Question

25. If the government believes that a market equilibrium price is too low, it can Implement a . The trade-off for this is that it will create a a. Price ceiling; shortage b. Price ceiling; surplus c. Price floor; shortage d. Price floor; surplus 26. Deadweight loss occurs because a. Consumer surplus and producer surplus are not equal. me consumers are willing to pay more than some producers are willing to accept, but they do not exchange. c. The government is focusing on efficiency rather than on equity. d. None of the above. 27. Suppose that your instructor is willing to spend $5 for her first cup of coffee, $3 Tor her second cup of coffee, $2 for her third cup of coffee, and $0 for her fourth cup or If the price of coffee is $1, and if there are no restrictions on the amount of coffee she drinks, what is her consumer surplus? a. - $1 b. $1 © $7 d. $11 28. Price controls such as anti-price gouging laws and minimum wages tend to be a. Efficient but not equitable. b. Equitable but not efficient. c. Both efficient and equitable. d. Neither efficient nor equitable. 29. Given the market to the left, the deadweight loss created by a price floor of $80, a price ceiling of $20, or a quota of 2 is a. x ($80 - $20) x (4 - 2) = $60 b. x $40 x 4 = $80 x ($120 - $40) x 4 = $160 d. x $120 x 4 = $240 0 1 5 60 statements. Statements about equity are 30. Statements about efficiency are statements. a. Normative; normative b. Positive; positive C. Normative; positive d. Positive; normative 67

Answer 1

Answer 25. D Price Floor, Surplus

Price floor is the minimum price at which a good has to be sold in an economy. Implementing a binding price floor results in a quantity supplied >quantity demanded, which results in a surplus.

Answer 26. D None of the above.

Dead weight loss occurs when a government chooses equity over economic efficiency.

Answer 27. C. $7

Coffee serving	Utility Derived $	Cost $	Consumer surplus $
1	5	1	4
2	3	1	2
3	2	1	1

Consumer surplus = Utility Derived - Cost

Total cumulative Consumer surplus =4+2+1=$7

Answer 28. B. Equitable but not efficient

Price controls are always a loss to the total economic benefit. Price controls will always have a dead weight loss attached with it.