Question 1

Explain why the competitive output maximizes welfare.

Accepted Answer

The answer of Explain why the competitive output maximizes welfare....

Question 2

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur?
A)Consumer surplus will increase.
B)Producer surplus will increase.
C)Entry of new brokers will increase.
D)Social welfare will increase.

Accepted Answer

By limiting the number of real estate brokers, the supply of brokers will decrease, leading to an increase in the price charged by the remaining brokers. This will result in an increase in producer surplus for the remaining brokers, as they can earn higher profits. However, it is unlikely to increase consumer surplus or social welfare as it reduces competition and could lead to higher prices for consumers. The entry of new brokers is also less likely as the requirements limit the number of new entrants.

Question 3

In economics, welfare analysis is useful to
A)gauge the validity of "mend it, don't end it."
B)determine who should receive income transfers.
C)determine who gains and who loses in a particular policy option.
D)prove which policy option is "best."

Accepted Answer

Welfare analysis is used to determine who gains and who loses in a particular policy option. It helps to evaluate the distributional effects of policies on different individuals or groups in society. This information can then be used to inform policy decisions and ensure that the benefits of policies are maximized and any negative impacts are minimized.

Question 4

Policies that restrict supply could generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus.

Accepted Answer

One impact of a supply restriction is an exchange from consumers to producers. The net effect on social welfare is negative. Additionally, there is a deadweight loss. This is the additional surplus that could be generated if supply were not restricted. This effect is always negative. As a result, social welfare always declines in response to a supply restriction.

Question 5

While producing less than the competitive output decreases social welfare, the same cannot be said about producing more than the competitive output.

Accepted Answer

When more than the competitive output is produced each unit sold cost more than it is valued at. This reduces social welfare compared to the competitive output.

Question 6

What is one reason existing firms might lobby the government to increase regulation in their industry?
A)It increases entry and exit costs, thereby reducing producer surplus to existing firms.
B)It increases entry and exit costs, thereby potentially increasing producer surplus to existing firms.
C)It increases entry and exit costs, but has no impact on producer surplus.
D)Firms cannot be trusted to treat their customers fairly and ethically.

Accepted Answer

Existing firms might lobby the government to increase regulation in their industry because it would increase entry and exit costs for potential competitors, making it harder for new firms to enter the market and potentially increasing the market power and profitability of existing firms. This could potentially increase producer surplus for existing firms.

Question 7

Suppose an industry trade group has convinced legislators that a price floor should be used so that producer surplus is maximized in the market for milk. The group argues that such a policy would save the "family farm." Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve, determine the resulting price, output and social welfare from such a policy. Compare this result to the competitive equilibrium.

Accepted Answer

The answer of Suppose an industry trade group has convinced...

Question 8

Without restrictions, the market supply curve is horizontal at P = 5, and the inverse demand curve for taxi cab rides is P = 20 - Q in a competitive market. Subsequently, only 10 taxi cabs are allowed in the market. After the market adjusts to the restricted supply,
A)there will be a decrease in consumer surplus.
B)the remaining taxi cab drivers will make positive economic profits.
C)there will be an increase in producer surplus.
D)All of the above.

Accepted Answer

The answer of Without restrictions, the market supply curve is...

Question 9

Without restrictions, the market supply curve is horizontal at P = 5, and the inverse demand curve for taxi cab rides is P = 20 - Q in a competitive market. Subsequently, only 10 taxi cabs are allowed in the market. This results in a deadweight loss of
A)0.
B)5.5.
C)12.5.
D)25.

Accepted Answer

Without restrictions, the equilibrium price and quantity would be where the inverse demand curve intersects the horizontal supply curve:
20 - Q = 5
Q = 15
P = 5

When only 10 taxi cabs are allowed, the market supply curve becomes vertical at Q = 10. The new equilibrium price is where the new supply curve intersects the inverse demand curve:
20 - 10 = 10
P = 10
As a result, consumers are willing to pay more for taxi rides than the cost of producing them, which indicates a deadweight loss. The deadweight loss represents the loss of consumer surplus that occurs when there is a market inefficiency such as a quantity restriction. To calculate the deadweight loss, we need to determine the area between the demand curve and the supply curve at the original equilibrium quantity (Q = 15) and the new quantity (Q = 10), and then divide by 2. The deadweight loss is:
(1/2) x (15-10) x (20-5) = 12.5.

Question 10

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur?
A)The supply curve of real estate brokers will shift to the left.
B)The supply curve of real estate brokers will shift to the right.
C)Social welfare will remain unchanged.
D)The supply curve will remain unchanged.

Accepted Answer

If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, it will become more difficult for individuals to become licensed as brokers, and fewer people will enter the market. This will result in a decrease in the supply of real estate brokers, leading to a leftward shift in the supply curve. As a result, the equilibrium price for brokerage services will likely increase, and social welfare may be affected depending on the specific details of the regulatory requirements.

Question 11

In 2007, the National Collegiate Athletic Association put a moratorium on new Football Bowl Series (formerly Division IA)teams. This policy will
A)protect the producer surplus of existing football programs.
B)ensure that when entry occurs, producer surplus will not be zero.
C)ensure that when entry occurs, producer surplus will be positive.
D)ensure that consumer surplus is greater in the future.

Accepted Answer

The moratorium on new Football Bowl Series teams by the NCAA in 2007 is aimed at protecting the producer surplus of existing football programs by limiting competition. This helps maintain or potentially increase the financial benefits and market share for current teams.

Question 12

A new law applied to a competitive market that requires laid off workers be paid a large severance payment will
A)not generate a deadweight loss.
B)increase total welfare.
C)increase consumer surplus in the market.
D)decrease consumer surplus in the market.

Accepted Answer

The new law will increase the cost of employing workers in the market, as employers will have to pay a large severance payment in case they need to lay off workers. This will lead to a decrease in demand for labor, as employers will prefer to retain their current employees or hire fewer workers. As a result, the equilibrium wage rate will decrease, and the quantity of labor supplied will increase, leading to a decrease in consumer surplus in the market. Therefore, choice D is the best option.

Question 13

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then social welfare will most likely
A)not change, but there will be a transfer from consumer to producer.
B)not change, but there will be a transfer from producer to consumer.
C)decrease, although producers are made better off.
D)decrease, although consumers are made better off.

Accepted Answer

By limiting the number of real estate brokers, the state Board of Realtors is creating a barrier for new entrants to the market. This can result in higher prices for consumers who now have fewer options to choose from. Although existing brokers may benefit from the reduced competition, overall social welfare is likely to decrease as a result of higher prices and reduced efficiency in the market.

Question 14

In economics, welfare analysis focuses on
A)income transfer programs.
B)food stamp programs.
C)international aid programs.
D)None of the above.

Accepted Answer

Welfare analysis in economics focuses on analyzing the overall well-being of individuals or society as a whole, rather than specific government programs such as income transfers or food stamps. It considers factors such as income distribution, access to healthcare and education, and quality of life indicators. Therefore, none of the options provided are correct.

Question 15

If a city decides to restrict the number of pizza parlors,
A)the price of pizza will increase.
B)pizza parlors will make higher profits.
C)total welfare will decrease.
D)All of the above.

Accepted Answer

Restricting the number of pizza parlors reduces competition, likely leading to higher prices as each parlor faces less pressure to keep prices low. Higher prices can increase profits for the parlors that remain, assuming demand remains relatively inelastic. However, this reduction in competition and increase in prices can lead to a decrease in total welfare, as consumers pay more for pizza and have fewer choices, potentially leading to a loss in consumer surplus.

Question 16

Suppose a consumer advocacy group has convinced legislators that vitamin pills should be free to consumers. Such a policy would enhance the health of the citizenry, they argue. Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve, determine the resulting output and social welfare from such a policy. Compare this result to the competitive equilibrium.

Accepted Answer

The answer of Suppose a consumer advocacy group has convinced...

Question 17

As the quantity produced of a good increases, the social welfare generated by that good increases.

Accepted Answer

This only takes consumer surplus into account. Beyond the competitive equilibrium, additional units of output have less value than the cost to make them. Thus, beyond the competitive equilibrium, social welfare declines as the quantity of a good increases.

Question 18

-The above figure shows the demand and supply curves in the market for milk. If the government imposes a quota at 500 gallons, calculate the change in the consumer surplus.
A)△CS = -250
B)△CS = -150
C)△CS = -500
D)△CS = 200

Accepted Answer

The answer of 
-The above figure shows the demand and...

Question 19

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then consumer surplus will most likely
A)increase.
B)decrease.
C)remain unchanged.
D)There is not enough information to answer.

Accepted Answer

Limiting the number of real estate brokers will reduce competition, leading to higher prices and thus decreasing consumer surplus.

Question 20

If a city decides to lift restrictions of how many taxi cabs can operate, social welfare will increase.

Accepted Answer

Even though turning producer surplus into consumer surplus doesn't increase total welfare, the elimination of the deadweight loss that resulted from the limit does.

Quiz 9: Applying the Competitive Model

Explain why the competitive output maximizes welfare.

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur?

In economics, welfare analysis is useful to

Policies that restrict supply could generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus.

While producing less than the competitive output decreases social welfare, the same cannot be said about producing more than the competitive output.

What is one reason existing firms might lobby the government to increase regulation in their industry?

Without restrictions, the market supply curve is horizontal at P = 5, and the inverse demand curve for taxi cab rides is P = 20 - Q in a competitive market. Subsequently, only 10 taxi cabs are allowed in the market. After the market adjusts to the restricted supply,

Without restrictions, the market supply curve is horizontal at P = 5, and the inverse demand curve for taxi cab rides is P = 20 - Q in a competitive market. Subsequently, only 10 taxi cabs are allowed in the market. This results in a deadweight loss of

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur?

In 2007, the National Collegiate Athletic Association put a moratorium on new Football Bowl Series (formerly Division IA) teams. This policy will

A new law applied to a competitive market that requires laid off workers be paid a large severance payment will

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then social welfare will most likely

In economics, welfare analysis focuses on

If a city decides to restrict the number of pizza parlors,

As the quantity produced of a good increases, the social welfare generated by that good increases.

-The above figure shows the demand and supply curves in the market for milk. If the government imposes a quota at 500 gallons, calculate the change in the consumer surplus.

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then consumer surplus will most likely

If a city decides to lift restrictions of how many taxi cabs can operate, social welfare will increase.