Exam 4: Economic Efficiency, Government Price Setting, and Taxes

Table 4-10 Table 4-10 above contains information about the wheat market. Answer the following questions based on this table. -Refer to Table 4-10. An agricultural price floor is a price that the government guarantees farmers will receive for a particular crop. Suppose the federal government sets a price floor for wheat at $21 per bushel. a. What is the amount of shortage or surplus in the wheat market as result of the price floor? b. If the government agrees to purchase any surplus output at $21, how much will it cost the government? c. If the government buys all of the farmers' output at the floor price, how many bushels of wheat will it have to purchase and how much will it cost the government? d. Suppose the government buys up all of the farmers' output at the floor price and then sells the output to consumers at whatever price it can get. Under this scheme, what is the price at which the government will be able to sell off all of the output it had purchased from farmers? What is the revenue received from the government's sale? e. In this problem we have considered two government schemes: (1) a price floor is established and the government purchases any excess output and (2) the government buys all the farmers' output at the floor price and resells at whatever price it can get. Which scheme will taxpayers prefer? f. Consider again the two schemes. Which scheme will the farmers prefer? g. Consider again the two schemes. Which scheme will wheat buyers prefer?

Figure 4-18 Figure 4-18 shows the market for cigarettes. The government plans to impose a per-unit tax in this market. -Refer to Figure 4-18. For each unit sold, the price sellers receive after the tax (net of tax) is

Economic surplus is maximized in a competitive market when

Table 4-2 -Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a theater ticket. If the price of one ticket falls from $25 to $10,

Table 4-12 -Refer to Table 4-12. The equations above describe the demand and supply for Bubba's Fried Jellybeans. The equilibrium price and quantity for Bubba's Fried Jellybeans are $40 and 5 thousand units. What is the value of producer surplus?

Congress passed the Freedom to Farm Act in 1996. What was the purpose of this act?

Figure 4-8 Figure 4-8 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. -Refer to Figure 4-8. Suppose that instead of a rent ceiling, the government imposed a price floor of $2,000 per month for apartments. What is the value of the portion of consumer surplus transferred to producers as a result of the price floor?

Figure 4-15 Figure 4-15 shows the market for beer. The government plans to impose a per-unit tax in this market. -Refer to Figure 4-15. How much of the tax is paid by buyers?

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

Consumer surplus in a market for a product would be equal to the area under the demand curve if

Table 4-7 Table 4-7 shows the demand and supply schedules for the labor market in the city of Pixley. -Refer to Table 4-7. If a minimum wage of $11.50 is mandated, there will be a

Figure 4-3 Figure 4-3 shows Kendra's demand curve for ice cream cones. -Refer to Figure 4-3. If the market price is $2.50, what is the consumer surplus on the second ice cream cone?

If a tax is imposed on a product, the buyer will always bear the entire burden of the tax.

Figure 4-6 Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P₁ and a quantity of Q₁. Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2. -Refer to Figure 4-6. At the equilibrium price of P₁, consumers are willing to buy Q₁ pounds of granola. Is this an economically efficient quantity?

The division of the burden of a tax between buyers and sellers in a market is called tax incidence.

Figure 4-17 -Refer to Figure 4-17. Suppose the market is initially in equilibrium at price P₁ and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax?

Table 4-13 -Refer to Table 4-13. The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion. The equilibrium price and quantity for Aunt Maud's lotion are $20 and 30 thousand units. What is the value of economic surplus in this market?

The additional cost to a firm of producing one more unit of a good or service is the

Table 4-6 -Refer to Table 4-6. The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in producing men's clothing. If the market price of Marko's polo shirts is $30, producer surplus is

Each point on a demand curve shows