Exam 6: Market Efficiency and Government Intervention

You would be willing to pay a maximum of $1000 for an airplane ticket to London,UK during the summer,and you can buy an airplane ticket for $890.Your consumer surplus is:

The difference between the maximum amount a person is willing to pay for a good and its current market price is known as:

What is the deadweight loss of a tax?

Rent control reduces market efficiency if the maximum rents allowable are below the market equilibrium price.

-Refer to Figure 6.1.If the price of a donut is $ .25,consumer surplus is:

-Figure 6.7 shows the supply and demand curves for human kidneys.Because the government does not allow a person to sell a kidney:

A tax on a good or service generally creates a deadweight loss.

Martha was willing to pay $200 for a new winter coat,but the current market price of coats is $150.Calculate Martha's consumer surplus.What happens to consumer surplus if the price of a coat rises to $175?

-Figure 6.8 shows the market for taxicab services in a small town.If there is no government intervention and the supply of taxicab services reflects the law of supply,the price per mile traveled will be:

A seller's willingness to accept is the minimum amount he or she is willing to accept as payment for a product,and is equal to the marginal cost of production.

Consumer surplus can be defined as the:

In the market equilibrium,with a price of $500 there are 2000 apartments.If the government decides to enact a rent control policy,with a maximum price of $400,it reduces the quantity to 1500 apartments.Due to the rent control decreasing the total surplus of the market,the policy generates a(n)________.

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

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,the effects of the U.S.tariffs will ________ the price of lumber in the U.S.and ________ the quantity of imports from Canada.

-Refer to Figure 6.10.If a tax is imposed on the market in Figure 6.10,________ will bear a larger share of the tax.

When a tax is levied on a good or service,the following will happen:

If the supply of land were perfectly inelastic,a tax on land would be paid:

All else equal,the more elastic the demand for a good,the larger the burden of a tax borne by consumers.

Suppose that the government sets a maximum price for insulin below the equilibrium price:

A tax on a good or service ________ the price that buyers pay and ________ the price that sellers receive.