ECON 200 Lecture Notes - Lecture 1: Deadweight Loss, Price Controls

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tealalpaca119

13 Dec 2018

School

University of Maryland

Department

Economics

Course

ECON 200

Professor

Robert Schwab

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Document Summary

Four types of intervention: price controls, price ceilings, price floors, quantity controls, taxes. Price ceilings are like air conditioning: deadweight loss is a loss in total surplus that occurs because the quantity of a good that is bought and sold is different from the efficient quantity. Tax incidence: demanders bear more of the burden of a tax when, demand is relatively inelastic, supply is relatively elastic, suppliers bear more of the burden of a tax when, demand is relatively elastic, supply is relatively inelastic.

Related Questions

Suppose the government places a per-barrel unit tax on suppliers of oil. The oil market has a positively sloped supply curve and a negatively sloped demand curve. Who will bear the economic incidence (burden) of this tax? A. The suppliers of oil will bear the entire burden. B. If supply is relatively more price elastic than demand, then suppliers will bear most of the burden. C. If supply is relatively more price elastic than demand, then consumers will bear most of the burden. D. The consumers of oil will bear the entire burden. E. Suppliers and consumers will share the burden equally,

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

mauveyellowjacket715

I've completed this but I want to check my answers. Thanks

1) List and briefly explain three economic variables that shift the Demand Curve.

2) Define opportunity cost. How is opportunity cost used to determine comparative advantage?

3) In the market for calculators we observe that the price has fallen and more calculators are being sold. What might have happened to cause this change?

4) The price of gasoline rises. What would we expect to see happen in the market for cars with high gas mileage (like the Prius)?

5) What is the effect of a price floor (a price set above equilibrium) in the sugar market. Why does the government impose price floors?

6) Define the price elasticity of demand. Why is this concept important in economics?

7) Define the income elasticity of demand. Why is this concept important in economics?

8) List and briefly explain three economic variables that shift the Supply Curve.

9) A firm lowers of price of its product by 10% and consumers buy 5% more of the product. What is the price elasticity of demand for the product?

10) If the price elasticity of demand for a product is elastic, explain what will happen to total revenue when the price is decreased.

11) What is the difference between a change in quantity supplied and a shift in supply?

12) Write out the equation for the arc price elasticity of demand using symbols. Then write out the equation using the following numbers: the price increases from $8 to $10 and the quantity demanded falls from 3 units to 2 units. (Do not calculate the equation.)
Three Questions (no choice)

Long Answer Questions (20 points each)

Be certain to label all graphs. Write all explanations in complete sentences.

1) Draw a supply and demand graph for the market for oranges.

Illustrate and explain what happens with when a freeze destroys part of the crop.

2) Draw an increasing cost Production Possibilities Curve (PPC) for the U.S. with computers on the horizontal axis and textiles on the vertical axis.
a) What is the definition of a PPC

b) Choose a point on the PPC. What does this point represent?

c) Illustrate the opportunity cost of producing more computers.

d) Explain a point inside the PPC.

e) Explain a point outside the PPC.

f) Technological change reduces the cost of producing computers and textiles, illustrate and explain what happens in the graph.

g) Choose a new point that represents production and consumption after technological change.

h) Where does the U.S. produce and consume relative to before technological change.

i) Illustrate and explain the opportunity cost of producing more computers after technological change.

3) Define the price elasticity of demand. What does elastic, inelastic and unitary price elasticity of demand mean? For each of the three values of the price elasticity of demand explain what happens to quantity demanded and total revenue when the price of the product is increased? What about when the price of the product is decreased?

4) Using a supply and demand graph in the market for bread, illustrate and explain the effect of a price ceiling (Price set below equilibrium price).

Why would the government impose such a price ceiling?

How is the available bread distributed to consumers when there is a price ceilin

ECON 200 Lecture Notes - Lecture 1: Deadweight Loss, Price Controls

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