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WorksheetsThe Analysis of Competitive Markets
Total questions: 20
Worksheet time: 40mins
If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:
$5
$15
$22.5
$40
If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:
$5
$15
$20
$25
Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:
fall by $200
fall by $300
rise by $200
rise by $300
In an unregulated, competitive market producer surplus exists because of some:
consumers are willing to pay more than the equilibrium price.
producers are willing to take more than the equilibrium price.
producers are willing to sell at less than the equilibrium price.
consumers are willing to purchase, but only at prices below the equilibrium price.
Price ceilings can result in a net loss in consumer surplus when the ________ curve is ________.
demand; very elastic
demand; very inelastic
supply; very inelastic
price ceilings always increase consumer surplus
At price 0E and quantity Q*, consumer surplus is the area:
0FCQ*.
AFC.
EFC.
AEC.
If the market is in equilibrium, total producer surplus is:
$100
$200
$300
$400
Consider the following statements when answering this question:
I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers.
II. Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers.
I and II are true.
I is true, and II is false.
I is false, and II is true.
I and II are false.
The market demand curve for a popular teen magazine is given by Q = 80 - 10P where P is the magazine price in dollars per issue and Q is the weekly magazine circulation in units of 10,000. If the circulation is 400,000 per week at the current price, what is the consumer surplus for a teen reader with maximum willingness to pay of $3 per issue?
$2.00
$1.00
0
-$1.00
. When the minimum imposed price is P2,
the quantity supplied is Q2 and the quantity demanded is Q3, so a surplus develops.
the quantity supplied is Q3, which results in a deadweight loss.
the quantity supplied remains at Q0, so only the quantity demanded falls to Q3.
the resulting surplus in the market is transferred to consumers.
Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is:
efficient as the quantity of drugs traded is the same as under a free market.
efficient as the price of drugs paid by the government is the same as under a free market.
efficient as consumer surplus is maximized.
likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
When the market price is held above the competitive level, the deadweight loss is composed of:
producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
There is no deadweight loss if the government uses a price floor policy to increase the price.
The market supply function is P = 10 + Q and the market demand function is P = 70 - 2Q. What is the change in consumer surplus associated with a minimum floor price of $30?
0
-$10
-$30
-$50
. Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in consumer surplus after this policy is adopted?
Consumers lose area B
Consumers lose area A+B
Consumers lose area A but gain area B
Consumers gain area A+B
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the deadweight loss of this program?
Deadweight loss is area E+F+G.
Deadweight loss is area B+C+E+F+G.
Deadweight loss is area D.
Deadweight loss is area B+C+D+E+F+G.
The government policy pictured is:
a price ceiling of $20.
a price support of $20.
a price ceiling of $15.
a price support of $15.
A small decrease in a production quota will have a large impact on the support price if:
demand is completely elastic.
demand is highly (but not completely) elastic.
demand is inelastic.
The demand elasticity does not affect the price outcomes of a quota program.
Suppose the government does not provide an incentive payment to producers under a production quota policy, and the amount that may be produced and sold by firms is limited by law in order to raise the market price to the support price. Do producers still gain surplus value under this version of the production quota policy?
Yes, they would always achieve a larger producer surplus under this version of the policy.
Yes, as long as the surplus value gained from consumers exceeds the amount of producer surplus lost from production quantities that are no longer produced.
No, they would always face a decrease in producer surplus without the government incentive payment.
No, the change in producer surplus is always negative due to the gains achieved by consumers.
Although rice is a staple of the Japanese diet, the Japanese government has long restricted the importation of rice into Japan. The result of this import quota is:
to decrease the price of rice to the Japanese people.
to decrease the consumer surplus of Japanese rice consumers.
to decrease the producer surplus of Japanese rice producers.
a welfare gain for the Japanese people.
A government can impose an import quota or an equivalent tariff that achieves the same impact on trade. What is the key difference in the welfare outcomes of these two policy options?
The domestic quantity supplied is larger under the tariff policy.
The domestic price is higher under the tariff policy.
The domestic price is lower under the tariff policy.
The government captures some of the profits from foreign suppliers through the tariff revenue.
