ECON 100A Chapter 9: Ch 9

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olivecod766

20 Nov 2016

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Document Summary

Consumer surplus: total benefit that consumers receive beyond what they pay for the good. Producer surplus: benefit that lower-cost producers enjoy by selling at market price. Welfare effects: gains and losses to consumers and producers. Deadweight loss: net loss of total (consumer plus producer) surplus. Dwl (cid:271)e(cid:272)ause of go(cid:448)"t i(cid:374)te(cid:396)(cid:448)e(cid:374)tio(cid:374: e(cid:448)e(cid:374) if cs a(cid:374)d ps a(cid:396)e e(cid:395)ual, the(cid:396)e (cid:449)ill (cid:271)e (cid:374)et loss f(cid:396)o(cid:373) go(cid:448)"t poli(cid:272)ies that shifts su(cid:396)plus from one group to the other, dwl is small. Big when price supports and import quotas are in play: dwl is form of economic inefficiency that must be considered when policies are designed and implemented. Economic efficiency: maximization of aggregate consumer and producer surplus. Market failure: situation in which unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers. Externality: action taken by either producer or consumer which affects other producers or consumers but is not accounted for by the market price.

Related Questions

Under a binding price ceiling, what does the change in consumer surplus represent?
A) The gain in surplus for those buyers who can still purchase the product at the lower price.
B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.

When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.

Compared to a tariff, an import quota, which restricts imports to the same amount as the tariff, will leave the country as a whole
A) worse off than a comparable tariff.
B) not as bad off as a comparable tariff.

C) about the same as a comparable tariff.

D) Any of the above can be true.

What is the welfare impact of a subsidy policy?
A) Producer surplus increases, consumer surplus declines, and total welfare declines.
B) Producer and consumer surplus increase, and these gains are larger than the government cost.

C) Producer and consumer surplus increase, and these gains are smaller than the government cost.

D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.

Why is there a deadweight loss associated with subsidy payments?
A) There is no deadweight loss from a subsidy.
B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced.
C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them.
D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.

violetmole943

1) Taxing a monopoly (20 Points) Suppose that a monopolist sells a product to consumers with an aggregate demand that is downward sloping in quantity, D(Q) = 200 â 2Q. The total cost of producing Q units is C(Q) = 20Q + 2Q2 .

a) Identify the unregulated equilibrium (P â , Qâ )

b) What are the consumer and producer surpluses (CS and PS) and total welfare (W) at this equilibrium?

c) Suppose that a specific tax of Ï = 20 is imposed on each unit. i. What price-quantity pair (P 1 , Q1 ) would we expect? ii. What are CS, PS, tax revenue (T), and W? iii. What is deadweight loss?

d) Instead of a specific tax, an ad valorem tax, Î± = 16 is imposed i. What price-quantity pair (P 2 , Q2 ) would we expect? ii. What are CS, PS, T, and W? iii. What is deadweight loss?

e) Welfare distribution i. Which scenario results in the highest producer surplus? ii. Which scenario results in the greatest gains for consumers, assuming that all tax revenues are perfectly redistributed to consumers only.