Exam 9: Applying the Competitive Model

-The above figure shows supply and demand curves for milk. In an effort to help farmers, the government passes a law that establishes a $3 per gallon price support. The loss in social welfare resulting from this price support equals

-The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, deadweight loss occurs because

What is one reason activists might lobby the government to force firms to produce more output than they normally would in a perfectly competitive market?

Producer surplus equals

Sally is shopping for textbooks at the beginning of the semester. What is one reason she might decide to not purchase a textbook?

If an economist states that not enough of a good is being produced, she usually means that

-The above figure shows the demand and supply curves in the market for milk. Currently, the market is in equilibrium. If the government imposes a $2 per gallon tax to be collected from sellers, calculate the dead weight loss associated with the tax, and explain why the dead weight loss occurs.

Which of the following is NOT a potential result of a price floor?

The total welfare associated with a market that includes a government sales tax equals

The change in total welfare from a 10% increase in price will depend only on the elasticity of demand.

If lower-income households spend a greater share of their income on cigarettes than do higher-income households, then a tax that raises the price of cigarettes will

Without restrictions, the market supply curve is horizontal at P = 5, and the inverse demand curve for taxi cab rides is P = 20 - Q in a competitive market. Subsequently, only 10 taxi cabs are allowed in the market. This results in a deadweight loss of

-What is the change in the producer surplus (PS)when the price increase from $1 to $2?

Measuring society's welfare as 2*CS + 0.5*PS

In a competitive market, the demand and supply curves are Q = 12 - P and Q = 5P, respectively. If output is fixed at Q = 11, what is the amount of the resulting deadweight loss?

Even if two competitive firms in the same market have different production technologies, they will each earn long-run zero profits. Why?

-The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, producer surplus decreases by

-The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, the loss in social welfare equals

-The above figure shows supply and demand curves for milk. In an effort to help farms, the government passes a law that establishes a $3 per gallon price support, but allows farmers to decide how much milk to produce. The government then provides a deficiency payment to guarantee that the farmers receive $3 per gallon. The welfare loss of this price support is

-The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, producer surplus