Deck 9: The Analysis of Competitive Markets

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Question
Price ceilings can result in a net loss in consumer surplus when the ________ curve is ________.

A) demand; very elastic
B) demand; very inelastic
C) supply; very inelastic
D) None of the above; price ceilings always increase consumer surplus
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Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, consumer surplus will:</strong> A) fall by $200. B) fall by $300. C) remain the same. D) rise by $200. E) rise by $300. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, consumer surplus will:

A) fall by $200.
B) fall by $300.
C) remain the same.
D) rise by $200.
E) rise by $300.
Question
Consumer surplus measures:

A) the extra amount that a consumer must pay to obtain a marginal unit of a good or service.
B) the excess demand that consumers have when a price ceiling holds prices below their equilibrium.
C) the benefit that consumers receive from a good or service beyond what they pay.
D) gain or loss to consumers from price fixing.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:</strong> A) $5.00. B) $15.00. C) $22.50. D) $40.00. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:

A) $5.00.
B) $15.00.
C) $22.50.
D) $40.00.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:</strong> A) fall by $200. B) fall by $300. C) remain the same. D) rise by $200. E) rise by $300. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:

A) fall by $200.
B) fall by $300.
C) remain the same.
D) rise by $200.
E) rise by $300.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer surplus is:</strong> A) $30. B) $70. C) $400. D) $800. E) $1200. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer surplus is:

A) $30.
B) $70.
C) $400.
D) $800.
E) $1200.
Question
Producer surplus is measured as the:

A) area under the demand curve above market price.
B) entire area under the supply curve.
C) area under the demand curve above the supply curve.
D) area above the supply curve up to the market price.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, total consumer and producer surplus will be:</strong> A) $30. B) $400. C) $600. D) $900. E) $1200. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, total consumer and producer surplus will be:

A) $30.
B) $400.
C) $600.
D) $900.
E) $1200.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:</strong> A) $5.00. B) $10.00. C) $15.00. D) $20.00. E) $40.00. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:

A) $5.00.
B) $10.00.
C) $15.00.
D) $20.00.
E) $40.00.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, how many widgets will be sold?</strong> A) 20 B) 30 C) 40 D) 50 E) 60 <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, how many widgets will be sold?

A) 20
B) 30
C) 40
D) 50
E) 60
Question
An effective price ceiling causes a loss of:

A) producer surplus for certain and possibly consumer surplus as well.
B) consumer surplus only.
C) producer surplus only.
D) consumer surplus for certain and possibly producer surplus as well.
E) neither producer nor consumer surplus.
Question
In an unregulated, competitive market, consumer surplus exists because some:

A) sellers are willing to take a lower price than the equilibrium price.
B) consumers are willing to pay more than the equilibrium price.
C) sellers will only sell at prices above equilibrium price (or actual price).
D) consumers are willing to make purchases only if the price is below the actual price.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, the resulting deadweight loss will be:</strong> A) $0. B) $20. C) $30. D) $300. E) $600. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, the resulting deadweight loss will be:

A) $0.
B) $20.
C) $30.
D) $300.
E) $600.
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, total producer surplus is:</strong> A) $30. B) $70. C) $400. D) $800. E) $1200. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, total producer surplus is:

A) $30.
B) $70.
C) $400.
D) $800.
E) $1200.
Question
In an unregulated, competitive market producer surplus exists because some:

A) consumers are willing to pay more than the equilibrium price.
B) producers are willing to take more than the equilibrium price.
C) producers are willing to sell at less than the equilibrium price.
D) consumers are willing to purchase, but only at prices below equilibrium price.
Question
In the 1970s, the federal government imposed price controls on natural gas. Which of the following statements is true?

A) These price controls caused a chronic excess supply of natural gas.
B) Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium.
C) Producers gained from the price controls because producer surplus was larger than it would have been under free market equilibrium.
D) This episode of price controls was unusual, because it resulted in no deadweight loss to society.
Question
Deadweight loss refers to:

A) losses in consumer surplus associated with excess government regulations.
B) situations where market prices fail to capture all of the costs and benefits of a policy.
C) net losses in total surplus.
D) losses due to the policies of labor unions.
Question
When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to ________ and the quantity demanded to ________.

A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall
Question
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;</strong> A) $0. B) $100. C) $800. D) $1200. E) $2000. <div style=padding-top: 35px> Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;

A) $0.
B) $100.
C) $800.
D) $1200.
E) $2000.
Question
Producer surplus for the whole market can be thought of as:

A) total profit.
B) variable operating profit plus factor rents.
C) total profit minus factor rents earned by lower cost firms.
D) total profit plus factor rents earned by lower cost firms.
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, the producer surplus earned by the seller of the 100th unit is:</strong> A) $0.50. B) $0.75. C) $1.50. D) $2.00. E) $2.75. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, the producer surplus earned by the seller of the 100th unit is:

A) $0.50.
B) $0.75.
C) $1.50.
D) $2.00.
E) $2.75.
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 100th unit is:</strong> A) $0.50. B) $0.75. C) $1.50. D) $2.00. E) $2.75. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 100th unit is:

A) $0.50.
B) $0.75.
C) $1.50.
D) $2.00.
E) $2.75.
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, producer surplus will:</strong> A) fall by $150. B) fall by $300. C) remain the same. D) rise by $150. E) rise by $300. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, producer surplus will:

A) fall by $150.
B) fall by $300.
C) remain the same.
D) rise by $150.
E) rise by $300.
Question
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0H and quantity Q1, consumer surplus is the area:</strong> A) EDGF. B) 0FGQ<sub>1</sub>. C) HFGB. D) EFC. E) none of the above <div style=padding-top: 35px> Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0H and quantity Q1, consumer surplus is the area:

A) EDGF.
B) 0FGQ1.
C) HFGB.
D) EFC.
E) none of the above
Question
Consider the following statements when answering this question: I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers.
II) Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Question
Price ceilings:

A) cause quantity to be higher than in the market equilibrium.
B) always increase consumer surplus.
C) may decrease consumer surplus if demand is sufficiently elastic.
D) may decrease consumer surplus if demand is sufficiently inelastic.
E) always decrease consumer surplus.
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, consumer surplus will</strong> A) fall by $50. B) fall by $150. C) remain the same. D) rise by $50. E) rise by $150. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, consumer surplus will

A) fall by $50.
B) fall by $150.
C) remain the same.
D) rise by $50.
E) rise by $150.
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold?</strong> A) 200 B) 300 C) 400 D) 600 E) 800 <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold?

A) 200
B) 300
C) 400
D) 600
E) 800
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, total producer surplus is:</strong> A) $2. B) $3. C) $200. D) $400. E) $600. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, total producer surplus is:

A) $2.
B) $3.
C) $200.
D) $400.
E) $600.
Question
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0E and quantity Q*, the deadweight loss is:</strong> A) 0ACQ<sup>*</sup>. B) 0ECQ<sup>*</sup>. C) 0FCQ<sup>*</sup>. D) EFC. E) none of the above <div style=padding-top: 35px> Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0E and quantity Q*, the deadweight loss is:

A) 0ACQ*.
B) 0ECQ*.
C) 0FCQ*.
D) EFC.
E) none of the above
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer surplus is:</strong> A) $1. B) $3. C) $200. D) $400. E) $600. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer surplus is:

A) $1.
B) $3.
C) $200.
D) $400.
E) $600.
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be:</strong> A) $1.50. B) $300. C) $450. D) $500. E) $600. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be:

A) $1.50.
B) $300.
C) $450.
D) $500.
E) $600.
Question
Consider the following statements when answering this question: I. Overall, the sick will always gain from a price ceiling on prescription drugs.
II) The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Question
Consider the following statements when answering this question: I. Employers are always hurt by minimum wage laws.
II) Workers always benefit from minimum wage laws.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Question
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0E and quantity Q*, producer surplus is the area:</strong> A) 0ACQ<sup>*</sup>. B) 0ECQ<sup>*</sup>. C) 0FCQ<sup>*</sup>. D) EFC. E) none of the above <div style=padding-top: 35px> Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0E and quantity Q*, producer surplus is the area:

A) 0ACQ*.
B) 0ECQ*.
C) 0FCQ*.
D) EFC.
E) none of the above
Question
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0H and quantity Q1, producer surplus is the area:</strong> A) 0ABQ<sub>1</sub>. B) 0EDQ<sub>1</sub>. C) AHB. D) 0FGQ1. E) none of the above <div style=padding-top: 35px> Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0H and quantity Q1, producer surplus is the area:

A) 0ABQ1.
B) 0EDQ1.
C) AHB.
D) 0FGQ1.
E) none of the above
Question
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0H and quantity Q1, the deadweight loss is:</strong> A) DGC. B) BDC. C) BGC. D) 0FGQ<sub>1</sub>. E) none of the above <div style=padding-top: 35px> Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0H and quantity Q1, the deadweight loss is:

A) DGC.
B) BDC.
C) BGC.
D) 0FGQ1.
E) none of the above
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer and producer surplus is:</strong> A) $0. B) $4. C) $5. D) $600. E) $800. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer and producer surplus is:

A) $0.
B) $4.
C) $5.
D) $600.
E) $800.
Question
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0E and quantity Q<sup>*</sup>, consumer surplus is the area:</strong> A) 0FCQ<sup>*</sup>. B) AFC. C) EFC. D) AEC. E) none of the above <div style=padding-top: 35px> Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0E and quantity Q*, consumer surplus is the area:

A) 0FCQ*.
B) AFC.
C) EFC.
D) AEC.
E) none of the above
Question
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be:</strong> A) $1.50. B) $200. C) $150. D) $300. E) $600. <div style=padding-top: 35px> Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be:

A) $1.50.
B) $200.
C) $150.
D) $300.
E) $600.
Question
Suppose a competitive market is in equilibrium at price P' and quantity Q'. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?

A) Both PS and CS increase.
B) CS increases and PS decreases.
C) CS increases and PS remains the same.
D) Both CS and PS decrease.
Question
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>, area A is:</strong> A) a transfer of consumer surplus to producer surplus. B) a deadweight loss associated with the higher than equilibrium price. C) the revenue that producers lose as a result of the imposed price. D) all of the above <div style=padding-top: 35px> Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2, area A is:

A) a transfer of consumer surplus to producer surplus.
B) a deadweight loss associated with the higher than equilibrium price.
C) the revenue that producers lose as a result of the imposed price.
D) all of the above
Question
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>,</strong> A) the quantity supplied is Q<sub>2</sub> and the quantity demanded is Q<sub>3,</sub> so a surplus develops. B) the quantity supplied is Q<sub>3</sub>, which results in a deadweight loss. C) the quantity supplied remains at Q<sub>0</sub>, so only quantity demanded falls to Q<sub>3</sub>. D) the resulting surplus in the market is transferred to consumers. <div style=padding-top: 35px> Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2,

A) the quantity supplied is Q2 and the quantity demanded is Q3, so a surplus develops.
B) the quantity supplied is Q3, which results in a deadweight loss.
C) the quantity supplied remains at Q0, so only quantity demanded falls to Q3.
D) the resulting surplus in the market is transferred to consumers.
Question
In an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows:
Supply P = 4 + 0.116Q
Demand P = 25 - 0.10Q,
where P represents unit price in dollars and Q represents number of units sold each year. Calculate the annual value of aggregate consumer surplus.
Question
The market demand curve for a popular teen magazine is given by Q = 80 - 10P where P is the magazine price in dollars per issue and Q is the weekly magazine circulation in units of 10,000. If the circulation is 400,000 per week at the current price, what is the consumer surplus for a teen reader with maximum willingness to pay of $3 per issue?

A) $2.00
B) $1.00
C) Zero
D) -$1.00
Question
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>, area C in the figure is best interpreted as:</strong> A) the gain associated with the increase in price that producers receive. B) the loss in producer surplus as a result of the decrease in quantity supplied. C) a portion of the consumer surplus passed on to producers. D) the loss in surplus associated with the cost of the additional resulting production. <div style=padding-top: 35px> Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2, area C in the figure is best interpreted as:

A) the gain associated with the increase in price that producers receive.
B) the loss in producer surplus as a result of the decrease in quantity supplied.
C) a portion of the consumer surplus passed on to producers.
D) the loss in surplus associated with the cost of the additional resulting production.
Question
Under a binding price ceiling, what does the change in consumer surplus represent?

A) The gain in surplus for those buyers who can still purchase the product at the lower price.
B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
Question
The demand and supply functions for oil on the world market are given as: The demand and supply functions for oil on the world market are given as:   and   Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off?<div style=padding-top: 35px> and The demand and supply functions for oil on the world market are given as:   and   Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off?<div style=padding-top: 35px> Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off?
Question
Governments may successfully intervene in competitive markets in order to achieve economic efficiency:

A) at no time; competitive markets are always efficient without government intervention.
B) to increase the incidence of positive externalities.
C) in cases of positive externalities only.
D) in cases of negative externalities only.
E) in cases of both positive and negative externalities.
Question
Under a binding price ceiling, what does the change in producer surplus represent?

A) The gain in surplus for those sellers who are still willing to supply the product at the lower price.
B) The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price.
C) The gain in surplus associated with the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
Question
The elected officials in a west coast university town are concerned about the "exploitative" rents being charged to college students. The town council is contemplating the imposition of a $350 per month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as:
QD = 5600 - 8P QS = 500 + 4P,
where P = monthly rent, and Q = number of apartments available for rent. For purposes of this analysis, apartments can be treated as identical.
a. Calculate the equilibrium price and quantity that would prevail without the price ceiling. Calculate producer and consumer surplus at this equilibrium (sketch a diagram showing both).
b. What quantity will eventually be available if the rent ceiling is imposed? Calculate any gains or losses in consumer and/or producer surplus.
c. Does the proposed rent ceiling result in net welfare gains? Would you advise the town council to implement the policy?
Question
In an unregulated competitive market, supply and demand have been estimated as follows:
Demand P = 25 - 0.10Q Supply P = 4 + 0.116Q,
where P represents unit price in dollars, and Q represents number of units sold per year.
a. Calculate annual aggregate consumer surplus.
b. Calculate annual aggregate producer surplus.
c. Define what producer surplus means.
Question
In a competitive market, the following supply and demand equations are given:
Supply P = 5 + 0.36Q
Demand P = 100 - 0.04Q,
where P represents price per unit in dollars, and Q represents rate of sales in units per year.
a. Determine the equilibrium price and sales rate.
b. Determine the deadweight loss that would result if the government were to impose a price ceiling of 40 dollars per unit.
Question
The demand and supply functions for basic cable TV in the local market are given as: The demand and supply functions for basic cable TV in the local market are given as:   Calculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. Are all consumers better off? Are producers better off?<div style=padding-top: 35px> Calculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. Are all consumers better off? Are producers better off?
Question
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. After the minimum P<sub>2</sub> is imposed,</strong> A) some consumers are better off and all producers are worse off. B) some consumers and some producers are better off. C) no consumers are better off but some producers are better off. D) no consumers are better off and all producers are better off. <div style=padding-top: 35px> Figure 9.2.1
Refer to Figure 9.2.1 above. After the minimum P2 is imposed,

A) some consumers are better off and all producers are worse off.
B) some consumers and some producers are better off.
C) no consumers are better off but some producers are better off.
D) no consumers are better off and all producers are better off.
Question
The utilities commission in a city is currently examining pay telephone service in the city. The commission has been asked to evaluate a proposal by a city council member to place a $0.10 price ceiling on local pay phone service. The staff economist at the utilities commission estimates the demand and supply curves for pay telephone service as follows:
QD = 1600 - 2400P
QS = 200 + 3200P,
where P = price of a pay telephone call, and Q = number of pay telephone calls per month.
a. Determine the equilibrium price and quantity that will prevail without the price ceiling.
b. Analyze the quantity that will be available with the price ceiling (in the long-run).
c. The city council realizes that the telephone company could curtail pay phone service in response to the ceiling. To prevent this, the council plans to impose a requirement that the telephone company must maintain the current number of pay phones. In light of this additional restriction, what will be the likely impact of the price ceiling?
Question
Government intervention can increase total welfare when:

A) there are costs or benefits that are external to the market.
B) consumers do not have perfect information about product quality.
C) a high price makes the product unaffordable for most consumers.
D) all of the above
E) A and B only
Question
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. The result of the minimum imposed price:</strong> A) increases the number of producers and increases the number of consumers in the market. B) increases the number of producers and decreases the number of consumers in the market. C) decreases the number of producers and increases the number of consumers in the market. D) decreases the number of producers and decreases the number of consumers in the market. <div style=padding-top: 35px> Figure 9.2.1
Refer to Figure 9.2.1 above. The result of the minimum imposed price:

A) increases the number of producers and increases the number of consumers in the market.
B) increases the number of producers and decreases the number of consumers in the market.
C) decreases the number of producers and increases the number of consumers in the market.
D) decreases the number of producers and decreases the number of consumers in the market.
Question
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>, areas B + C are:</strong> A) the deadweight loss to consumers as a result of the price control. B) the deadweight loss to producers as a result of the price control. C) the deadweight loss to both producers and consumers as a result of the price control. D) gains transferred from consumers to producers. <div style=padding-top: 35px> Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2, areas B + C are:

A) the deadweight loss to consumers as a result of the price control.
B) the deadweight loss to producers as a result of the price control.
C) the deadweight loss to both producers and consumers as a result of the price control.
D) gains transferred from consumers to producers.
Question
The consumer's gain from the imposition of a price ceiling is higher when:

A) the own price elasticity of market demand is high and the price elasticity of market supply is high.
B) the own price elasticity of market demand is high and the price elasticity of market supply is low.
C) the own price elasticity of market demand is low and the price elasticity of market supply is high.
D) the own price elasticity of market demand is low and the price elasticity of market supply is low.
Question
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?</strong> A) 200 B) 300 C) 400 D) 600 E) 800 <div style=padding-top: 35px> Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?

A) 200
B) 300
C) 400
D) 600
E) 800
Question
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus will:</strong> A) fall by $50. B) fall by $100. C) remain the same. D) rise by $50. E) rise by $100. <div style=padding-top: 35px> Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus will:

A) fall by $50.
B) fall by $100.
C) remain the same.
D) rise by $50.
E) rise by $100.
Question
Suppose the market supply curve is upward sloping and market demand is perfectly inelastic. If the market price is held above the equilibrium level, which of the following statements about the resulting outcome is not true?

A) The decrease in consumer surplus is fully captured by the producers.
B) There will be an excess quantity supplied.
C) Quantity demanded will remain the same.
D) Quantity demanded will decline.
Question
<strong>  Figure 9.3.1 Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, the resulting deadweight loss will be:</strong> A) $15. B) 10 widgets. C) $1,050. D) $1,200. E) $2,400. <div style=padding-top: 35px> Figure 9.3.1
Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, the resulting deadweight loss will be:

A) $15.
B) 10 widgets.
C) $1,050.
D) $1,200.
E) $2,400.
Question
<strong>  Figure 9.3.1 Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:</strong> A) fall by $275. B) fall by $500. C) remain the same. D) rise by $275. E) rise by $500. <div style=padding-top: 35px> Figure 9.3.1
Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:

A) fall by $275.
B) fall by $500.
C) remain the same.
D) rise by $275.
E) rise by $500.
Question
<strong>  Figure 9.3.1 Refer to Figure 9.3.1. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will be:</strong> A) $15. B) 30 widgets. C) $1,050. D) $1,200. E) $1,350. <div style=padding-top: 35px> Figure 9.3.1
Refer to Figure 9.3.1. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will be:

A) $15.
B) 30 widgets.
C) $1,050.
D) $1,200.
E) $1,350.
Question
<strong>  Figure 9.3.1 Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?</strong> A) 20 B) 30 C) 40 D) 50 E) 60 <div style=padding-top: 35px> Figure 9.3.1
Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?

A) 20
B) 30
C) 40
D) 50
E) 60
Question
The market supply curve for music downloads is Q = 135(P-1) where Q is millions of downloads and P is the price in dollars per track. If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per track?

A) $5.4 million
B) $8.1 million
C) $10.8 million
D) $27 million
Question
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:</strong> A) $150. B) $300. C) $450. D) $500. E) $600. <div style=padding-top: 35px> Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:

A) $150.
B) $300.
C) $450.
D) $500.
E) $600.
Question
Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is:

A) efficient as the quantity of drugs traded is the same as under a free market.
B) efficient as the price of drugs paid by the government is the same as under a free market.
C) efficient as consumer surplus is maximized.
D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
E) likely to be inefficient as drug producers have a captive buyer.
Question
When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.
Question
Which of the following policies could lead to a deadweight loss?

A) Price ceilings
B) Price floors
C) Policies prohibiting human cloning
D) all of the above
E) A and B only
Question
A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as:

A) an imperfectly competitive market.
B) a market failure.
C) a deadweight loss.
D) a disequilibrium.
Question
<strong>  Figure 9.3.1 Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $40, consumer surplus will:</strong> A) fall by $50. B) fall by $350. C) remain the same. D) rise by $50. E) rise by $350. <div style=padding-top: 35px> Figure 9.3.1
Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $40, consumer surplus will:

A) fall by $50.
B) fall by $350.
C) remain the same.
D) rise by $50.
E) rise by $350.
Question
Use the following statements to answer this question: I. When the market price is held above the competitive price level, it is possible for the loss in consumer surplus to be fully captured by producers.
II) When the market price is held above the competitive level, there is no deadweight loss because producer gains exactly equal consumer losses.

A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
Question
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, the resulting deadweight loss will be:</strong> A) $1.50. B) 200 pounds of berries. C) $150. D) $250. E) $300. <div style=padding-top: 35px> Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, the resulting deadweight loss will be:

A) $1.50.
B) 200 pounds of berries.
C) $150.
D) $250.
E) $300.
Question
Consider the following statements when answering this question: I. Waiting lists for kidney transplants have been caused by a 1984 congressional law forbidding humans to sell their kidneys.
II) Randomly choosing citizens to serve on juries is an efficient mechanism for selecting jurors.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
Question
For national security reasons a government decides that all of its base metal industry should not be located in the same geographical region, as it presently is. The government decides to allocate production quotas to firms in different parts of the country, but does not restrict in any way the transactions between consumers and base metal producers. This scheme is:

A) efficient as consumers still buy from whoever they like.
B) efficient as those consumers who value base metals the most can purchase them.
C) likely to be inefficient as some of the industry's output is not produced by the firms with the lowest cost.
D) likely to be inefficient as the scheme will require subsidies to work.
E) efficient as learning by doing effects will be strongest in the firms set up in new geographical regions.
Question
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, consumer surplus will:</strong> A) fall by $50. B) fall by $150. C) remain the same. D) rise by $50. E) rise by $150. <div style=padding-top: 35px> Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, consumer surplus will:

A) fall by $50.
B) fall by $150.
C) remain the same.
D) rise by $50.
E) rise by $150.
Question
Which of the following is NOT true about price floors?

A) Consumer surplus is always lower than it would be in the competitive equilibrium.
B) Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium.
C) Producer surplus could be negative as the result of a price floor.
D) Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost.
E) The total producer surplus depends on how producers respond to the price floor in determining their output level.
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Deck 9: The Analysis of Competitive Markets
1
Price ceilings can result in a net loss in consumer surplus when the ________ curve is ________.

A) demand; very elastic
B) demand; very inelastic
C) supply; very inelastic
D) None of the above; price ceilings always increase consumer surplus
demand; very inelastic
2
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, consumer surplus will:</strong> A) fall by $200. B) fall by $300. C) remain the same. D) rise by $200. E) rise by $300. Figure 9.1.1
Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, consumer surplus will:

A) fall by $200.
B) fall by $300.
C) remain the same.
D) rise by $200.
E) rise by $300.
remain the same.
3
Consumer surplus measures:

A) the extra amount that a consumer must pay to obtain a marginal unit of a good or service.
B) the excess demand that consumers have when a price ceiling holds prices below their equilibrium.
C) the benefit that consumers receive from a good or service beyond what they pay.
D) gain or loss to consumers from price fixing.
the benefit that consumers receive from a good or service beyond what they pay.
4
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:</strong> A) $5.00. B) $15.00. C) $22.50. D) $40.00. Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:

A) $5.00.
B) $15.00.
C) $22.50.
D) $40.00.
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5
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:</strong> A) fall by $200. B) fall by $300. C) remain the same. D) rise by $200. E) rise by $300. Figure 9.1.1
Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:

A) fall by $200.
B) fall by $300.
C) remain the same.
D) rise by $200.
E) rise by $300.
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6
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer surplus is:</strong> A) $30. B) $70. C) $400. D) $800. E) $1200. Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer surplus is:

A) $30.
B) $70.
C) $400.
D) $800.
E) $1200.
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7
Producer surplus is measured as the:

A) area under the demand curve above market price.
B) entire area under the supply curve.
C) area under the demand curve above the supply curve.
D) area above the supply curve up to the market price.
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8
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, total consumer and producer surplus will be:</strong> A) $30. B) $400. C) $600. D) $900. E) $1200. Figure 9.1.1
Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, total consumer and producer surplus will be:

A) $30.
B) $400.
C) $600.
D) $900.
E) $1200.
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9
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:</strong> A) $5.00. B) $10.00. C) $15.00. D) $20.00. E) $40.00. Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:

A) $5.00.
B) $10.00.
C) $15.00.
D) $20.00.
E) $40.00.
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10
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, how many widgets will be sold?</strong> A) 20 B) 30 C) 40 D) 50 E) 60 Figure 9.1.1
Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, how many widgets will be sold?

A) 20
B) 30
C) 40
D) 50
E) 60
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11
An effective price ceiling causes a loss of:

A) producer surplus for certain and possibly consumer surplus as well.
B) consumer surplus only.
C) producer surplus only.
D) consumer surplus for certain and possibly producer surplus as well.
E) neither producer nor consumer surplus.
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12
In an unregulated, competitive market, consumer surplus exists because some:

A) sellers are willing to take a lower price than the equilibrium price.
B) consumers are willing to pay more than the equilibrium price.
C) sellers will only sell at prices above equilibrium price (or actual price).
D) consumers are willing to make purchases only if the price is below the actual price.
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13
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, the resulting deadweight loss will be:</strong> A) $0. B) $20. C) $30. D) $300. E) $600. Figure 9.1.1
Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, the resulting deadweight loss will be:

A) $0.
B) $20.
C) $30.
D) $300.
E) $600.
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14
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, total producer surplus is:</strong> A) $30. B) $70. C) $400. D) $800. E) $1200. Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, total producer surplus is:

A) $30.
B) $70.
C) $400.
D) $800.
E) $1200.
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15
In an unregulated, competitive market producer surplus exists because some:

A) consumers are willing to pay more than the equilibrium price.
B) producers are willing to take more than the equilibrium price.
C) producers are willing to sell at less than the equilibrium price.
D) consumers are willing to purchase, but only at prices below equilibrium price.
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16
In the 1970s, the federal government imposed price controls on natural gas. Which of the following statements is true?

A) These price controls caused a chronic excess supply of natural gas.
B) Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium.
C) Producers gained from the price controls because producer surplus was larger than it would have been under free market equilibrium.
D) This episode of price controls was unusual, because it resulted in no deadweight loss to society.
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17
Deadweight loss refers to:

A) losses in consumer surplus associated with excess government regulations.
B) situations where market prices fail to capture all of the costs and benefits of a policy.
C) net losses in total surplus.
D) losses due to the policies of labor unions.
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18
When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to ________ and the quantity demanded to ________.

A) fall; rise
B) fall; fall
C) rise; rise
D) rise; fall
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19
<strong>  Figure 9.1.1 Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;</strong> A) $0. B) $100. C) $800. D) $1200. E) $2000. Figure 9.1.1
Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;

A) $0.
B) $100.
C) $800.
D) $1200.
E) $2000.
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20
Producer surplus for the whole market can be thought of as:

A) total profit.
B) variable operating profit plus factor rents.
C) total profit minus factor rents earned by lower cost firms.
D) total profit plus factor rents earned by lower cost firms.
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21
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, the producer surplus earned by the seller of the 100th unit is:</strong> A) $0.50. B) $0.75. C) $1.50. D) $2.00. E) $2.75. Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, the producer surplus earned by the seller of the 100th unit is:

A) $0.50.
B) $0.75.
C) $1.50.
D) $2.00.
E) $2.75.
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22
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 100th unit is:</strong> A) $0.50. B) $0.75. C) $1.50. D) $2.00. E) $2.75. Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 100th unit is:

A) $0.50.
B) $0.75.
C) $1.50.
D) $2.00.
E) $2.75.
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23
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, producer surplus will:</strong> A) fall by $150. B) fall by $300. C) remain the same. D) rise by $150. E) rise by $300. Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, producer surplus will:

A) fall by $150.
B) fall by $300.
C) remain the same.
D) rise by $150.
E) rise by $300.
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24
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0H and quantity Q1, consumer surplus is the area:</strong> A) EDGF. B) 0FGQ<sub>1</sub>. C) HFGB. D) EFC. E) none of the above Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0H and quantity Q1, consumer surplus is the area:

A) EDGF.
B) 0FGQ1.
C) HFGB.
D) EFC.
E) none of the above
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25
Consider the following statements when answering this question: I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers.
II) Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
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26
Price ceilings:

A) cause quantity to be higher than in the market equilibrium.
B) always increase consumer surplus.
C) may decrease consumer surplus if demand is sufficiently elastic.
D) may decrease consumer surplus if demand is sufficiently inelastic.
E) always decrease consumer surplus.
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27
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, consumer surplus will</strong> A) fall by $50. B) fall by $150. C) remain the same. D) rise by $50. E) rise by $150. Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, consumer surplus will

A) fall by $50.
B) fall by $150.
C) remain the same.
D) rise by $50.
E) rise by $150.
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28
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold?</strong> A) 200 B) 300 C) 400 D) 600 E) 800 Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold?

A) 200
B) 300
C) 400
D) 600
E) 800
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29
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, total producer surplus is:</strong> A) $2. B) $3. C) $200. D) $400. E) $600. Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, total producer surplus is:

A) $2.
B) $3.
C) $200.
D) $400.
E) $600.
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30
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0E and quantity Q*, the deadweight loss is:</strong> A) 0ACQ<sup>*</sup>. B) 0ECQ<sup>*</sup>. C) 0FCQ<sup>*</sup>. D) EFC. E) none of the above Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0E and quantity Q*, the deadweight loss is:

A) 0ACQ*.
B) 0ECQ*.
C) 0FCQ*.
D) EFC.
E) none of the above
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31
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer surplus is:</strong> A) $1. B) $3. C) $200. D) $400. E) $600. Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer surplus is:

A) $1.
B) $3.
C) $200.
D) $400.
E) $600.
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32
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be:</strong> A) $1.50. B) $300. C) $450. D) $500. E) $600. Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be:

A) $1.50.
B) $300.
C) $450.
D) $500.
E) $600.
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33
Consider the following statements when answering this question: I. Overall, the sick will always gain from a price ceiling on prescription drugs.
II) The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
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34
Consider the following statements when answering this question: I. Employers are always hurt by minimum wage laws.
II) Workers always benefit from minimum wage laws.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
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35
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0E and quantity Q*, producer surplus is the area:</strong> A) 0ACQ<sup>*</sup>. B) 0ECQ<sup>*</sup>. C) 0FCQ<sup>*</sup>. D) EFC. E) none of the above Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0E and quantity Q*, producer surplus is the area:

A) 0ACQ*.
B) 0ECQ*.
C) 0FCQ*.
D) EFC.
E) none of the above
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36
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0H and quantity Q1, producer surplus is the area:</strong> A) 0ABQ<sub>1</sub>. B) 0EDQ<sub>1</sub>. C) AHB. D) 0FGQ1. E) none of the above Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0H and quantity Q1, producer surplus is the area:

A) 0ABQ1.
B) 0EDQ1.
C) AHB.
D) 0FGQ1.
E) none of the above
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37
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0H and quantity Q1, the deadweight loss is:</strong> A) DGC. B) BDC. C) BGC. D) 0FGQ<sub>1</sub>. E) none of the above Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0H and quantity Q1, the deadweight loss is:

A) DGC.
B) BDC.
C) BGC.
D) 0FGQ1.
E) none of the above
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38
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer and producer surplus is:</strong> A) $0. B) $4. C) $5. D) $600. E) $800. Figure 9.1.3
Refer to Figure 9.1.3 above. If the market is in equilibrium, total consumer and producer surplus is:

A) $0.
B) $4.
C) $5.
D) $600.
E) $800.
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39
<strong>  Figure 9.1.2 Refer to Figure 9.1.2 above. At price 0E and quantity Q<sup>*</sup>, consumer surplus is the area:</strong> A) 0FCQ<sup>*</sup>. B) AFC. C) EFC. D) AEC. E) none of the above Figure 9.1.2
Refer to Figure 9.1.2 above. At price 0E and quantity Q*, consumer surplus is the area:

A) 0FCQ*.
B) AFC.
C) EFC.
D) AEC.
E) none of the above
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40
<strong>  Figure 9.1.3 Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be:</strong> A) $1.50. B) $200. C) $150. D) $300. E) $600. Figure 9.1.3
Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be:

A) $1.50.
B) $200.
C) $150.
D) $300.
E) $600.
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41
Suppose a competitive market is in equilibrium at price P' and quantity Q'. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?

A) Both PS and CS increase.
B) CS increases and PS decreases.
C) CS increases and PS remains the same.
D) Both CS and PS decrease.
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42
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>, area A is:</strong> A) a transfer of consumer surplus to producer surplus. B) a deadweight loss associated with the higher than equilibrium price. C) the revenue that producers lose as a result of the imposed price. D) all of the above Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2, area A is:

A) a transfer of consumer surplus to producer surplus.
B) a deadweight loss associated with the higher than equilibrium price.
C) the revenue that producers lose as a result of the imposed price.
D) all of the above
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43
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>,</strong> A) the quantity supplied is Q<sub>2</sub> and the quantity demanded is Q<sub>3,</sub> so a surplus develops. B) the quantity supplied is Q<sub>3</sub>, which results in a deadweight loss. C) the quantity supplied remains at Q<sub>0</sub>, so only quantity demanded falls to Q<sub>3</sub>. D) the resulting surplus in the market is transferred to consumers. Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2,

A) the quantity supplied is Q2 and the quantity demanded is Q3, so a surplus develops.
B) the quantity supplied is Q3, which results in a deadweight loss.
C) the quantity supplied remains at Q0, so only quantity demanded falls to Q3.
D) the resulting surplus in the market is transferred to consumers.
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44
In an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows:
Supply P = 4 + 0.116Q
Demand P = 25 - 0.10Q,
where P represents unit price in dollars and Q represents number of units sold each year. Calculate the annual value of aggregate consumer surplus.
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45
The market demand curve for a popular teen magazine is given by Q = 80 - 10P where P is the magazine price in dollars per issue and Q is the weekly magazine circulation in units of 10,000. If the circulation is 400,000 per week at the current price, what is the consumer surplus for a teen reader with maximum willingness to pay of $3 per issue?

A) $2.00
B) $1.00
C) Zero
D) -$1.00
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46
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>, area C in the figure is best interpreted as:</strong> A) the gain associated with the increase in price that producers receive. B) the loss in producer surplus as a result of the decrease in quantity supplied. C) a portion of the consumer surplus passed on to producers. D) the loss in surplus associated with the cost of the additional resulting production. Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2, area C in the figure is best interpreted as:

A) the gain associated with the increase in price that producers receive.
B) the loss in producer surplus as a result of the decrease in quantity supplied.
C) a portion of the consumer surplus passed on to producers.
D) the loss in surplus associated with the cost of the additional resulting production.
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47
Under a binding price ceiling, what does the change in consumer surplus represent?

A) The gain in surplus for those buyers who can still purchase the product at the lower price.
B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
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48
The demand and supply functions for oil on the world market are given as: The demand and supply functions for oil on the world market are given as:   and   Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off? and The demand and supply functions for oil on the world market are given as:   and   Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off? Calculate consumer surplus. If the Clinton Administration puts a price ceiling of $20 per unit, calculate the resulting consumer surplus. Are consumers better off?
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49
Governments may successfully intervene in competitive markets in order to achieve economic efficiency:

A) at no time; competitive markets are always efficient without government intervention.
B) to increase the incidence of positive externalities.
C) in cases of positive externalities only.
D) in cases of negative externalities only.
E) in cases of both positive and negative externalities.
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50
Under a binding price ceiling, what does the change in producer surplus represent?

A) The gain in surplus for those sellers who are still willing to supply the product at the lower price.
B) The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price.
C) The gain in surplus associated with the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
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51
The elected officials in a west coast university town are concerned about the "exploitative" rents being charged to college students. The town council is contemplating the imposition of a $350 per month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as:
QD = 5600 - 8P QS = 500 + 4P,
where P = monthly rent, and Q = number of apartments available for rent. For purposes of this analysis, apartments can be treated as identical.
a. Calculate the equilibrium price and quantity that would prevail without the price ceiling. Calculate producer and consumer surplus at this equilibrium (sketch a diagram showing both).
b. What quantity will eventually be available if the rent ceiling is imposed? Calculate any gains or losses in consumer and/or producer surplus.
c. Does the proposed rent ceiling result in net welfare gains? Would you advise the town council to implement the policy?
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52
In an unregulated competitive market, supply and demand have been estimated as follows:
Demand P = 25 - 0.10Q Supply P = 4 + 0.116Q,
where P represents unit price in dollars, and Q represents number of units sold per year.
a. Calculate annual aggregate consumer surplus.
b. Calculate annual aggregate producer surplus.
c. Define what producer surplus means.
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53
In a competitive market, the following supply and demand equations are given:
Supply P = 5 + 0.36Q
Demand P = 100 - 0.04Q,
where P represents price per unit in dollars, and Q represents rate of sales in units per year.
a. Determine the equilibrium price and sales rate.
b. Determine the deadweight loss that would result if the government were to impose a price ceiling of 40 dollars per unit.
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54
The demand and supply functions for basic cable TV in the local market are given as: The demand and supply functions for basic cable TV in the local market are given as:   Calculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. Are all consumers better off? Are producers better off? Calculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. Are all consumers better off? Are producers better off?
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55
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. After the minimum P<sub>2</sub> is imposed,</strong> A) some consumers are better off and all producers are worse off. B) some consumers and some producers are better off. C) no consumers are better off but some producers are better off. D) no consumers are better off and all producers are better off. Figure 9.2.1
Refer to Figure 9.2.1 above. After the minimum P2 is imposed,

A) some consumers are better off and all producers are worse off.
B) some consumers and some producers are better off.
C) no consumers are better off but some producers are better off.
D) no consumers are better off and all producers are better off.
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56
The utilities commission in a city is currently examining pay telephone service in the city. The commission has been asked to evaluate a proposal by a city council member to place a $0.10 price ceiling on local pay phone service. The staff economist at the utilities commission estimates the demand and supply curves for pay telephone service as follows:
QD = 1600 - 2400P
QS = 200 + 3200P,
where P = price of a pay telephone call, and Q = number of pay telephone calls per month.
a. Determine the equilibrium price and quantity that will prevail without the price ceiling.
b. Analyze the quantity that will be available with the price ceiling (in the long-run).
c. The city council realizes that the telephone company could curtail pay phone service in response to the ceiling. To prevent this, the council plans to impose a requirement that the telephone company must maintain the current number of pay phones. In light of this additional restriction, what will be the likely impact of the price ceiling?
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57
Government intervention can increase total welfare when:

A) there are costs or benefits that are external to the market.
B) consumers do not have perfect information about product quality.
C) a high price makes the product unaffordable for most consumers.
D) all of the above
E) A and B only
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58
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. The result of the minimum imposed price:</strong> A) increases the number of producers and increases the number of consumers in the market. B) increases the number of producers and decreases the number of consumers in the market. C) decreases the number of producers and increases the number of consumers in the market. D) decreases the number of producers and decreases the number of consumers in the market. Figure 9.2.1
Refer to Figure 9.2.1 above. The result of the minimum imposed price:

A) increases the number of producers and increases the number of consumers in the market.
B) increases the number of producers and decreases the number of consumers in the market.
C) decreases the number of producers and increases the number of consumers in the market.
D) decreases the number of producers and decreases the number of consumers in the market.
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59
<strong>  Figure 9.2.1 Refer to Figure 9.2.1 above. When the minimum imposed price is P<sub>2</sub>, areas B + C are:</strong> A) the deadweight loss to consumers as a result of the price control. B) the deadweight loss to producers as a result of the price control. C) the deadweight loss to both producers and consumers as a result of the price control. D) gains transferred from consumers to producers. Figure 9.2.1
Refer to Figure 9.2.1 above. When the minimum imposed price is P2, areas B + C are:

A) the deadweight loss to consumers as a result of the price control.
B) the deadweight loss to producers as a result of the price control.
C) the deadweight loss to both producers and consumers as a result of the price control.
D) gains transferred from consumers to producers.
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60
The consumer's gain from the imposition of a price ceiling is higher when:

A) the own price elasticity of market demand is high and the price elasticity of market supply is high.
B) the own price elasticity of market demand is high and the price elasticity of market supply is low.
C) the own price elasticity of market demand is low and the price elasticity of market supply is high.
D) the own price elasticity of market demand is low and the price elasticity of market supply is low.
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61
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?</strong> A) 200 B) 300 C) 400 D) 600 E) 800 Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?

A) 200
B) 300
C) 400
D) 600
E) 800
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62
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus will:</strong> A) fall by $50. B) fall by $100. C) remain the same. D) rise by $50. E) rise by $100. Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus will:

A) fall by $50.
B) fall by $100.
C) remain the same.
D) rise by $50.
E) rise by $100.
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63
Suppose the market supply curve is upward sloping and market demand is perfectly inelastic. If the market price is held above the equilibrium level, which of the following statements about the resulting outcome is not true?

A) The decrease in consumer surplus is fully captured by the producers.
B) There will be an excess quantity supplied.
C) Quantity demanded will remain the same.
D) Quantity demanded will decline.
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64
<strong>  Figure 9.3.1 Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, the resulting deadweight loss will be:</strong> A) $15. B) 10 widgets. C) $1,050. D) $1,200. E) $2,400. Figure 9.3.1
Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, the resulting deadweight loss will be:

A) $15.
B) 10 widgets.
C) $1,050.
D) $1,200.
E) $2,400.
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65
<strong>  Figure 9.3.1 Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:</strong> A) fall by $275. B) fall by $500. C) remain the same. D) rise by $275. E) rise by $500. Figure 9.3.1
Refer to Figure 9.3.1. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will:

A) fall by $275.
B) fall by $500.
C) remain the same.
D) rise by $275.
E) rise by $500.
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66
<strong>  Figure 9.3.1 Refer to Figure 9.3.1. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will be:</strong> A) $15. B) 30 widgets. C) $1,050. D) $1,200. E) $1,350. Figure 9.3.1
Refer to Figure 9.3.1. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will be:

A) $15.
B) 30 widgets.
C) $1,050.
D) $1,200.
E) $1,350.
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67
<strong>  Figure 9.3.1 Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?</strong> A) 20 B) 30 C) 40 D) 50 E) 60 Figure 9.3.1
Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?

A) 20
B) 30
C) 40
D) 50
E) 60
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68
The market supply curve for music downloads is Q = 135(P-1) where Q is millions of downloads and P is the price in dollars per track. If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per track?

A) $5.4 million
B) $8.1 million
C) $10.8 million
D) $27 million
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69
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:</strong> A) $150. B) $300. C) $450. D) $500. E) $600. Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:

A) $150.
B) $300.
C) $450.
D) $500.
E) $600.
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70
Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is:

A) efficient as the quantity of drugs traded is the same as under a free market.
B) efficient as the price of drugs paid by the government is the same as under a free market.
C) efficient as consumer surplus is maximized.
D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
E) likely to be inefficient as drug producers have a captive buyer.
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71
When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.
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72
Which of the following policies could lead to a deadweight loss?

A) Price ceilings
B) Price floors
C) Policies prohibiting human cloning
D) all of the above
E) A and B only
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73
A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as:

A) an imperfectly competitive market.
B) a market failure.
C) a deadweight loss.
D) a disequilibrium.
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74
<strong>  Figure 9.3.1 Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $40, consumer surplus will:</strong> A) fall by $50. B) fall by $350. C) remain the same. D) rise by $50. E) rise by $350. Figure 9.3.1
Suppose the market in Figure 9.3.1 is currently in equilibrium. If the government establishes a price floor of $40, consumer surplus will:

A) fall by $50.
B) fall by $350.
C) remain the same.
D) rise by $50.
E) rise by $350.
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75
Use the following statements to answer this question: I. When the market price is held above the competitive price level, it is possible for the loss in consumer surplus to be fully captured by producers.
II) When the market price is held above the competitive level, there is no deadweight loss because producer gains exactly equal consumer losses.

A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.
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76
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, the resulting deadweight loss will be:</strong> A) $1.50. B) 200 pounds of berries. C) $150. D) $250. E) $300. Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, the resulting deadweight loss will be:

A) $1.50.
B) 200 pounds of berries.
C) $150.
D) $250.
E) $300.
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77
Consider the following statements when answering this question: I. Waiting lists for kidney transplants have been caused by a 1984 congressional law forbidding humans to sell their kidneys.
II) Randomly choosing citizens to serve on juries is an efficient mechanism for selecting jurors.

A) I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) I and II are false.
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78
For national security reasons a government decides that all of its base metal industry should not be located in the same geographical region, as it presently is. The government decides to allocate production quotas to firms in different parts of the country, but does not restrict in any way the transactions between consumers and base metal producers. This scheme is:

A) efficient as consumers still buy from whoever they like.
B) efficient as those consumers who value base metals the most can purchase them.
C) likely to be inefficient as some of the industry's output is not produced by the firms with the lowest cost.
D) likely to be inefficient as the scheme will require subsidies to work.
E) efficient as learning by doing effects will be strongest in the firms set up in new geographical regions.
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79
<strong>  Figure 9.3.2 Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, consumer surplus will:</strong> A) fall by $50. B) fall by $150. C) remain the same. D) rise by $50. E) rise by $150. Figure 9.3.2
Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50, consumer surplus will:

A) fall by $50.
B) fall by $150.
C) remain the same.
D) rise by $50.
E) rise by $150.
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80
Which of the following is NOT true about price floors?

A) Consumer surplus is always lower than it would be in the competitive equilibrium.
B) Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium.
C) Producer surplus could be negative as the result of a price floor.
D) Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost.
E) The total producer surplus depends on how producers respond to the price floor in determining their output level.
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