Macro - Chapter 4 Homework Flashcards PDF

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Macro - Chapter 4 Homework Terms in this set (37) Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $11, a second lawn for $19, and a third lawn for $25. Also suppose that three neighbors are $20

interested in having their lawns mowed. Mrs. Jones would be willing to pay $32 to have her lawn mowed, Mr. Wilson would be willing to pay $29, and Ms. Smith would be willing to pay $25. If Tim offers to mow lawns for $25 each, what will be his producer surplus?

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $11, a second lawn for $19, and a third lawn for $25. Also suppose that three neighbors are $11

interested in having their lawns mowed. Mrs. Jones would be willing to pay $32 to have her lawn mowed, Mr. Wilson would be willing to pay $29, and Ms. Smith would be willing to pay $25. Considering Mrs. Jones, Mr. Wilson, and Ms. Smith together, what will be their consumer surplus?

Macro - Chapter 4 Homework

______________ surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram to by area ____________. Consumer; A

Dissolvable tobacco products contain less nicotine than cigarettes and can help people quit smoking. Suppose the figure to the right illustrates five consumers' willingness to pay for tobacco lozenges. If the price of a pack of tobacco lozenges is $4.00, $10

what is the consumer surplus for these consumers? Consumer surplus is _______________.

Macro - Chapter 4 Homework

Consider the market for LCD TVs. Assume the market is perfectly competitive and at a marketclearing equilibrium. What area represents consumer surplus? 1.) Use the triangle drawing tool to shade in consumer surplus. Label this area 'Consumer Surplus'. *answer is in the picture*

What area represents producer surplus? 2.) Use the triangle drawing tool to shade in producer surplus. Label this area 'Producer Surplus'.

A price ceiling is a legally determined ______________ Maximum; minimum

price that sellers may charge. A price floor is a legally determined ______________ price that sellers may receive.

_______________ surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram to the Producer; B

Net; total

Macro - Chapter 4 Homework

right by area ___________________.

Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.

The graph to the right shows the market demand and supply for eggs. Assume that the market for eggs is perfectly competitive. Suppose the egg producers organize themselves and establish a system of quotas. Each farmer's output is restricted by an amount indicated in the graph. Compared with the market-clearing equilibrium, is No

the quota system efficient? (Illustrate the loss of efficiency that results from the quota system. Use the triangle drawing tool to shade in the deadweight loss. Label the shaded area 'Deadweight Loss'.)

Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the diagram to the right, C&E

Macro - Chapter 4 Homework

deadweight loss is equal to the area(s):

The market supply and market demand curves for a magazine highlighting events and happenings for a metropolitan area are illustrated in the figure to the right. If the magazine publisher charges a weekly $2,000

subscription price of $3.50, what will be the resulting deadweight loss, if any? Deadweight loss will be ______________.

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

Macro - Chapter 4 Homework

Economic efficiency is ________________.

Consider the market for eggs illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of 5 cents and a quantity of 50 (thousand). If the price were 7 cents instead of 5 cents, then consumer surplus would _______________. Decrease by areas B and E;

In turn, producer surplus would __________________.

Increase by area B and decrease by area F; Areas E

Consequently, at a price of 7 cents, deadweight loss

and F

would equal _________________.

Economic surplus in a market is the sum of _____ Consumer; producer; maximum; equilibrium

surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _____.

Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to market) another barrel of oil is $79.40 Increase by $0.20

and the marginal benefit is $79.60. If one more barrel of oil is produced and consumed, how will economic surplus change? Economic surplus will

Macro - Chapter 4 Homework

In the diagram, marginal benefit ______________ marginal cost at output level Q2. This output level is considered economically Is equal to; efficient

______________.

In the diagram, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area ______________ and C; B and D

the deadweight loss is equal to areas _______________.

In the diagram, illustrating a binding price floor at P1, the amount of consumer surplus transferred to producers is represented by area _______________ and B; C and E

A market in which buying and selling take place at prices that violate government price regulations

Macro - Chapter 4 Homework

the deadweight loss is equal to areas ________________.

A black market is:

Normative statement. The

"Rent controls, government farm programs, and

statement is concerned with

other price ceilings and price floors are bad." This is

what should be.

an example of a:

Consider the market for corn, illustrated in the figure to the right. Suppose the government regulates a price floor of $10.00 per bushel to help corn farmers. What will be the effect of this price regulation on the market for corn? 1.) Using the point drawing tool, indicate the market price and the quantity demanded with the *answer is in the picture*

government's price floor. Label this point 'Upper Q Subscript Upper D'. 2.) Using the triangle drawing tool, indicate the deadweight loss created by the government's price floor relative to the competitive equilibrium. Label this 'DWL'.

Macro - Chapter 4 Homework

Consider the market for wheat, depicted in the figure to the right. Suppose a price floor of p3 is imposed by the government. As a result of the price floor, there is a _________________ of wheat. Compared with the market-clearing equilibrium, is the price floor efficient?

Surplus; No; *answer is in the

What area represents the loss in efficiency in terms

picture*

of consumer and producer surplus resulting from the price floor? (Use the triangle drawing tool to shade in deadweight loss. Label this shaded area 'Deadweight Loss'.)

Suppose the figure to the right represents a local cattle market. What would be the effect on this market of the local government regulating a price ceiling of $0.80 per pound? Shortage; 40

The market would have a _________________ of _______________ thousand pounds.

Some people win, some

When the government imposes price floors or price

people lose, and there is a loss

ceilings, ________________.

Macro - Chapter 4 Homework

Consider the market for sugar illustrated in the figure to the right. Suppose the market is perfectly competitive and initially in equilibrium at a price of p2 and a quantity of Upper Q2. Now suppose the government applies a price floor of p3. Compared with the market-clearing Decrease by areas B and E;

equilibrium, consumer surplus would __________________.

Increase by area B and decrease by area F; Areas E

In turn, producer surplus would ______________.

and F Consequently, with the price floor, deadweight loss would equal ________________.

Macro - Chapter 4 Homework

Suppose the graph to the right illustrates the market for toilet paper. Let the production of toilet paper create pollution (a negative externality) such that the marginal social cost of toilet paper production is $225 more than the marginal private cost. 1.) Using the line drawing tool, graph the marginal social cost curve. Label this line 'Upper S 2'. 2.) Using the point drawing tool, identify the efficient market price and quantity. Label this point *answer is in the picture*

'e 2'. 3.) Using the triangle drawing tool, shade in the deadweight loss created by this externality. Label this 'DWL'.

Which of the following is not an example of an externality? An externality is not created by: Consuming a Coke

- Producing honey with bees. - Producing college educations. - Consuming a Coke. - Generative electricity. - Conducting medical research.

Macro - Chapter 4 Homework

The private cost of production

How do externalities affect markets?

will be different than the social

If a negative externality in production is present in a

cost of production.

market, then _________________.

How do externalities in the production of college Provide insufficient college educations.

educations result in market failure? Because of externalities, the market for college educations will __________________.

Consider the market illustrated in the figure to the right. Supply curve Upper S 1 represents the private cost of production and demand curve Upper D 1 represents the private benefit from consumption. Suppose production of this good creates a negative externality. Show how the externality affects the market. 1.) Use the line drawing tool to draw either a new supply (Upper S 2) or demand (Upper D 2) curve incorporating the negative externality in production. *answers located in the

Properly label this line.

picture* 2.) Use the point drawing tool to indicate the market equilibrium price and quantity. Label this point 'Market equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'.

Macro - Chapter 4 Homework

The marginal social cost of

Suppose electricity generates a negative externality

electricity is greater than the

in production. If so, then _________________.

marginal private cost.

The private market equilibrium

Suppose cigarettes generate a negative externality

results in a quantity that is

in consumption. If so, then ________________.

greater than the efficient quantity

Externalities and market failure

How do property rights affect externalities and

will result from incomplete

market failure?

property rights.

Macro - Chapter 4 Homework

Suppose the figure to the right illustrates the market for toilet paper, where Upper S 1 represents the marginal private cost of production and Upper D 1 represents the marginal private benefit from consumption. Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Assume that Upper S 2 represents the marginal social cost of producing toilet paper (incorporating the externality). What could the government do to Tax; $225

internalize the externality? In the presence of a negative externality, the government could _______________ toilet paper production. In particular, the government should set a Pigovian tax of _____________ per ton of toilet paper produced.

Macro - Chapter 4 Homework

Suppose the figure to the right represents the production of a manufactured good. Production of this good generates volatile organic compounds, which are a type of air pollution. As a result, the cost of production to society is greater than the private cost of production. The marginal private cost of production is represented by MC 1 and the marginal social cost is represented by MC 2. Suppose the government decides to impose a $225

Pigovian tax to bring about an efficient level of output. What size should the tax be? The government should levy a tax of __________ per ton produced.

Macro - Chapter 4 Homework

Suppose the United States has two utilities, Commonweath Utilities and Consolidated Electric. Both produce 20 million tons of sulfur dioxide pollution per year. However, the marginal cost of reducing a ton of pollution for Consolidated Electric is $350 per ton and the marginal cost of reducing a ton of pollution for Commonwealth Utilities is $450 per ton. The government's goal is to cut sulfur dioxide pollution in half (by 20 million tons per year). If the government issues 10 million tradable $7000; $8000

pollution permits to each utility, what will be the cost of eliminating half of the pollution to society? Using a cap-and-trade LOADING... system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of ___________ million per year. If the permits are not tradable, what will be the cost of eliminating half of the pollution? If permits cannot be traded, then the cost of the pollution reduction will be ___________ million per year.

Macro - Chapter 4 Homework

Suppose two utilities, People's Electric and Municipal Energy, each produce 500 tons of pollution per year. The government has a goal of eliminating half the pollution, and, in turn, provides 250 pollution permits to each utility. A pollution permit is required to legally produce a ton of pollution. However, the two utilities are allowed to trade permits. Suppose the cost of eliminating one ton of pollution for People's Electric is $100 and the $37,500; $25,000

cost of eliminating a ton of pollution for Municipal Energy is $50. The total cost of each utility eliminating 250 tons of pollution is ________________. If the two utilities buy and sell permits with each other, then the minimum cost of eliminating 500 tons of pollution is _______________....