it creates for society.

An explanation for how the price of water can be less than the price of diamonds,even though water is more valuable,is that

Social or welfare care is consumer surplus minus producer surplus.

Tax Problem. Consider a perfectly competitive market were demand is Q = 100 - P and Supply is Q = P - 10. -Refer to Tax Problem.In the absence of any government intervention (e.g.taxes or price controls),the market equilibrium is

Sales Tax The following questions refer to the accompanying diagram shows the effects of a sales tax imposed on consumers. The initial price and quantity are P0 and Q0, respectively. After the tax is imposed, the equilibrium quantity is Q1, firms receive the price Ps, and consumers pay the price Pd. -Refer to Sales Tax.After the tax is imposed,consumers' surplus is equal to

Which of the following normative criteria rejects a policy whenever there exists an alternative policy that could unanimously defeat it?