5. Using a well-labeled diagram, show how inefficiency can be corrected in a perfectly competitive market via: i) a tax on a good that has a negative external cost; ii) a subsidy for a good with a positive external benefit. Price Quantity Price Quantity
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- 11. The figure illustrates the competitive market for cell phones. Price (dollars per cell phone) 60.00 45.00 30.00 15.00 50 D S 100 150 200 Quantity (cell phones per month) a. What are the equilibrium price and equilibrium quantity of cell phones? b. Shade in and label the consumer surplus at the competitive equilibrium. c. Shade in and label the producer surplus at the competitive equilibrium. d. Calculate total surplus at the competitive equilibrium. e. Is the competitive market for cell phones efficient?Figure 7-4 Price P₂ P₁ с A D 9₂ B E 9₂2 Quantity Refer to Figure 7-4. What does area A represent? a. the increase in consumer surplus that results from new consumers entering the market as the result of price rising from P1 to P2 b. the increase in producer surplus to those producers already in the market when price rises from P1 to P2 C. the increase in producer surplus to new producers entering the market as the result of price rising from P1 to P2 Od. an increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2 XChose one: If there are no externalities a competitive market achieves economic efficiency. If there is anegative externality, economic efficiency will not be achieved because a. too much of the good will be produced. b.a deadweight loss will occur that is equal to the area under the demand curve for the good. c.too little of the good will be produced. d.economic surplus is maximized
- Marginal cost and marginal benefit (dollars per pound) 5 3 2 - MC M8 100 200 300 400 500 600 Quantity (pounds of coffee perday) The above figure shows the marginal benefit and marginal cost curves of coffee in the nation of Kaffenia. Which of the following would result in the quantity of coffee in Kaffenia differing from the efficient quantity? O The existence of price control in the market. The existence of many producers and sellers of coffee. The existence of a single producer and seller of coffee. Both "The existence of a single producer and seller of coffee." and "The existence of price control in the market." are correct.Due to a firm generating external costs (a negative externality), the government decides to ________ the firm. In response, the firm will produce ________ units of output in order to continue maximizing profits and reach the new producer equilibrium. Question 4Answer a. tax; fewer b. subsidize; more c. tax; more d. subsidize; fewerB. Let’s consider the market for flour in a different town. Assume that it is efficient (i.e. that there are not external costs to producing flour, and no external benefits from consuming it). Price ($/lb) Quantity Supplied (thousands of lbs per day) Quantity Demanded (thousands of lbs per day) 1.5 8 14 2 9 13 2.5 10 12 3 11 11 3.5 12 10 4 13 9 What is the price and quantity of flour sold without government intervention. Graph this equilibrium. XXXX 2. Suppose that, alarmed by the inability of many poorer consumers to buy flour, the government institutes a $2/lb price ceiling. How much flour will suppliers wish to sell, and how much will buyers demand? How much flour will actually be sold? Show this outcome on the same graph you drew for question 1. XXXX 3. Describe, in one sentence each, three problems that this policy might create? Please do not simply copy down phrases from the textbook, but instead describe ways that…
- Figure 4-4 Price (dollars per pound) $9 6 3 4,000 8,000 12,000 Supply Demand Quantity (pounds) Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If 4,000 pounds of pecans are sold, O consumer surplus equals zero. O the marginal benefit of each of the 4,000 pounds of pecans equals $3. O the deadweight loss is equal to $12,000. O marginal benefit is equal to marginal cost.First, use the black point (plus symbol) to indicate the equilibrium price and quantity of designer handbags in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price. PRICE (Dollars per handbag) 500 450 400 Demand 350 300 250 200 Before Tax Supply 150 100 50 0 0 160 320 480 640 800 960 1120 1280 1440 1600 QUANTITY (Handbags) + Equilibrium Consumer Surplus Producer Surplus ?Which of the following would restore efficiency in this market? A. A quantity limit of 10 B. A subsidy of $75 C. Auctioning 40 tradable permits D. Forbidding all trade in the market
- 44. In a perfectly competitive market for a good with a downward sloping demand curve and an upward sloping supply curve, the marginal social benefit is greater than the marginal social cost at the market equilibrium quantity. The government imposition of a new per-unit tax on the production of the good would (A) have no effect on the price of the good (B) increase consumer surplus () increase the deadweight loss (D) increase producer surplus (E) increase the quantity sold of the goodPrice $10 ∞o 9 5 4 3 2 0 Demand 10 20 Subsidy Supply 30 40 50 60 70 80 90 100 Quantity Total gains from trade: $ a. Without the subsidy, what are the total gains from trade?8) Consider a perfectly competitive market with a negative externality. What will happen to the social surplus if the government introduces a lump-sum tax on producers? A) Increase in the short run; increase in the long-run B) Increase in the short run; no change in the long-run C) Increase in the short run; decrease in the long-run D) No change in the short run; increase in the long-run E) No change in the short run; no change in the long-run F) No change in the short run; decrease in the long-run G) Decrease in the short run; increase in the long-run H) Decrease in the short run; no change in the long-run I) Decrease in the short run; decrease in the long-run J) The scenario described in this question is impossible because a perfectly competitive market cannot have a negative externality