ECON 20 Lecture Notes - Lecture 5: Deadweight Loss, Avoidance Speech, Private Good

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rosebuffalo981

18 Aug 2020

School

Irvine Valley College

Department

Economics

Course

ECON 20

Professor

mitton

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Document Summary

Markets fail to produce the right amount of the product. Demand curves must reflect the consumers full willingness to pay. Supply curve must reflect all the costs of production. Any difference between the amount willing to be used to purchase a product and the market equilibrium. The difference between the actual price a producer receives and the minimum price they would accept. Extra benefit from receiving a higher price. A market is efficient when it is at equilibrium. Which means that the consumer and producer surplus are equal, which also gets our total surplus when combined together. Society will suffer a net benefit loss whenever there is an efficiency loss in the market. When in underproduction mb>mc, when in overproduction mb

Related Questions

PLEASE ANSWER EACH QUESTION WITH A, B, C, and D. NOT ANSWERING ALL QUESTIONS OR INCORRECT ANSWERS WILL RESULT IN A THUMBS DOWN.

Question 1: Which of the following is not needed for price discrimination to be possible?

		A. The firm must have market power.
		B. The firm must be able to prevent resale and arbitrage.
		C. The firm must eventually learn about its customers' demands.
		D. The firm's customers must have different demand curves.

Question 2: Relative to standard monopoly pricing, first-degree price discrimination results in:

	A.	higher consumer surplus, higher producer surplus, and higher total surplus.
	B.	lower consumer surplus, higher producer surplus, and higher total surplus.
	C.	lower consumer surplus, higher producer surplus, and lower total surplus.
	D.	lower consumer surplus, lower producer surplus, and lower total surplus.

Question 3: Relative to perfect competition, first-degree price discrimination results in:

		A. higher consumer surplus, higher producer surplus, and higher total surplus.
		B. lower consumer surplus, higher producer surplus, and equal total surplus.
		C. lower consumer surplus, higher producer surplus, and equal total surplus.
		D. lower consumer surplus, lower producer surplus, and lower total surplus.

Question 4: If market demand is P = 100 - Q and the firm has a constant marginal cost of 20, then with first-degree price discrimination, the firm's producer surplus will be:

A.	$800.
B.	$1,600.
C.	$2,400.
D.	$3,200.

Question 5: For third-degree discrimination to be possible, which of the following features is not required?

		A. market power
		B. prevention of resale
		C. identification of each customer's demand before purchase
		D. customers with different demand curves

Question 6: A golf course has frequent players whose demand is Q_f = 260 - 0.4P and infrequent players whose demand is Q_i = 10 - 0.1P. The combined market demand is Q = 34 - 0.4P. The marginal cost and average total cost of providing a round of golf are $20. How much higher will the profit be if the golf course uses third-degree price discrimination instead of charging all golfers the same price?

A.	$0
B.	$7.50
C.	$10
D.	$110

Question 7: An airline sells seats on its flights to business travelers whose demand is Q_B = 300 - P and vacation travelers whose demand is Q_V = 150 - 0.5P. The combined market demand is Q = 450 - 1.5P. The marginal cost and average total cost of providing a seat on a flight are $200. How much higher will profit be if the airline uses third-degree price discrimination instead of charging all travelers the same price?

A.	$0
B.	$250
C.	$400
D.	$1,000

Question 8: If a firm practices third-degree price discrimination, the price charged should be higher in the market where demand is:

	A.	Higher.
	B.	Lower.
	C.	More price elastic.
	D.	Less price is elastic.

Question 9: The key difference between markets where third-degree price discrimination is possible and markets where second-degree price discrimination is possible is whether:

		A. resale is possible.
		B. customers have the same demand curves.
		C. firms have market power.
		D. firms can identify customers' demand before the customers make a purchase.

Question 10: For price discrimination via a quantity discount to work:

		A. customers who purchase larger quantities must have relatively elastic demand.
		B. customers who purchase larger quantities must have relatively inelastic demand.
		C. customers who pay a relatively high price must have relatively elastic demand.
		D. customers who pay a relatively low price must have relatively inelastic demand.

Question 11: A firm wants to offer a quantity discount to price-discriminate between buyers who are relatively uninterested in the product and buyers who are obsessively interested in it. The uninterested customers have a demand of Q_U = 30 - 0.5P. The package offered to them contains 10 units of the good at a price of $40 each. Which of the following packages designed for obsessed customers is incentive compatible?

	A.	60 units at a price of $10 each
	B.	40 units at a price of $10 each
	C.	60 units at a price of $20 each
	D.	40 units at a price of $20 each

Question 12: Which of the following conditions do not have to be met in order for indirect price discrimination by versioning to work?

		A.The firm's customers must have different demand curves.
		B. The marginal costs of producing each version of the product must be the same.
		C. The firm must be able to prevent resale.
		D. The firm must have market power.

	Willingness to pay (per month)
	Weight machines	Indoor pool
Abe	$60	$50
Betty	50	125
Chris	25	140

QUESTION 13
This table shows the willingness to pay off the only three potential customers of a firm that runs both a weight room and an indoor swimming pool. The weight room and pool each have a constant marginal cost of $20 per month. Which of the following pricing strategies yields the highest producer surplus?

		A. $60 for the weight room, $140 for the pool, or $175 for both
		B. $50 for the weight room, $125 for the pool, or $165 for both
		C. $25 for the weight room, $50 for the pool, or $70 for both
		D. $60 for the weight room, $130 for the pool, or $175 for both

Question 14: Which of the following features is needed to make bundling a possible price discrimination strategy but is not required for any other price discrimination strategies?

		A. Customers must have identical demand curves.
		B. The firm does not learn about customer demand until after purchase.
		C. Demand for two products must be negatively correlated.
		D. The firm must not have market power.

Question 15: Which of the following features is not needed for price discrimination using a two-part tariff to work?

		A. The firm must have market power.
		B. The firm must be able to prevent resale.
		C. The firm must learn about its customers' demands before purchases are made.
		D. The firm's customers must have different demand curves.

Question 16: A firm faces a market demand curve P = 50 - 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each, but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus?

		A. Consumer surplus would decrease by $10, and producer surplus would increase by $20.
		B. Consumer surplus would increase by $10, and producer surplus would increase by $20.
		C. Consumer surplus would increase by $20, and producer surplus would increase by $10.
		D. Consumer surplus would increase by $20, and producer surplus would increase by $20.

Question 17: Relative to standard monopoly pricing, block pricing:

		A. decreases consumer surplus, increases producer surplus, and increases total surplus.
		B. increases consumer surplus, increases producer surplus, and increases total surplus.
		C. decreases consumer surplus, increases producer surplus, and decreases total surplus.
		D. decreases consumer surplus, decreases producer surplus, and decreases total surplus.

Question 18: Which of the following results in the highest amount of producer surplus?

	A.	bundling
	B.	third-degree price discrimination
	C.	block pricing
	D.	two-part tariffs

Question 19: Which of the following results in the highest amount of consumer surplus?

	A.	first-degree price discrimination
	B.	third-degree price discrimination
	C.	block pricing
	D.	two-part tariffs

Question 20: Which of the following results in the highest amount of total surplus?

	A.	third-degree price discrimination
	B.	block pricing
	C.	first-degree price discrimination
	D.	bundling

crimsonbadger400

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?

amaranthimpala915

17. Which of the following is a determinant of supply?

A. Tastes and preferences

B. Price of a complementary good

C. Consumer income

D. Technology

18. A market is in equilibrium:

A. provided there is no surplus of the product

B. at all prices above that shown by the intersection of the supply and demand curves

C. if the amount producers want to sell is equal to the amount consumers want to buy

D. whenever the demand curve is downsloping and the supply curve is upsloping.

19. If the market price is above the equilibrium price:

A. A shortage will occur and producers will produce more and lower prices

B. A surplus will occur and producers will produce less and lower prices

C. A surplus will result and consumers will bid prices up

D. Producers will make extremely high profits

20. The market system automatically corrects a surplus condition in a competitive market by:

A. Raising the price of the commodity in question while increasing the quantity demanded

B. Raising the price of the commodity in question while decreasing the quantity demanded

C. Reducing the price of the commodity in question while increasing the quantity demanded

D. Reducing the price of the commodity in question while decreasing the quantity demanded

21. The price elasticity of demand measures:

A. buyer responsiveness to price changes.

B. the extent to which demand curve shifts as incomes change.

C. the slope of the demand curve.

D. how far business executives can stretch their fixed costs

22. The elasticity of demand for a product is likely to be greater:

A. if the product is a necessity, rather than a luxury good.

B. the greater the amount of time over which buyers adjust to a price change

C. the smaller the proportion of one's income spent on the product.

D. the smaller the number of substitute products available.

23. Market failure is said to occur whenever:

A. private markets do not allocate resources in the most economically desirable way

B. prices rise

C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay

D. government intervenes in the functioning of private markets.

24. A negative externality or spillover cost occurs when:

A. firms fail to achieve allocative efficiency.

B. firms fail to achieve productive efficiency.

C. the price of the good exceeds the marginal cost of producing it.

D. the total cost of producing a good exceeds the costs borne by the producer

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ECON 20 Lecture Notes - Lecture 5: Deadweight Loss, Avoidance Speech, Private Good

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