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. As a result, consumer surplus falls by

Consumer surplus from a given purchase is the difference between what one was willing to pay for that purchase and what was actually paid.

If a market produces a level of output below the competitive equilibrium, then

The welfare loss of a tariff equals that of an import quota that leads to the same level of imports.

Explain why the competitive output maximizes welfare.

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone). If the price were $2.50, consumer surplus equals

-Suppose the market supply curve for wheat is shown in the above figure. Calculate the producer surplus when price is $2 per bushel. If legislation mandates that the price be $1 per bushel, what is the resulting loss in producer surplus?

-The above figure shows supply and demand curves for apartment units in a large city. The area "e" represents

What is one reason existing firms might lobby the government to increase regulation in their industry?

Rent seeking in the form of lobbying for an increase in import tariffs by domestic producers

Assume a consumer has a horizontal demand curve for a product. His consumer surplus from buying the product

The difference between producer surplus and profit is always the associated with

A new law applied to a competitive market that requires laid off workers be paid a large severance payment will

As the quantity produced of a good increases, the social welfare generated by that good increases.

A ban on imports, a tariff, or a quota raises the price to domestic consumers. This means that consumers will buy less of the product at a higher price. The loss associated with this is called

-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 consumer's net gain in surplus equals

In the long run, firms in a competitive market make zero economic profit. This induces most firms to leave the industry.

-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, estimate the change in p, Q, and social welfare.

Explain why a government would impose an import tariff when domestic consumers suffer more than producers gain.

-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. To maintain the price support, government expenditures must equal