MGEA02H3 Study Guide - Midterm Guide: Price Support, Demand Curve, Economic Surplus

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA02H3
• Professor: Iris Au

Document Summary

Producer surplus rises when there is an increase in supply, holding all else constant. True, because when supply shifts to the right, the area representing producer surplus becomes a triangle with the same height but a larger base. False, because the price falls due to a movement along the demand curve if the shift is not constant at all quantities: short problems. Below you will find two short problems, each worth 15 points. Points for each subsection of the problem are stated: cigarette contradiction? (15 points) Suppose the u. s. government administers only two programs that affect the market for cigarettes. Firstly, media campaigns and labeling requirements are aimed at making the public aware of the dangers of cigarette smoking. Secondly, the department of agriculture maintains a price support program for tobacco, which includes guaranteeing tobacco farmers a selling price that is above the equilibrium market price (including paying them for any excess supply).