Question 1

For the following, please answer "True" or "False" and explain why.
-The tax revenue that is generated by a government tax is counted towards total welfare.

Accepted Answer

A) True 
 B)False

Question 2

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Jones' producer surplus is

Accepted Answer

A)  $5,000. 
B)  $15,000. 
C)  $20,000. 
D)  Not able to be calculated from the information given.

Question 3

-The above figure shows supply and demand curves for milk.If the government passes a $2 per gallon specific tax,the loss in consumer surplus will equal

Accepted Answer

A)  b + c + f + g. 
B)  f + g. 
C)  b + f. 
D)  c + g.

Question 4

Long-run economic rent or profit do not exist for fixed factors like land because

Accepted Answer

A)  bidding drives up the price of the factor until no economic rent exists. 
B)  there is no market for such factors. 
C)  these factors have L-shaped isoquants. 
D)  these factors will earn economic profits.

Question 5

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

Accepted Answer

A)  not everyone can afford the good. 
B)  price exceeds marginal cost. 
C)  consumer surplus equals zero. 
D)  at equilibrium, some people who still wish to sell the good cannot find a buyer.

Question 6

Suppose the market supply curve is p = 5Q.At a price of 10,producer surplus equals

Accepted Answer

A)  50. 
B)  25. 
C)  12.50. 
D)  10.

Question 7

Economists claim that measuring society's welfare as CS + PS

Accepted Answer

A)  is inappropriate since ultimately everyone is a consumer. 
B)  is valid only when the same person could be either a consumer or a producer. 
C)  treats the gains to consumers and producers equally. 
D)  is not commonly accepted.

Question 8

For the following, please answer "True" or "False" and explain why.
-While producing less than the competitive output decreases social welfare,the same cannot be said about producing more than the competitive output.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that all firms in a constant-cost industry have the following long-run cost curve:
c(q)= 4q² + 100q + 100
The demand in this market is given by Qᴰ = 1280 - 2p.Suppose the number of firms in the market is restricted to 80
a.Derive the supply curve with this restriction.Find the market equilibrium price and quantity with the restriction.
b.If firms are allowed to buy and sell these permits in an open market,what will be the rental price of permits? Will firm's that own permits make profit? Briefly explain.
c.How much deadweight loss is generated by the permit system? Provide a graph showing the region of this deadweight loss.
d.Suppose the government abandons the permit system and simply imposes a fixed fee on firms in the market.If the fee is set equal to the permit price you found in c.,what will be the equilibrium price,quantity,number of firms and deadweight loss?

Accepted Answer

The answer of Suppose that all firms in a constant-cost...

Question 10

For the following, please answer "True" or "False" and explain why.
-Producer surplus is the sum of the profits earned by all firms in a market.

Accepted Answer

A) True 
 B)False

Question 11

The cost of lobbying for an import quota in a perfectly competitive market

Accepted Answer

A)  increases the welfare loss of the quota. 
B)  decreases the deadweight loss of the quota. 
C)  shifts the supply curve of the good to the left. 
D)  increases the consumer surplus.

Question 12

-The above figure shows the market for rice in Japan.SDₒmₑstᵢc represents the domestic supply curve,and Swₒᵣld represents the world supply curve.If imported rice is banned,the change in domestic producer surplus equals

Accepted Answer

A)  f. 
B)  f + g. 
C)  f + g + h. 
D)  h.

Question 13

For the following, please answer "True" or "False" and explain why.
-Policies that restrict supply could generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus.

Accepted Answer

A) True 
 B)False

Question 14

For the following, please answer "True" or "False" and explain why.
-As the quantity produced of a good increases,the social welfare generated by that good increases.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the market supply curve is p = 5 + Q.At a price of 10,producer surplus equals

Accepted Answer

A)  50. 
B)  25. 
C)  12.50. 
D)  10.

Question 16

Producer surplus is equal to

Accepted Answer

A)  the area under the supply curve. 
B)  the difference between price and average cost for all units sold. 
C)  the difference between price and marginal cost for all units sold. 
D)  the firm's profit when fixed costs exist.

Question 17

-The above figure shows supply and demand curves for milk.If the government passes a $2 per gallon specific tax,the loss in social welfare will equal

Accepted Answer

A)  b + c + f + g. 
B)  f + g. 
C)  b + f. 
D)  c + g.

Question 18

Suppose the market supply curve is p = 5Q.If price increases from 10 to 15,the change in producer surplus is

Accepted Answer

A)  25. 
B)  5. 
C)  12.5. 
D)  20.

Question 19

Suppose a consumer advocacy group has convinced legislators that vitamin pills should be free to consumers.Such a policy would enhance the health of the citizenry,they argue.Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve,determine the resulting output and social welfare from such a policy.Compare this result to the competitive equilibrium.

Accepted Answer

The answer of Suppose a consumer advocacy group has convinced...

Question 20

For the following, please answer "True" or "False" and explain why.
-If entry is limited due to a limited input,firms in that market earn long run economic profit.

Accepted Answer

A) True 
 B)False

Exam 9: Properties and Applications of the Competitive Model

For the following, please answer "True" or "False" and explain why. -The tax revenue that is generated by a government tax is counted towards total welfare.

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Jones' producer surplus is

-The above figure shows supply and demand curves for milk.If the government passes a $2 per gallon specific tax,the loss in consumer surplus will equal

Long-run economic rent or profit do not exist for fixed factors like land because

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

Suppose the market supply curve is p = 5Q.At a price of 10,producer surplus equals

Economists claim that measuring society's welfare as CS + PS

For the following, please answer "True" or "False" and explain why. -While producing less than the competitive output decreases social welfare,the same cannot be said about producing more than the competitive output.

For the following, please answer "True" or "False" and explain why. -Producer surplus is the sum of the profits earned by all firms in a market.

The cost of lobbying for an import quota in a perfectly competitive market

-The above figure shows the market for rice in Japan.SDₒmₑstᵢc represents the domestic supply curve,and Swₒᵣld represents the world supply curve.If imported rice is banned,the change in domestic producer surplus equals

For the following, please answer "True" or "False" and explain why. -Policies that restrict supply could generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus.

For the following, please answer "True" or "False" and explain why. -As the quantity produced of a good increases,the social welfare generated by that good increases.

Suppose the market supply curve is p = 5 + Q.At a price of 10,producer surplus equals

Producer surplus is equal to

-The above figure shows supply and demand curves for milk.If the government passes a $2 per gallon specific tax,the loss in social welfare will equal

Suppose the market supply curve is p = 5Q.If price increases from 10 to 15,the change in producer surplus is

For the following, please answer "True" or "False" and explain why. -If entry is limited due to a limited input,firms in that market earn long run economic profit.