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ECON 1201 Chapter Notes - Chapter 3: Inferior Good, Flashlight, Normal Good

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School
UConn
Department
Economics
Course
ECON 1201
Professor
Ria Bhattacharya

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ECON 1201 Full Course Notes
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Document Summary

Changes in supply and demand can be the reason for economic recession or economic boom. Oil market is most important market in the world. Demand curve - function that shows the quantity demanded at different prices or the maximum willingness to pay (per unit) for any quantity. Quantity demanded at a certain price per unit. Summarizes how millions of consumers choose to use oil given their preferences and possibilities for substitution. Law of demand - lower the price, the greater the quantity demanded. Consumer surplus - consumer"s gain from exchange/trade. Total consumer surplus - add up consumer surplus for each consumer and for each unit. On a graph, it is the shaded area beneath the demand curve and above the price. Can estimate using the area of a triangle. An increase in demand shifts the curve outward (up, right) A decrease in demand shifts the curve downward (down, left)

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Related Questions

1. A shift outward of the production possibilities frontier line indicates

a. economic expansion has occurred and more of each good or resource can be produced.

b. a change between two goods produced.

c. less of both goods can be produced.

d. the producer is less efficient and incurring a reduction in economic wealth.

 

 

2. If the demand curve and supply curve arrive at an equilibrium price of $5 and quantity of 6, while the height of the consumer surplus triangle is 5, and the height of the producer surplus triangle is 5, it is correct to say

a. consumer surplus equals 30.

b. consumer surplus equals 15.

c. consumer surplus and producer surplus are both the same and equal 3.

d. producer surplus equals 30.

Taxation Question (SHOW ALL WORK)

Suppose that the demand curve (hundreds) for apples is given by Qd = 140 - 5P, where Qd is the number of pounds demanded per year and p is the price per pound. The supply of apples can be described by Qs = 40 + 5P, where Qs is the number of pounds provided.

What is the equilibrium price? (Hint: At the equilibrium, quantity demanded and quantity supplied are equal, Qd = Qs.)

What is the equilibrium quantity supplied and demanded?

Calculate the consumer surplus at the equilibrium price.

Calculate the producer surplus at the equilibrium price.

Calculate the total surplus at the equilibrium price.

Now suppose that the government imposes a tax of $8 per each pound sold, paid by the producers. In this case, what are the price and the consumer surplus?

The market demand for gadgets is given byQD=100-3p , where QD is the quantity of gadgets demanded and p is the price of a gadget in dollars. The market supply is given byQ S=p , where QS is the quantity of gadgets supplied. The production of gadgets releases a toxic effluent into the water supply. The marginal external cost can be described by MEC Q=2Q. a) Compute consumer surplus, producer surplus and the cost pf pollution in the market equilibrium. b) Compute consumer surplus, producer surplus and the cost pf pollution in the social optimum. c) Suppose the government is considering imposing a tax of $T per unit on the producers. Find the level of the tax that ensures the socially optimal amount of gadgets will be produced in a competitive equilibrium.