Exam 5: Economic Efficiency, Government Price Setting and Taxes

In a city with rent-controlled apartments,all of the following are true except

Table 5-5 -Refer to Table 5-5.An agricultural price floor is a price that the government guarantees farmers will receive for a particular crop.Suppose the federal government sets a price floor for corn at $12 per bushel. a.What is the amount of shortage or surplus in the corn market as result of the price floor? b.If the government agrees to purchase any surplus output at $12,how much will it cost the government? c.If the government buys all of the farmers' output at the floor price,how many bushels of corn will it have to purchase and how much will it cost the government? d.Suppose the government buys up all of the farmers' output at the floor price and then sells the output to consumers at whatever price it can get.Under this scheme,what is the price at which the government will be able to sell off all of the output it had purchased from farmers? What is the revenue received from the government's sale? e.In this problem we have considered two government schemes: (1)a price floor is established and the government purchases any excess output and (2)the government buys all the farmers' output at the floor price and resells at whatever price it can get.Which scheme will taxpayers prefer? f.Consider again the two schemes.Which scheme will the farmers prefer? g.Consider again the two schemes.Which scheme will corn buyers prefer?

What is 'tax incidence'? What determines tax incidence in a competitive market?

Table 5.7 -Refer to Table 5-7.The equations above describe the demand and supply for Bubba's Fried Jellybeans.The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units.What is the value of consumer surplus?

Paul goes to Sportsmart to buy a new tennis racquet.He is willing to pay $200 for a new racquet,but buys one on sale for $125.Paul's consumer surplus from the purchase is

Lucinda buys a new GPS system for $250.She receives consumer surplus of $75 from the purchase.How much does Lucinda value her GPS system?

Table 5-4 Table 5-4 shows the demand and supply schedules for labour market in the city of Pixley. -Refer to Table 5-4.If a minimum wage of $11.50 an hour is mandated,what is the quantity of labour demanded?

What is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price,where must price ceilings and price floors be set to have an effect on the market.

In a competitive market,the demand curve shows the ________ received by consumers,and the supply curve shows the ________.

The sum of consumer surplus and producer surplus is called economic surplus.

Marginal benefit is the total benefit to a consumer from consuming one more unit of a good or service.

Table 5-3 -Refer to Table 5-3.The table above lists the marginal cost of cowboy hats by The Waco Kid,a firm that specialises in producing fancy dress costumes.If the market price of The Waco Kid's cowboy hats is $40,

Table 5-4 Table 5-4 shows the demand and supply schedules for labour market in the city of Pixley. -Refer to Table 5-4.If a minimum wage of $12.50 an hour is mandated,what is the quantity of labour supplied?

Figure 5-5 Figure 5-5 shows the market for apartments in Springfield.Recently,the government imposed a rent ceiling of $1000 per month. -Refer to Figure 5-5.Suppose that instead of a rent ceiling,the government imposed a price floor of $2000 per month for apartments.What is the value of the portion of consumer surplus transferred to producers as a result of the price floor?

Figure 5-10 -Refer to Figure 5-10.The figure above illustrates the markets for two goods,Good X and Good Y.Suppose an identical dollar tax is imposed in each market. a.Compare the consumer burden and producer burden in each market.Illustrate your answer graphically. b.If the goal of the government is to raise revenue with minimum impact to quantity consumed,in which market should the tax be imposed? c.If the goal of the government is to discourage consumption,in which market should the tax be imposed?

Consumer surplus is the difference between the highest price someone is willing to pay for a product and the price he actually pays for the product.

Table 5.7 -Refer to Table 5-7.The equations above describe the demand and supply for Bubba's Fried Jellybeans.The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units.What is the value of producer surplus?

Marginal cost is

Black markets only exist in developing nations.

Economists refer a to a market where buying and selling take place at prices that violate government price regulations as