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

Will equilibrium in a market always result in an outcome that is economically efficient? Explain.

Table 4-6 -Which of the following statements is not true?

What is meant by the term "economic efficiency"?

Assume the market price for lemon grass is $4.00 per pound, but most buyers are willing to pay more than the market price. At the market price of $4.00, the quantity of lemon grass demanded is 1,500 pounds per month, and quantity demanded does not reach zero until the price reaches $30.00 per pound. Construct a graph showing this data, calculate the total consumer surplus in the market for lemon grass, and show the consumer surplus on the graph.

The additional benefit to a consumer from consuming one more unit of a good or service is the marginal benefit.

Figure 4-10 Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. -Refer to Figure 4-10. What is the area that represents the portion of producer surplus transferred to consumers as a result of the rent ceiling?

Table 4-3 -Refer to Table 4-3. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the price of cowboy hats increases from $38 to $46,

Figure 4-7 -Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. If the price of iced tea is $1, what changes in the market would result in an economically efficient output?

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, and consumer surplus plus producer surplus is maximized, then

If equilibrium is achieved in a competitive market,

Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda's consumer surplus from the purchase is

Figure 4-11 Figure 4-11 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00. -Because minimum wage is a price floor,

Figure 4-20 -Refer to Figure 4-20. The figure above represents demand and supply in the market for gasoline. Use the diagram to answer the following questions. a. How much is the government tax on each gallon of gasoline? b. What portion of the unit tax is paid by consumers? c. What portion of the unit tax is paid by producers? d. What is the quantity sold after the imposition of the tax? e. What is the after-tax revenue per gallon received by producers? f. What is the total tax revenue collected by the government? g. What is the value of the excess burden of the tax? h. Is this gasoline tax efficient?

Table 4-8 Table 4-8 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. -Refer to Table 4-8. If a minimum wage of $9.50 an hour is mandated, what is the quantity of labor supplied?

Figure 4-10 Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. -Refer to Figure 4-10. What is the area that represents consumer surplus after the imposition of the ceiling?

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

Table 4-11 -Refer to Table 4-11. The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick. The equilibrium price and quantity for Chef Ernie's sushi are $60 and 20 thousand units. What is the value of producer surplus?

Figure 4-7 -Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. If the price of iced tea is $3,

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 P2. -Refer to Figure 4-6. At the price P2, consumers are willing to buy the Q2 pounds of granola. Is this an economically efficient quantity?

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 $3.00, what is Kendra's consumer surplus?