Question

Price of almonds P (dollars per ton) Price floor Quantity of almonds (tons) Figure 4-6 shows the demand and supply curves for the almond market. The government believes that the equilibrium pr is too low and tries to help almond growers by setting a price floor at PT 5) 5) Refer to Figure 4-6. What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor? А) в B) B+E C) E D) B+C 6) Refer to Figure 4-6. What area represents the dead weight loss after the imposition of the price floor? A) C+D+G B) C+D+F+ G C ) F# G D) CD 7) When the government taxes a good or service, it A) eliminates the dead weight loss associated with the good or service. B) increases consumer surplus for the good or service. C) increases producer surplus for the good or service. D) affects the market equilibrium for that good or service 8) Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to a change in buyers' incomes. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to changes in the price of a related good.

Answer 1

Ans) At equilibrium, quantity demanded is equal to quantity supplied. This is market clearing point. When price is above equilibrium price, there is surplus or excess supply in the market.

Price flooring is the legal maximum price that must be paid for the product. It decreases consumer surplus and increases producer surplus. It also creates deadweightloss.

Price of almonds P (dollars per ton) consumer surplus Price floor B Before price floor GX producer surplus a Quantity of almonds (tons)

Price of almonds P (dollars per ton) SURPLUS consumer surplus P Price floor deadweightloss producer surplus a Quantity of almonds (tons)

1) Area B represents area of consumer surplus that is transferred to producer surplus. Option a.

2) Ar C and D represent deadweightloss. Option d.

3) When government imposes tax, its effect is similar to shift in demand or supply curve and hence affects the market equilibrium.

Option d.

4) Price elasticity of demand is the responsiveness of quantity demanded to change in price.

Option c.