Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (In real life the actual price floor was officially set at $16.10 per hundredweight of cheese. One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of cheese produced in 2009 by U.S. producers was 212.5 billion pounds, and the quantity demanded was 211 billion pounds. To support the price of cheese on the price floor, the USDA had to buy up to 1.5 billion pounds of cheese. The accompanying diagram shows the supply and demand curves illustrating the market for cheese.
A. In the absence of a price floor, the maximum price that a few of the consumers are willing to pay is $0.20 for a pound of cheese whereas the market equilibrium price is $0.13 per pound. The graph also shows that the minimum price at which a few of the producers are willing to sell is $0.06 per pound. In the absence of a price floor, how much consumer surplus is created?
b. How much producer surplus?
c. What is the total surplus?
D. The maximum price that a few of the consumers are willing to pay is $0.20 per pound of cheese, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, consumers buy 211 billion pounds of cheese. How much consumer surplus is created now?
E. The minimum price at which a few of the producers are willing to sell a pound of cheese is $0.06, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, producers sell 212.5 billion pounds of cheese (some to consumers and some to the USDA). How much producer surplus is created now?
F. The surplus cheese USDA buys is the difference between the number of cheese producers sell (212.5 billions pounds of cheese) and the number of cheese consumers is willing to buy at the price floor (211 billions pounds of cheese). How much money does the USDA spend on buying up surplus cheese?
G. Taxes must be collected to pay for the purchases of surplus cheese by the USDA. As a result, the total surplus (producer plus consumer) is reduced by the amount the USDA spent on buying surplus cheese. Using your answers for parts d, e, and f, what is the total surplus when there is a price floor?
H. How does this compare to the total surplus without a price floor from part c?
Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (In real life the actual price floor was officially set at $16.10 per hundredweight of cheese. One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of cheese produced in 2009 by U.S. producers was 212.5 billion pounds, and the quantity demanded was 211 billion pounds. To support the price of cheese on the price floor, the USDA had to buy up to 1.5 billion pounds of cheese. The accompanying diagram shows the supply and demand curves illustrating the market for cheese.
A. In the absence of a price floor, the maximum price that a few of the consumers are willing to pay is $0.20 for a pound of cheese whereas the market equilibrium price is $0.13 per pound. The graph also shows that the minimum price at which a few of the producers are willing to sell is $0.06 per pound. In the absence of a price floor, how much consumer surplus is created?
b. How much producer surplus?
c. What is the total surplus?
D. The maximum price that a few of the consumers are willing to pay is $0.20 per pound of cheese, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, consumers buy 211 billion pounds of cheese. How much consumer surplus is created now?
E. The minimum price at which a few of the producers are willing to sell a pound of cheese is $0.06, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, producers sell 212.5 billion pounds of cheese (some to consumers and some to the USDA). How much producer surplus is created now?
F. The surplus cheese USDA buys is the difference between the number of cheese producers sell (212.5 billions pounds of cheese) and the number of cheese consumers is willing to buy at the price floor (211 billions pounds of cheese). How much money does the USDA spend on buying up surplus cheese?
G. Taxes must be collected to pay for the purchases of surplus cheese by the USDA. As a result, the total surplus (producer plus consumer) is reduced by the amount the USDA spent on buying surplus cheese. Using your answers for parts d, e, and f, what is the total surplus when there is a price floor?
H. How does this compare to the total surplus without a price floor from part c?
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Question 2
What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?
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Question 3 (1 point)
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Question 4
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Question 5 (1 point)
Why does the demand for a good become relatively more elastic?
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Question 6 (1 point)
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Question 7 (1 point)
What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?
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Question 8
Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?
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Question 9 (1 point)
Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?
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Question 10 (1 point)
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Question 11 (1 point)
What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?
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Question 12 (1 point)
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Question 13 (1 point)
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Question 14 (1 point)
Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Maryâs optimal weekly consumption bundle?
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Question 15 (1 point)
When is producer surplus a positive value?
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