ECON-221 Lecture Notes - Lecture 25: Indirect Tax, Marginal Utility, Marginal Cost

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azureprairie-dog22

24 Sep 2020

School

Diablo Valley College

Department

Economics

Course

ECON-221

Professor

yoon

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Document Summary

Government intervention: the cost of interfering with market forces chp5. Price ceiling represents a maximum allowable price imposed by the government: government may impose price ceiling on necessities, which allow more consumers to be able to access the good. A price ceiling aims to lower the price of a good, however creates an excess in demand. In comparison to before a price ceiling, the producer surplus is smaller and consumer surplus is bigger: in a sense, a price ceiling redistributes income from producers to consumers. Deadweight loss is the loss in economic surplus due to the market being prevented from reaching the equilibrium price and quantity where marginal benefit equals marginal cost. Government intervention tends to create winners and losers: winners: the consumers who get to purchase the good, losers: the producer and the consumers who would have purchased the good but now cannot.

Related Questions

Question 1

The shortage in apartments causes by rent control is worse...

		In the long-run, because the long-run supply is more elastic.
		In the long-run, because the long-run supply is less elastic.
		In the short-run, because the short-run supply is more elastic.
		In the short-run, because the short-run supply is less elastic.

2 points

Question 2

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		Communism
		Rent control laws
		The Affordable Care Act
		Minimum wage laws

2 points

Question 3

What is a price floor?

		A maximum price allowed by law.
		A minimum price allowed by law.
		A maximum price consumers are willing to pay.
		A minimum price consumers are willing to pay.

2 points

Question 4

In 1938, Congress set the first minimum wage at $0.25 per hour. While this was a modest price floor for the country, it was a very large increase for what US territory which was not exempt from the law?

		Arizona
		Puerto Rico
		Cuba
		Hawaii

2 points

Question 5

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 6

Which of the following is a possible effect of a price floor?

		Decreases in product quality.
		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		A shortage of the good.

2 points

Question 7

Which of the following is a possible effect of a price ceiling?

		Increased gains from trade.
		Increases in product quality.
		A surplus of the good.
		The quantity demanded exceeds the quantity supplied.

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

Who bears the primary costs of a rent control program?

landlords

renters that get rent-controlled apartments

taxpayers

the wealthy

Assume the demand for sushi is Qd = 180 - 3P, where Qd is quantity demanded and P = price in dollars. The supply of sushi is Qs = 80 + 5P, where Qs is quantity supplied (and P is, again, price in dollars). A price of $20 would result in:

	A.	Excess supply of 60
	B.	Excess supply of 120
	C.	Excess supply of 140
	D.	Excess demand of 140

US agricultural price supports are politically popular because

They have no adverse impacts

The US would have food shortages without them

The benefits accrue to a large number of voters and the costs are paid by a small number of voters

The costs are spread out among millions of people

	A.	$15.50
	B.	$12.50
	C.	$10
	D.	$15

Price floors and ceiling prices:

cause the supply and demand curves to shift until equilibrium is established.

both cause surpluses.

interfere with the rationing function of prices.

A change in the price of a good leads to a change in ________, which leads to a ___________

quantity supplied; shift of the supply curve

supply; shift of the supply curve

quantity supplied; movement along the supply curve

When the supply of a product increases, this implies that

the price of the product first declined

more will be purchased at the same price

producers will be willing to accept a lower price for each unit sold

demand for the good must have increased

producers will offer less for sale at each possible price

If there is a excess demand for product X:

fewer resources will be allocated to the production of this good.

the price of the product will rise.

the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will decline.

Which of the following will occur when there is a simultaneous decrease in demand and a decrease in supply?

B and D both necessarily occur

An increase in equilibrium quantity

A and C both necessarily occur

An increase in price

A and D both necessarily occur

A decrease in price

A decrease in equilibrium quantity

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Both price and quantity should decrease.

Price should increase and quantity decrease.

Both price and quantity should increase.

Price should decrease and quantity increase.

Nothing.

If the government imposes a ceiling price on apartment rents, we would expect to observe all of the following except one. Which is the exception?

	A.	conversion of some apartment complexes to condos
	B.	a shortage
	C.	an increase in the number of new apartment complexes being built
	D.	lower maintenance of existing apartments
	E.	long waiting lists for apartment seekers

supply; movement along the supply curve

both cause shortages.

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ECON-221 Lecture Notes - Lecture 25: Indirect Tax, Marginal Utility, Marginal Cost

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