Deck 9: The Analysis of Competitive Markets

Question 1

Figure 9.2
Refer to Figure 9.2.At price 0H and quantity Q1,producer surplus is the area

A)0ABQ1.
B)0EDQ1.
C)AHB.
D)0FGQ1.
E)none of the above

Answer 1

C

Question 2

Figure 9.2
Refer to Figure 9.2.At price 0E and quantity Q*,producer surplus is the area

A)0ACQ^*.
B)0ECQ^*.
C)0FCQ^*.
D)EFC.
E)none of the above

Answer 2

E

Question 3

Deadweight loss refers to

A)losses in consumer surplus associated with excess government regulations.
B)situations where market prices fail to capture all of the costs and benefits of a policy.
C)net losses in total surplus.
D)losses due to the policies of labor unions.

Answer 3

C

Question 4

Figure 9.3
Refer to Figure 9.3.If the market is in equilibrium,the producer surplus earned by the seller of the 100th unit is

A)$0.50.
B)$0.75.
C)$1.50.
D)$2.00.
E)$2.75.

Question 5

Producer surplus for the whole market can be thought of as

A)total profit.
B)variable operating profit plus factor rents.
C)total profit minus factor rents earned by lower cost firms.
D)total profit plus factor rents earned by lower cost firms.

Question 6

Figure 9.2
Refer to Figure 9.2.At price 0E and quantity Q^*,consumer surplus is the area

A)0FCQ^*.
B)AFC.
C)EFC.
D)AEC.
E)none of the above

Question 7

Figure 9.2
Refer to Figure 9.2.At price 0E and quantity Q*,the deadweight loss is

A)0ACQ^*.
B)0ECQ^*.
C)0FCQ^*.
D)EFC.
E)none of the above

Question 8

Figure 9.2
Refer to Figure 9.2.At price 0H and quantity Q1,consumer surplus is the area

A)EDGF.
B)0FGQ1.
C)HFGB.
D)EFC.
E)none of the above

Question 9

Producer surplus is measured as the

A)area under the demand curve above market price.
B)entire area under the supply curve.
C)area under the demand curve above the supply curve.
D)area above the supply curve up to the market price.

Question 10

An effective price ceiling causes a loss of

A)producer surplus for certain and possibly consumer surplus as well.
B)consumer surplus only.
C)producer surplus only.
D)consumer surplus for certain and possibly producer surplus as well.
E)neither producer nor consumer surplus.

Question 11

Consumer surplus measures

A)the extra amount that a consumer must pay to obtain a marginal unit of a good or service.
B)the excess demand that consumers have when a price ceiling holds prices below their equilibrium.
C)the benefit that consumers receive from a good or service beyond what they pay.
D)gain or loss to consumers from price fixing.

Question 12

Price ceilings can result in a net loss in consumer surplus when the __________ curve is __________.

A)demand; very elastic
B)demand; very inelastic
C)supply; very inelastic
D)none of the above; price ceilings always increase consumer surplus

Question 13

Figure 9.3
Refer to Figure 9.3.If the market is in equilibrium,the consumer surplus earned by the buyer of the 100th unit is

A)$0.50.
B)$0.75.
C)$1.50.
D)$2.00.
E)$2.75.

Question 14

Figure 9.3
Refer to Figure 9.3.If the market is in equilibrium,total producer surplus is

A)$2.
B)$3.
C)$200.
D)$400.
E)$600.

Question 15

In an unregulated,competitive market producer surplus exists because some

A)consumers are willing to pay more than the equilibrium price.
B)producers are willing to take more than the equilibrium price.
C)producers are willing to sell at less than the equilibrium price.
D)consumers are willing to purchase,but only at prices below equilibrium price.

Question 16

Figure 9.2
Refer to Figure 9.2.At price 0H and quantity Q1,the deadweight loss is

A)DGC.
B)BDC.
C)BGC.
D)0FGQ1.
E)none of the above

Question 17

In 1970s the federal government imposed price controls on natural gas.Which of the following statements is true?

A)These price controls caused a chronic excess supply of natural gas.
B)Consumers gained from the price controls,because consumer surplus was larger than it would have been under free market equilibrium.
C)Producers gained from the price controls because producer surplus was larger than it would have been under free market equilibrium.
D)This episode of price controls was unusual,because it resulted in no deadweight loss to society.

Question 18

In an unregulated,competitive market consumer surplus exists because some

A)sellers are willing to take a lower price than the equilibrium price.
B)consumers are willing to pay more than the equilibrium price.
C)sellers will only sell at prices above equilibrium price (or actual price).
D)consumers are willing to make purchases only if the price is below the actual price.

Question 19

When government intervenes in a competitive market by imposing an effective price ceiling,we would expect the quantity supplied to __________ and the quantity demanded to __________.

A)fall; rise
B)fall; fall
C)rise; rise
D)rise; fall

Question 20

Figure 9.3
Refer to Figure 9.3.If the market is in equilibrium,total consumer surplus is

A)$1.
B)$3.
C)$200.
D)$400.
E)$600.

Question 21

Under a binding price ceiling,what does the change in consumer surplus represent?

A)The gain in surplus for those buyers who can still purchase the product at the lower price.
B)The loss in surplus for those buyers who previously purchased some units of the good at the higher price,but these units are no longer produced at the lower price.
C)The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D)Both A and B are correct.
E)Both A and C are correct.

Question 22

Price ceilings

A)cause quantity to be higher than in the market equilibrium.
B)always increase consumer surplus.
C)may decrease consumer surplus if demand is sufficiently elastic.
D)may decrease consumer surplus if demand is sufficiently inelastic.
E)always decrease consumer surplus.

Question 23

For national security reasons a government decides that all of its base metal industry should not be located in the same geographical region,as it presently is.The government decides to allocate production quotas to firms in different parts of the country,but does not restrict in any way the transactions between consumers and base metal producers.This scheme is

A)efficient as consumers still buy from whoever they like.
B)efficient as those consumers who value base metals the most can purchase them.
C)likely to be inefficient as some of the industry's output is not produced by the firms with the lowest cost.
D)likely to be inefficient as the scheme will require subsidies to work.
E)efficient as learning by doing effects will be strongest in the firms set up in new geographical regions.

Question 24

Consider the following statements when answering this question I.Overall,the sick will always gain from a price ceiling on prescription drugs.
II)The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 25

Figure 9.3
Refer to Figure 9.3.If the government establishes a price ceiling of $1.00,producer surplus will

A)fall by $150.
B)fall by $300.
C)remain the same.
D)rise by $150.
E)rise by $300.

Question 26

Figure 9.3
Refer to Figure 9.3.If the market is in equilibrium,total consumer and producer surplus is

A)$0.
B)$4.
C)$5.
D)$600.
E)$800.

Question 27

Government intervention can increase total welfare when

A)there are costs or benefits that are external to the market.
B)consumers do not have perfect information about product quality.
C)a high price makes the product unaffordable for most consumers.
D)all of the above
E)A and B only

Question 28

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.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 29

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

A)efficient as the quantity of drugs traded is the same as under a free market.
B)efficient as the price of drugs paid by the government is the same as under a free market.
C)efficient as consumer surplus is maximized.
D)likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
E)likely to be inefficient as drug producers have a captive buyer.

Question 30

Which of the following policies could lead to a deadweight loss?

A)price ceilings.
B)price floors.
C)policies prohibiting human cloning.
D)all of the above
E)A and B only

Question 31

Figure 9.3
Refer to Figure 9.3.If the government establishes a price ceiling of $1.00,consumer surplus will

A)fall by $50.
B)fall by $150.
C)remain the same.
D)rise by $50.
E)rise by $150.

Question 32

Governments may successfully intervene in competitive markets in order to achieve economic efficiency

A)at no time; competitive markets are always efficient without government intervention.
B)to increase the incidence of positive externalities.
C)in cases of positive externalities only.
D)in cases of negative externalities only.
E)in cases of both positive and negative externalities.

Question 33

Consider the following statements when answering this question I.Employers are always hurt by minimum wage laws.
II)Workers always benefit from minimum wage laws.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 34

Figure 9.3
Refer to Figure 9.3.If the government establishes a price ceiling of $1.00,total consumer and producer surplus will be

A)$1.50.
B)$300.
C)$450.
D)$500.
E)$600.

Question 35

Figure 9.3
Refer to Figure 9.3.If the government establishes a price ceiling of $1.00,the resulting deadweight loss will be

A)$1.50.
B)$200.
C)$150.
D)$300.
E)$600.

Question 36

Under a binding price ceiling,what does the change in producer surplus represent?

A)The gain in surplus for those sellers who are still willing to supply the product at the lower price.
B)The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price.
C)The gain in surplus associated with the excess demand created by the price ceiling policy.
D)Both A and B are correct.
E)Both A and C are correct.

Question 37

Figure 9.3
Refer to Figure 9.3.If the government establishes a price ceiling of $1.00,how many pounds of berries will be sold?

A)200
B)300
C)400
D)600
E)800

Question 38

When the market price is held above the competitive level,the deadweight loss is composed of:

A)producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
B)consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C)producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D)There is no deadweight loss if the government uses a price floor policy to increase the price.

Question 39

The consumer's gain from the imposition of a price ceiling is higher when

A)the own price elasticity of market demand is high and the price elasticity of market supply is high.
B)the own price elasticity of market demand is high and the price elasticity of market supply is low.
C)the own price elasticity of market demand is low and the price elasticity of market supply is high.
D)the own price elasticity of market demand is low and the price elasticity of market supply is low.

Question 40

Consider the following statements when answering this question I.Waiting lists for kidney transplants have been caused by a 1984 congressional law forbidding humans to sell their kidneys.
II)Randomly choosing citizens to serve on juries is an efficient mechanism for selecting jurors.

A)I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)I and II are false.

Question 41

Figure 9.4
Refer to Figure 9.4.If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded,producer surplus will

A)fall by $275.
B)fall by $500.
C)remain the same.
D)rise by $275.
E)rise by $500.

Question 42

Figure 9.5
Refer to Figure 9.5.If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold,the resulting deadweight loss will be

A)$1.50.
B)200 pounds of berries.
C)$150.
D)$250.
E)$300.

Question 43

Figure 9.5
Refer to Figure 9.5.If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold,producer surplus will

A)fall by $50.
B)fall by $100.
C)remain the same.
D)rise by $50.
E)rise by $100.

Question 44

Figure 9.4
Refer to Figure 9.4.If the government establishes a price floor of $40 and purchases the surplus,total consumer and producer surplus will be

A)$15.
B)30 widgets.
C)$1,050.
D)$1,200.
E)$1,350

Question 45

Eliminating price supports for all US agricultural producers will hurt the farmers who cultivate products that have

A)a high own price elasticity of demand and a high price elasticity of market supply.
B)a high own price elasticity of demand and a low price elasticity of market supply.
C)a low own price elasticity of demand and a high price elasticity of market supply.
D)a low own price elasticity of demand and a low price elasticity of market supply.

Question 46

A minimum wage policy induces an:

A)excess demand for labor.
B)excess supply of labor.
C)efficient market outcome.
D)elastic labor supply response.

Question 47

Figure 9.5
Refer to Figure 9.5.If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold,total consumer and producer surplus will be

A)$1.50.
B)$300.
C)$450.
D)$500.
E)$600.

Question 48

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?

A)Deadweight loss is area E+F+G.
B)Deadweight loss is area B+C+E+F+G.
C)Deadweight loss is area D.
D)Deadweight loss is area B+C+D+E+F+G.

Question 49

Figure 9.4
Suppose the market in Figure 9.4 is currently in equilibrium.If the government establishes a price floor of $40,consumer surplus will

A)fall by $50.
B)fall by $350.
C)remain the same.
D)rise by $50.
E)rise by $350.

Question 50

Figure 9.4
Refer to Figure 9.4.If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded,the resulting deadweight loss will be

A)$15.
B)10 widgets.
C)$1,050.
D)$1,200.
E)$2,400.

Question 51

Figure 9.4
Suppose the market in Figure 9.4 is currently in equilibrium.If the government establishes a price floor of $50,how many widgets will be sold?

A)20
B)30
C)40
D)50
E)60

Question 52

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 producer surplus after this policy is adopted?

A)Producers lose area C but gain area A.
B)Producers lose area C but gain area A+B.
C)Producers gain A.
D)Producers gain area A+B+D.

Question 53

Which of the following is NOT true about price floors?

A)Consumer surplus is always lower than it would be in the competitive equilibrium.
B)Producer surplus could be lower,higher,or the same as it would be in competitive equilibrium.
C)Producer surplus could be negative as the result of a price floor.
D)Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost.
E)The total producer surplus depends on how producers respond to the price floor in determining their output level.

Question 54

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 cost of this program to the government?

A)Government expenditures are area E+F+G.
B)Government expenditures are area B+C+D.
C)Government expenditures are area D.
D)Government expenditures are area B+C+D+E+F+G.

Question 55

A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as:

A)an imperfectly competitive market.
B)a market failure.
C)a deadweight loss.
D)a disequilibrium.

Question 56

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?

A)Consumers lose area B.
B)Consumers lose area A+B.
C)Consumers lose area A but gain area B.
D)Consumers gain area A+B.

Question 57

Figure 9.5
Refer to Figure 9.5.If the government establishes a price floor of $2.50,consumer surplus will

A)fall by $50.
B)fall by $150.
C)remain the same.
D)rise by $50.
E)rise by $150.

Question 58

Use the following statements to answer this question: I.When the market price is held above the competitive price level,the loss in consumer surplus is fully captured by producers.
II)When the market price is held above the competitive level,there is no deadweight loss because producer gains exactly equal consumer losses.

A)I and II are true.
B)I is true and II is false.
C)II is true and I is false.
D)I and II are false.

Question 59

Figure 9.5
Refer to Figure 9.5.If the government establishes a price floor of $2.50,how many pounds of berries will be sold?

A)200
B)300
C)400
D)600
E)800

Question 60

One way to remove the excess labor supply problem from a minimum wage policy is to have the government hire all unemployed workers at the minimum wage.What is the key drawback of this version of a minimum wage policy?

A)The deadweight loss may increase substantially.
B)The cost to the government may be very large.
C)Consumer surplus losses increase further.
D)A and B are correct.
E)B and C are correct..

Question 61

Figure 9.7
Refer to Figure 9.7.After the policy was implemented,the quantity traded became

A)1000.
B)2000.
C)3000.
D)4000.
E)between 2000 and 4000,but the amount depends upon producers' reactions,which are uncertain.

Question 62

A price support may be pictured by

A)shifting the demand curve to the right by the amount of the government purchase.
B)shifting the demand curve to the left by the amount of the government purchase.
C)shifting the supply curve to the right by the amount of the government purchase.
D)shifting the supply curve to the left by the amount of the government purchase.
E)drawing a horizontal line below equilibrium price at the supported price.

Question 63

Figure 9.7
Refer to Figure 9.7.Before the policy was implemented,producer surplus was

A)$30.
B)$60.
C)$45,000.
D)$90,000.
E)$180,000.

Question 64

Figure 9.6
Refer to Figure 9.6.Before this policy was implemented,producer surplus was

A)$10.
B)$2000.
C)$4000.
D)$6000.
E)$12000.

Question 65

Figure 9.6
Refer to Figure 9.6.As a result of this policy,producer surplus will be

A)$2000.
B)$3375.
C)$4500.
D)$6000.
E)$12,000.

Question 66

What is the difference between a price support and a price floor?

A)A price support is below equilibrium; a price floor is above it.
B)A price support is above equilibrium; a price floor is below it.
C)Government buys the excess supply to maintain a price floor,but not a price support.
D)Government buys the excess supply to maintain a price support,but not for a price floor.
E)There is no difference between the two.

Question 67

Figure 9.6
Refer to Figure 9.6.As a result of this policy,consumer surplus will

A)fall to $15.
B)fall to $2250.
C)rise to $2500.
D)fall to $5000.
E)rise to $5000.

Question 68

Figure 9.6
Refer to Figure 9.6.The amount the government pays in the market to implement this policy is

A)$20.
B)$3000.
C)$4000.
D)$6000.
E)$12,000.

Question 69

When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price,the impact on total welfare is the

A)change in consumer surplus.
B)change in consumer surplus + the change in producer surplus + the cost to government.
C)change in consumer surplus + the change in producer surplus - the cost to government.
D)change in consumer surplus + the change in producer surplus.

Question 70

Figure 9.7
The policy shown in Figure 9.7 is a

A)price floor of $50.
B)price support of $50.
C)price ceiling of $30.
D)quota of 2000.
E)quota of 4000.

Question 71

A country's government would like to raise the price of one its most important agricultural crops,coffee beans.Which of the following government programs will result in higher prices for coffee beans?

A)An import quota on coffee beans
B)An acreage limitation program which provides coffee bean farmers financial incentives to leave some of their acreage idle
C)An import tariff on coffee beans
D)all of the above

Question 72

Figure 9.6
Refer to Figure 9.6.As a result of this policy,quantity will

A)fall to 300.
B)rise to 400.
C)stay at 400.
D)fall to 400.
E)rise to 600.

Question 73

Figure 9.6
Refer to Figure 9.6.Including the consumers' expected tax burden,the total change in welfare from this policy is

A)-$6000.
B)-$5250.
C)-$4500.
D)$4500.
E)$5250.

Question 74

Figure 9.7
Refer to Figure 9.7.After the policy,consumer surplus became

A)$0.
B)$10.
C)$20.
D)$20,000.
E)$40,000.

Question 75

Figure 9.7
Refer to Figure 9.7.Before the policy was implemented,consumer surplus was

A)$30.
B)$60.
C)$45,000.
D)$90,000.
E)$180,000.

Question 76

Figure 9.6
Refer to Figure 9.6.Before this policy was implemented,consumer surplus was

A)$20.
B)$4000.
C)$6000.
D)$8000.
E)$12000.

Question 77

When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price,changes in producer surplus

A)are negative.
B)are positive,but more than offset by the cost to consumers and the government.
C)are positive,and not offset by the cost to consumers and the government.
D)and consumer surplus are both positive.

Question 78

Figure 9.7
Refer to Figure 9.7.After the policy was implemented,price became

A)$10.
B)$30.
C)$50.
D)$70.
E)between $50 and $70,but the price is uncertain because quantity can be any amount between 2000 and 4000.

Question 79

Figure 9.6
Refer to Figure 9.6.The government policy pictured is

A)a price ceiling of $20.
B)a price support of $20.
C)a price ceiling of $15.
D)a price support of $15.
E)A quota of 600.

Question 80

Which of the following is unlikely to occur as a result of a price support program?

A)A reduction in consumer surplus
B)A reduction in producer surplus
C)An increase in quantity purchased
D)An economic cost to government
E)Improved economic efficiency