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

Figure 4-18 Figure 4-18 shows the market for cigarettes. The government plans to impose a 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

Table 4-7 Table 4-7 shows the demand and supply schedules for labor market in the city of Pixley. -To affect the market outcome, a price ceiling

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

Article Summary In an attempt to discourage smoking, New York City Mayor Michael Bloomberg proposed a bill which would set a $10.50 minimum price for a pack of cigarettes. The bill would also prohibit retailers from offering any discounts such as 2-for-1 offers or accepting discount coupons. New York City already has the highest cigarette tax in the country, at $5.85 per pack, and the state of New York is one of many which already require cigarettes be marked up by a specified percentage. This bill is a companion to one which would require stores to keep tobacco products hidden from sight. Although the bills are expected to be challenged in court, a precedent has been set in Rhode Island, where a court upheld a ruling allowing the city of Providence to forbid retailers from accepting coupons and offering discounts on cigarettes. Source: Vivian Yee, "Bloomberg Seeks End to Cheap Cigarettes," New York Times, March 26, 2013. -Refer to the Article Summary. The minimum price of $10.50 per pack of cigarettes being proposed by mayor Bloomberg would have which of the following effects on the market for cigarettes?

If the price of chewing gum is represented by equation P = 25 - 0.5 QD, then the corresponding quantity of chewing gum demanded is represented by the equation

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 economic surplus in this market?

Table 4-9 Table 4-9 above contains information about the corn market. Answer the following questions based on this table. -Refer to Table 4-9. 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 corn at $12 per bushel. a. What is the amount of shortage or surplus in the corn market as result of the price floor? b. If the government agrees to purchase any surplus output at $12, 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 corn 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 corn buyers prefer?

Economic surplus is maximized in a competitive market when

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. Suppose that the quantity of labor demanded decreases by 40,000 at each wage level. What are the new free market equilibrium hourly wage and the new equilibrium quantity of labor?

Figure 4-14 Figure 4-14 shows the market for taxi rides. The following question(s) are based on this figure. -Refer to Figure 4-14. To legally drive a taxicab in New York City, you must have a medallion issued by the city government. Assume that only 13,200 medallions have been issued. Let's also assume this puts an absolute limit on the number of taxi rides that can be supplied in New York City on any day, because no one breaks the law by driving a taxi without a medallion. Assume as well that each taxi provides 6 trips per day. In that case, the quantity supplied of taxi rides is 79,200 (or 6 rides per taxi × 13,200 taxis). This is shown in the diagram with a vertical line at this quantity. Assume that there are no government controls on the prices that drivers can charge for rides. a. What would the equilibrium price and quantity be in this market if there were no medallion requirement? b. If there were no medallion requirement, indicate the area that represents consumer surplus. c. If there were no medallion requirement, indicate the area that represents producer surplus. d. If there were no medallion requirement, indicate the area that represents economic surplus. e. What are the price and quantity with the medallion requirement? f. With a medallion requirement in place, what area represents consumer surplus? g. With a medallion requirement in place, what area represents producer surplus? h. With a medallion requirement in place, what area represents the deadweight loss? i. Based on your answers to parts (c) and (g), are taxicab drivers better off with the medallion requirement for taxicabs than without? j. Are consumers better off with or without the medallion requirement for taxicabs?

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 price of polo shirts increases from $15 to $20,

Which of the following is not a result of government price controls?

If, in a competitive market, marginal benefit is less than marginal cost,

Figure 4-15 Figure 4-15 shows the market for beer. The government plans to impose a unit tax in this market. -Refer to Figure 4-15. For each unit sold, the price sellers receive after the tax (net of tax) is

The following equations represent the demand and supply for bird feeders. QD = 35 - P QS = -5 + 3P What is the equilibrium price (P) and quantity (Q - in thousands) of bird feeders?

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

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. What is the value of producer surplus after the imposition of the ceiling?

Rent control is an example of a price ceiling.

What is producer surplus? What does producer surplus measure?