QUIZ 5 Midterm 2 at Texas A&M University - Corpus Christi

Jose G.

Size: 9

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80.

Now suppose producers decide to cut output to 40 in order to raise the price to $18.

1) Refer to Figure 4-3. What is the value of consumer surplus at a price of $18??

$60

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80.

Now suppose producers decide to cut output to 40 in order to raise the price to $18.

1) Refer to Figure 4-3. What is the value of consumer surplus at a price of $18??

area of the triangle above p=$18 and below the demand curve ==>CS =((21-18)*40)/2=60

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Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of

the last unit produced is equal to the marginal cost of production, and in which

follows from the definiton, MB=MC--> economic surplus (CS+PS) is at its maximum

Figure 4-6 shows the demand and supply curves for the almond market. The government believes that the equilibrium price

is too low and tries to help almond growers by setting a price floor at Pf.

3) Refer to Figure 4-6. What area represents consumer surplus after the imposition of the price floor?

after pf is imposed, the CS corresponds to the triangle above the pf and the demand curve-->(A)

4) Refer to Figure 4-6. What is the area that represents producer surplus after the imposition of the

price floor?

after pf is imposed, the PS corresponds to the trapezoid below the pf, above the supply curve and

limited by the quantity exchanged (Qf) --> ( B+E)

5) Refer to Figure 4-6. What area represents the portion of consumer surplus that has been transferred

to producer surplus as a result of the price floor?

area B was a part of CS and after the imposition of the price floor it became a part of PS.

Refer to Figure 4-6. What area represents the deadweight loss after the imposition of the price

floor?

DWL in this case is the loss in the economic efficency due to price floors Pf, area (C+D)

Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per

month. Refer to Figure 4-5. What is the value of consumer surplus after the imposition of the ceiling?

after Pc is imposed, the CS corresponds to the trapezoid above the pc=$1000, the demand curve and

the quantity of apartments excahanged (Q=200) =>

trapezoid formula {(base1+base2)*height}/2 = {(1300 +1000)*200]}/2=$230,000

Figure 4-8 shows the market for beer. The government plans to impose a unit tax in this market.

8) Refer to Figure 4-8. The size of the unit tax is _____; while the portion of the tax paid by the

customers is____

the total tax is $7 as one can clearly see from the graph; the total tax paid by consumers corresponds to the

after-tax price for consumers($27) and the pre-tax price($22)= $5; the rest of the tax $7-5=$2 corresponds to

the part paid by producers.

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