101_Draft_Prelim_2_makeup_07_2 - Use the following diagram...

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Use the following diagram in questions 1 through 4. Figure 1: Peanut Market P r i c e ( $ / b a g ) Q u a n t i t y ( 1 0 0 0 s o f b a g s / d a y ) 1 2 2 0 1 6 8 4 0 1 2 3 4 5 D S 2 4 0 1.  Suppose the peanut market is in equilibrium. The government is considering a ban on the production  and purchase of peanuts. What is the maximum amount a coalition of peanut producers and consumers  would be willing to pay to keep the government from banning peanuts?   a. $0 per day.   b. $18,000 per day.   c. $36,000 per day.   d. $72,000 per day.   e. None of the above. Answer: c. 24 x 3,000 x ½ = $36,000 per day.  2. Suppose the peanut market is in equilibrium, but then the government imposes a $16 per bag floor on the  price of peanuts. By how much will total economic surplus fall as a result of the imposition of the price  floor? a. $2,000 per day. b. $3,000 per day. c. $4,000 per day. d. $8,000 per day. e. None of the above. Answer: c 3. Instead of using a price floor, the government decides to subsidize peanut production. The government  program pays a farmer $8 per bag of peanuts it sells. In this case, the market price for peanuts (the price  that the consumer pays) is _________ per bag. a. $8 b. $12 c. $16 d. $20 e. None of the above. Answer: a 4. If the government imposes the $8 per bag subsidy (from question 3), what is the change in total  economic surplus compared to when there is no surplus or price floor?
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   a. Increases by $20,000.    b. Increases by $28,000.    c. Decreases by $4,000.    d. Decreases by $12,000. e. None of the above. Answer: c.  The subsidy increases producer and consumer surplus by a total of $28,000. However, the  subsidy costs the government $32,000, which means a decrease in total economic surplus of $4,000. 5. In perfect competition, which of the following statements is true ? a. the elasticity of supply for any single firm’s output is always smaller than the elasticity of market  supply . b. the elasticity of supply for any single firm’s output is always equal to the elasticity of market supply . c. the elasticity of supply for any single firm’s output is always larger than the elasticity of market  supply.  d. the elasticity of supply for any single firm’s output is always a constant e. none of the above Answer: e. 6. Anticipating a high proportion of no-shows, a ping-pong pro routinely books six people for each of his group lesson slots, even though he is able to teach only three people at a time. One day, all six students show up for their lessons at 2 PM. Their respective arrival times and the maximum amounts each would be willing to pay to avoid postponing his or her lesson are as given in the table. Player
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101_Draft_Prelim_2_makeup_07_2 - Use the following diagram...

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