ECON 1B03 Chapter Notes - Chapter 6: Root Mean Square, Deadweight Loss, Economic Surplus

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ultramarineskunk579

13 Dec 2016

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ECON 1B03 Full Course Notes

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Usually enacted when policymakers believe the market price is unfair to buyers and sellers. Governments will freeze prices at a price level. A maximum price at which a good can be sold, the ceiling is not binding if it is set above equilibrium price, only if it is below equilibrium - leading to a shortage. There is a dwl in total surplus when quantity is traded below equilibrium. Ceilings can lead to shortages worsening, inef cient allocation to consumers, wasted resources, inef ciently low quality, and black markets. A legal minimum at which a good can be sold at. Price oor is only binding if it is above equilibrium, a surplus follows a price oor. Price oors lead to surplus production, inef cient allocation of sales, wasted resources, inef ciently high quality illegal activities. Shifts the demand curve inward by the amount of tax.

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QUESTION 16

Positive externalities exist because:

	a.	internal benefits are greater than external benefits.
	b.	internal benefits are greater than social benefits.
	c.	internal benefits are less than external benefits.
	d.	external benefits are greater than social benefits.
	e.	internal benefits are less than social benefits.

QUESTION 17

What is a black market?

	a.	It is an illegal market that emerges when binding price ceilings are in place.
	b.	It is an illegal market that emerges when only binding price ceilings and binding price floors are in place.
	c.	It is an illegal market that emerges when no price controls are present.
	d.	It is an illegal market that emerges when binding and nonbinding price controls are in place.
	e.	It is an illegal market that emerges when binding price floors are in place.

QUESTION 18

The personal decisions of consumers and firms are based on:

	a.	external costs.
	b.	public-good costs.
	c.	third-party costs.
	d.	internal costs.
	e.	social cost.

QUESTION 19

When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.

	a.	below; shortage; downward
	b.	above; shortage; downward
	c.	above; surplus; upward
	d.	above; surplus; downward
	e.	below; surplus; upward

rosewhale311

If, at the current price, there is a shortage of a good:

1. the market can be in equilibrium

2. the price is below the equiblium price

3. sellers are producing more than buyers wish to buy

4. all the above answers are correct

lavenderyellowjacket825

"Shortages, price controls, and queuesDuring the late 1980s and early 1990s, economic reforms initiated by Soviet president Mikhail Gorbachev began to raise consumer incomes; however, the Soviet government continued to impose price ceilings on basic goods like food, clothing, and household goods. As higher income led to increased demand, severe shortages of many goods and long lines at all kinds of stores became common. Finally, in January 1992, a new Russian government under president Boris Yeltsin removed retail price controls on most goods. Within a month, prices more than doubled on average, and lines disappeared. Analyze these events using the supply and demand model. First draw a supply and demand diagram for some normal good such as butter. Show the market in equilibrium at a price of 1 ruble per kilo before the beginning of the Gorbachev reforms. Draw a horizontal line at that level to represent the price ceiling; no butter can be sold for more than 1 ruble per kilo. Next show the effect of rising income. Does it shift the supply curve? Does it shift the demand curve? What is the shortage or surplus at the controlled price? After the price control ends, assuming no further shift in the supply and demand curve, what happens to the price? What happens to the shortage or surplus?"

crimsongerbil60

ECON 1B03 Chapter Notes - Chapter 6: Root Mean Square, Deadweight Loss, Economic Surplus

ECON 1B03 Full Course Notes

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