Class 3

If a $5 per unit tax is introduced in this market, which area represents the deadweight loss?

• c

• a

• b+c

• a+b+c

Why will a binding price ceiling result in an inefficient allocation of resources?

• MB<MC, there will be a surplus

• MB>MC, there will be a surplus

• MB=MC, there will be a shortage

• MB>MC, there will be a shortage

What areas represent total surplus after the price ceiling of p5 is imposed?

• G+H+I+J

• G+H+IJ

• G+H+K+I+J+L

• G+H+K

Answer explanation

Total suplur=CS+PS

What is the value of producer surplus after the price ceiling of $16 is imposed?

• 36

• 72

• 81

• 108

There is a quota of 4.

What is the value of dead weight loss as a result of the quota?

• 12

• 24

• 6

• 6

If the government has imposed a quota of Q1, on the market for tomato soup, what area(s) represent surplus that was effectively reallocated from consumers to producers*?

• S

• T

• U

• V

Answer explanation

CS is now only R, decrease from R+S+V.

DWL is now V+W

If a subsidy is introduced in a market, then which of the following statement is TRUE?

• Consumer and producer surplus increase but dead weight loss increase.

• Consumer and producer surplus decrease, and dead weight loss increase

• Consumer surplus, and producer surplus increases, and total surplus is maximized.

• Consumer surplus, and producer surplus decrease

Answer explanation

Total surplus is maximized when a market produces at its equilibrium price and quantity