ECON 200 Lecture Notes - Lecture 12: Price Floor, Price Ceiling, Economic Equilibrium

1. Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers?

2. In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by:

3.Economic theory suggests that a natural monopoly should be:

4.When the size of the production is the most efficient:

5.A firm should exit the industry if which of the following conditions apply?

6.Figure: Costs

Reference: Ref 11-6

(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:

7.When external benefits are present, the market price is ________, however when external costs are present, the market price is ________.

8.Which of the following statements is TRUE?

I. The EPA's tradeable allowances program for sulfur dioxide establishes property rights to pollute and helps reduce transaction costs by distributing allowances, maintaining databases, and monitoring emissions.

II. One criticism of tradeable allowances is that they prohibit non-businesses and environmental groups from purchasing the allowances.

III. The tradeable allowances for sulfur dioxide have performed poorly because electricity output has increased, causing a rise in sulfur dioxide levels.

9.Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:

10.Figure: Government Price Controls

Reference: Ref 8-3

(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:

11.In which of these instances does price function as a signal in the market?

12.Ethanol and sugar are both made from sugar cane, and ethanol can be used as substitute fuel for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.

13.Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?

14.Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:

15.Which of the following would increase the demand for beef?

16.A change in quantity supplied is reflected by a movement along the same supply curve while a change in supply refers to a shift in the entire supply curve.

True

False

17.Table: Production in the United States and Germany

Reference: Ref 2-8

(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is _________, and the opportunity cost of producing one sofa in Germany is _______.

18.Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

1. Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers?

2. In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by:

3.Economic theory suggests that a natural monopoly should be:

4.When the size of the production is the most efficient:

5.A firm should exit the industry if which of the following conditions apply?

6.Figure: Costs

Reference: Ref 11-6

(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:

7.When external benefits are present, the market price is ________, however when external costs are present, the market price is ________.

8.Which of the following statements is TRUE?

I. The EPA's tradeable allowances program for sulfur dioxide establishes property rights to pollute and helps reduce transaction costs by distributing allowances, maintaining databases, and monitoring emissions.

II. One criticism of tradeable allowances is that they prohibit non-businesses and environmental groups from purchasing the allowances.

III. The tradeable allowances for sulfur dioxide have performed poorly because electricity output has increased, causing a rise in sulfur dioxide levels.

9.Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:

10.Figure: Government Price Controls

Reference: Ref 8-3

(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:

11.In which of these instances does price function as a signal in the market?

12.Ethanol and sugar are both made from sugar cane, and ethanol can be used as substitute fuel for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.

13.Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?

14.Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:

15.Which of the following would increase the demand for beef?

16.A change in quantity supplied is reflected by a movement along the same supply curve while a change in supply refers to a shift in the entire supply curve.

True

False

17.Table: Production in the United States and Germany

Reference: Ref 2-8

(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is _________, and the opportunity cost of producing one sofa in Germany is _______.

18.Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.