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Practical - chapter 5 questions & answers
Introduction to Microeconomics (ECON 201)
Concordia University
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Previous Exam Question Answer Ch5 1. The deadweight loss from a price increase resulting from a tax is the loss of a. Tax revenue from the decreased equilibrium quantity. b. Producer surplus. c. Consumer surplus. d. Consumer surplus minus the loss of producer surplus. e. Consumer surplus plus the loss of producer surplus (CS loss is the upper PS loss is the lower graphically). 2. A steel mill produces tons of steel per month at a cost of million. For the people in the surrounding community, the production of tons of steel causes an increase of in health care expenditures, a loss of in wages from being sick, and an increase of in expenditures on home and auto care due to the dirty air. Based on these figures, the private cost of tons of steel is while the social cost is (from Aplia) a. million. (Notice that social cost private external cost) b. c. million. d. million. 3. If flu vaccination generates external benefits for society as a whole (fewer infected, less likely to spread), then (from Apia) a. The free market amount of vaccination done is too low. b. At the free market outcome, the marginal social benefit is greater than the marginal cost. c. The government can subsidize consumption of the good. d. Both a and b. e. All of the above. 4. When economists describe a good as being and produced at an inefficient level under free market, they mean that: a. output should be increased because the marginal social benefit in consumption exceeds the marginal social cost of production. b. too much of the good is being produced since there is a negative externality associated with the good. c. resources are properly allocated since society wants more of the good at a lower price. d. there is an of resources in the production of the good. 5. The deadweight loss associated with output less than the competitive level can be determined a) subtracting the competitive level producer surplus from the producer surplus associated with less output. b) subtracting the consumer surplus from the producer surplus associated with less output. c) summing the consumer and producer surplus associated with less output. d) summing the change in the total consumer and producer surplus, and the change in government revenue, from moving from the competitive level of output to a lower output. 6. As more and more of the environment is cleaned up: a) the marginal benefit of pollution reduction increases. b) firms become more willing to undertake programs that improve environmental quality. c) the cost of cleaning increases and the marginal damage of the last unit of pollution declines. d) the ratio of marginal benefits to marginal costs becomes much greater than 1. 7. In a free market, goods with positive externalities will: a. be overproduced in the market place. b. have the marginal valuation of the externality reflected in their price. c. be produced to the point at which the marginal social benefit equals the marginal social cost of the last unit produced. d. be at the market equilibrium. 8. In figure 5, the dollar value of the total economic surplus is: a. 24. b. 36. c. 48. d. 60. 9 a supply and demand diagram of your own, if a per unit tax is imposed, the more elastic the supply curve, the: a) more likely the deadweight loss is to be affected. b) larger the deadweight loss. c) larger the deadweight loss to producers. d) smaller the deadweight loss to consumers. 10. When economists describe a good as being they mean that: a) output should be increased because the marginal social benefit in consumption exceeds the marginal social cost of production. b) too much of the good is being produced since there is a negative externality associated with the good. c) resources are properly allocated since society wants more of the good at a lower price. d) there is an of resources in the production of the good. illustrate the new demand and the new loss under the quota on your diagram in (c). Is the loss increasing or decreasing if the quota remains? Why? (5 marks) Ans: No quota, because when the demand shifts up, the DWL triangle will be bigger. The quota restricts how much healthier turkey people can buy, and it also leads to higher prices for turkey. Both effects are detrimental to the consumers. Question (13 marks) The demand function for amalgamated widgets is P Q 2, and the supply function is P (i) Q 2. Find the equilibrium price and graph your solution, labeling the intercepts. (2 marks) P 27 and Q 46 (ii) Find consumer surplus, producer surplus and the total social welfare. (2 marks) CS PS TW TS Suppose the government now decides to impose an tax of 25 percent to the suppliers of widgets. Find the new equilibrium quantity, the price per unit paid consumers, the payment per unit received producers. (2 marks) Q 40 Price paid consumers 30 Payment per unit received producers 24 (iv) Given such a tax policy, find the new consumer surplus and producer surplus. (3 marks) CS PS (v) Given the tax find the revenue to the government and the deadweight loss. (4 marks) Revenue to the government DWL Previous TS (New CS New PS Govt. Rev.) Question (13 marks) Consider the Market for milk in Saskatchewan. If P is the price of milk (cents per litre) and Q is the quantity of litres (in millions per month), suppose that the demand and supply curves for milk are given : Demand: Q D Supply: 35Q S (i) Assuming there is no government intervention in this market, what is the equilibrium price and quantity? (2 marks) P 165 cents per litre per litre) and Q 4 million litres month (ii) Find consumer surplus, producer surplus and the total social surplus. (2 marks) CS PS TS Now suppose the government guarantees milk producers a price of per litre and promises to buy any milk that the producers cannot sell. Find the new quantity traded on the market, the price paid consumers, the price received producers and the quantity of milk the government would be buying (per month) with this system of price support. Round all decimals to the nearest hundredth. (2 marks) Q 1 million litres month Price paid consumers price received sellers litre of milk Quantity bought the government 5 1 million litres (iv) Given this policy of price control, find the new consumer surplus, producer surplus, the cost to the government and the deadweight loss. (4 marks) CS 20 20 PS Costs to the government (5 1) 200 or million DWL change in consumer surplus change in produce surplus change in government (20 120) 157 In other way,
Practical - chapter 5 questions & answers
Course: Introduction to Microeconomics (ECON 201)
University: Concordia University
