Exam 6: Market Efficiency and Government Intervention

Producer surplus is equal to:

Assume that production costs rise and demand remains constant.The equilibrium price will ________ and the producer surplus will ________.

Explain the difference between forward and backward shifting of a tax.

Additional Application Prior to 2001 Canada annually exported billions of board feet of lumber to the U.S.tariff-free.The two countries had followed an agreement in which there would be no restrictions on the lumber from Canadian companies.In March 2001 the agreement ended and in 2002 the U.S.imposed tariffs and duties on imported Canadian lumber.What were the effects of these changes and who gained and who lost? The forestry workers of Canada were hurt.About 15,000 workers lost their jobs in British Columbia and many Canadian towns suffered from the loss of income from lumber sales and related industries.Exports to the U.S.fell from 14.7 billion board feet in 2000 to 20.9 million board feet in 2004.When the lumber prices rose in the U.S. ,the costs of production for home building firms increased. The U.S.government has realized $3.5 billion from the tariffs and that is sitting in the Treasury awaiting resolution of legal disputes.Lumber companies in the U.S.have seen their prices rise with less competition. James Thayer,"Soft Wood,Hard Dispute," The Weekly Standard,November 18,2005.Online -According to this application about the U.S.imposing tariffs on lumber from Canada,after the tariffs were placed on Canadian lumber imports,we could expect the consumer surplus in the U.S.to:

Jody's bakery makes cakes and would be willing to sell each cake for $12.50.If Jody's bakery sells 10 cakes for $13 each,the total producer surplus for Jody's bakery would be equal to:

If Jaime is willing to pay $8 for a movie ticket and the theater charges her only $4 for 2 movie tickets,her consumer surplus for each movie ticket is equal to $4.

Comment on the following statement: "The more inelastic the demand,the greater is the deadweight loss caused by any given tax rate."

-Figure 6.8 shows the market for taxicab services in a small town.If the government limits taxicab services to 20 per day,then the deadweight loss is equal to:

Deadweight loss is NOT:

A tax imposed on the supplier of Blu Ray players shifts:

A maximum price below the market equilibrium price will lower the total surplus of the market.

Comment on the following statement: "If a tax is placed on sellers,sellers will bear the entire burden of the tax."

Tom would be willing to pay a maximum of $2,500 to attend the Super Bowl this year,and he can buy a ticket for $2,050.His consumer surplus is:

Assuming that the demand for a product is stable,a increase in price will lead to an increase in consumer surplus.

Which of the following would result from a quota imposed on the quantity of cars that can be imported into the U.S.?

Suppose a good is produced in a constant cost industry.The market price is $4 and the equilibrium quantity is 20.After a tax is imposed on the good,the price rises to $5 and the equilibrium quantity falls to 18.The amount of the tax is:

Laura makes hand-made jewelry and she would be willing to sell pairs of earrings for $50.If Laura sells each pair of earrings for $65,her producer surplus per pair of earrings sold would be equal to:

-Refer to Figure 6.6.Suppose that landlords could not charge the market equilibrium price of $500,but instead could charge no more than $400.As a result,the quantity of apartments rented will fall from 100 to 50.In this case consumer surplus will:

-Figure 6.4 shows the market for new cars.Show the area of consumer surplus at the market equilibrium.

Suppose you receive a consumer surplus of $50.The $50 represents: