Efficiency And Gov’t Failure Homework Quiz

EXAM 2 Review Biology Questions
October 11, 2019
Graeter’s Grows Through Good Management
October 13, 2019

Efficiency And Gov’t Failure Homework Quiz

Question 1

/ 1 pts
Austin and Erin are willing to pay $10 and $9, respectively, for a ticket to a screening of a new movie. What is the total consumer surplus for both Austin and Erin if the market price of a ticket is $6?

$4

$7

FEEDBACK: The total consumer surplus is the amount of consumer surplus for every individual added together. In this market we have two consumers with a willingness to pay $10 and $9. We subtract the market price from each individual’s willingness to pay in order to find the consumer surplus for that individual. Consumer surplus for Austin is $10 – $6 = $4 and consumer surplus for Erin is $9 – $6 = $3. Total consumer surplus is $4 + $3 = $7.

$9

$19

FEEDBACK: The total consumer surplus is the amount of consumer surplus for every individual added together. In this market we have two consumers with a willingness to pay $10 and $9. We subtract the market price from each individual’s willingness to pay in order to find the consumer surplus for that individual. Consumer surplus for Austin is $10 – $6 = $4 and consumer surplus for Erin is $9 – $6 = $3. Total consumer surplus is $4 + $3 = $7.

Question 2

/ 1 pts
Deadweight loss can be thought of as surplus that is transferred from producers or consumers and given to whom?

the government

competitors in other markets

taxpayers

no individual or group

FEEDBACK: Deadweight loss is the surplus that was present before the tax was introduced but that doesn’t show up in consumer surplus, producer surplus, or government revenue once the tax is in place.

FEEDBACK: Deadweight loss is the surplus that was present before the tax was introduced but that doesn’t show up in consumer surplus, producer surplus, or government revenue once the tax is in place.

Question 3

/ 1 pts

Looking at the following graph, consider a price floor at $5. The deadweight loss from the imposition of this price floor is

05_mi_hw_qlast
Click to view larger image.

210.

30.

105.

FEEDBACK: To compute the amount of the deadweight loss, we need to determine the area of the Triangle that would have been part of consumer or producer surplus without the market distortion. In this case the triangle is represented by the equilibrium (at the intersection of supply and demand), point A, and point B. The area of a triangle is found by taking one-half x the base x the height. The triangle is sitting on its side, so the height of the triangle is 30 (100 – 70) and the base is $7($12 – 7). Hence, the deadweight loss is mc016-1.jpg x 7 x 30 = 105.

135.

FEEDBACK: To compute the amount of the deadweight loss, we need to determine the area of the Triangle that would have been part of consumer or producer surplus without the market distortion. In this case the triangle is represented by the equilibrium (at the intersection of supply and demand), point A, and point B. The area of a triangle is found by taking one-half x the base x the height. The triangle is sitting on its side, so the height of the triangle is 30 (100 – 70) and the base is $7($12 – 7). Hence, the deadweight loss is mc016-1.jpg x 7 x 30 = 105.

Question 4

/ 1 pts

Which of the following is not a characteristic of an efficient market?

Only consumer surplus is maximized.

FEEDBACK: Markets are efficient (meaning that social welfare is maximized) at the equilibrium point. At the equilibrium point, quantity supplied will equal quantity demanded and deadweight loss will equal zero. This is where the maximum amount of total surplus (consumer surplus plus producer surplus) is achieved.

Total surplus (aka social welfare) is maximized.

Quantity supplied equals quantity demanded.

Deadweight loss equals zero.

FEEDBACK: Markets are efficient (meaning that social welfare is maximized) at the equilibrium point. At the equilibrium point, quantity supplied will equal quantity demanded and deadweight loss will equal zero. This is where the maximum amount of total surplus (consumer surplus plus producer surplus) is achieved.

Question 5

/ 1 pts
Imagine that local suburban leaders decide to enact a minimum wage, and soon after, a nearby city votes to increase the minimum wage to the same rate. As a result

firms will have an incentive to move to the nearby city and the suburb will lose jobs.

firms will not have an incentive to move to the nearby city and the suburb will not lose jobs.

firms will have an incentive to move to the nearby city and the suburb may or may not lose jobs depending on the elasticity of labor demand..

firms will not have an incentive to move to the nearby city and the suburb may or may not lose jobs depending on the elasticity of labor demand.
FEEDBACK: Communities lose jobs when a binding minimum wage is enacted because labor becomes more expensive and demand for labor falls. In addition, if a company can cut labor costs by moving its business to areas that pay lower wages, it will. If the nearby city enacts the same minimum wage, firms will not have the option to save money by relocating to an area with lower equilibrium wages, and the suburb will not lose jobs because firms shift locations.

FEEDBACK: Communities lose jobs when a binding minimum wage is enacted because labor becomes more expensive and demand for labor falls. In addition, if a company can cut labor costs by moving its business to areas that pay lower wages, it will. If the nearby city enacts the same minimum wage, firms will not have the option to save money by relocating to an area with lower equilibrium wages, and the suburb will not lose jobs because firms shift locations.

Question 6

/ 1 pts
Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate demanded by consumers compared to the quantity of chocolate demanded before the price floor?

It will increase.

It will decrease.

FEEDBACK: The quantity of chocolate demanded will decrease, since the artificially high price will cause consumers to seek out cheaper substitutes for chocolate. According to the law of demand, as price rises for a good, the quantity demanded falls.

It will remain the same.

It will decrease or increase depending on the type of chocolate.

FEEDBACK: The quantity of chocolate demanded will decrease, since the artificially high price will cause consumers to seek out cheaper substitutes for chocolate. According to the law of demand, as price rises for a good, the quantity demanded falls.

Question 7

/ 1 pts
Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate supplied by producers compared to the quantity of chocolate supplied before the price floor?

It will increase.

FEEDBACK: The quantity of chocolate supplied will increase, since the high price gives producers an incentive to shift resources toward chocolate production. According to the law of supply, as price rises for a good, the quantity supplied rises.

It will decrease.

It will remain the same.

It will decrease or increase depending on the type of chocolate.

FEEDBACK: The quantity of chocolate supplied will increase, since the high price gives producers an incentive to shift resources toward chocolate production. According to the law of supply, as price rises for a good, the quantity supplied rises.

Leave a Reply