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1、Microeconomics, 9e (Pindyck/Rubinfeld)Chapter 9 The Analysis of Competitive Markets9.1 Evaluating the Gains and Losses from Government Policies-Consumer and Producer Surplus1) Refer to Figure 9.1.1 above. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:A)
2、 $5.00.B) $15.00.C) $22.50.D) $40.00.Answer: DDiff: 1Section: 9.1Refer to Figure 9.1.1 above. If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:A) $5.00.B) $10.00.C) $15.00.D) $20.00.E) $40.00.Answer: DDiff: 1Section: 9.133) Refer to Figure 9.1.3 above, wi
3、llfall by $50.A) fall by $150.B) remain the same.C) rise by $50.D) rise by $150.Answer: EDiff： 2Section: 9.1If the government establishes a price ceiling of $1.00, consumer surplus34) Refer to Figure 9.1.3 above, will:A) fall by $150.B) fall by $300.C) remain the same.D) rise by $150.E) rise by $300
4、.Answer: BDiff: 2Section: 9.1If the government establishes a price ceiling of $1.00, producer surplus35) Refer to Figure 9.1.3 above, deadweight loss will be:A) $1.50.B) $200.C) $150.D) $300.E) $600.Answer: CDiff: 1Section: 9.1If the government establishes a price ceiling of $1.00, the resulting36)
5、Refer to Figure 9.1.3 above, producer surplus will be: A) $1.50.B) $300.C) $450.D) $500.E)$600.Answer: CDiff： 1Section: 9.1If the government establishes a price ceiling of $1.00, total consumer and37) Price ceilings:A) cause quantity to be higher than in the market equilibrium.B) always increase con
6、sumer 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.Answer: DDiff： 3Section: 9.1Consider the following statements when answering this question:1. When a competitive i
7、ndustrys supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers.IL 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)
8、I is false, and II is true.D) I and II are false.Answer: BDiff: 3Section: 9.1Consider 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 f
9、alse, and II is true.D) I and II are false.Answer: BDiff: 3Section: 9.1Consider 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 th
10、e 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.Answer: DDiff： 3Section: 9.138) The consumers gain from the imposition of a price ceiling is higher when:A) the own price elasticity of market demand is hig
11、h 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
12、 is low and the price elasticity of market supply is low. Answer: DDiff: 3Section: 9.1Under 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 buyer
13、s 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 c
14、orrect.Answer: DDiff: 3Section: 9.1Under 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
15、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.Answer: BDiff: 3Section: 9.1Suppose a competitive market is in equilibrium at price P an
16、d quantity Q*. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?A) Both PS and CS increase.B) CS increases and PS decreases.C) CS increases and PS remains the same.D) Both CS and PS decrease.Answer: CDiff：
17、2Section: 9.139) The market demand curve for a popular teen magazine is given by Q = 80 - 10P where P is the magazine price in dollars per issue and Q is the weekly magazine circulation in units of 10,000. If the circulation is 400,000 per week at the current price, what is the consumer surplus for
18、a teen reader with maximum willingness to pay of $3 per issue?A) $2.00$1.00B) Zero-$1.00Answer: DDiff： 2Section: 9.146) The utilities commission in a city is currently examining pay telephone service in the city. The commission has been asked to evaluate a proposal by a city council member to place
19、a $0.10 price ceiling on local pay phone service. The staff economist at the utilities commission estimates the demand and supply curves for pay telephone service as follows:QD = 1600 - 2400PQS = 200 + 3200P,where P = price of a pay telephone call, and Q = number of pay telephone calls per month.a.
20、Determine the equilibrium price and quantity that will prevail without the price ceiling.b. Analyze the quantity that will be available with the price ceiling (in the long-run).c. The city council realizes that the telephone company could curtail pay phone service in response to the ceiling. To prev
21、ent this, the council plans to impose a requirement that the telephone company must maintain the current number of pay phones. In light of this additional restriction, what will be the likely impact of the price ceiling?Answer:Set Qd = Qs.1600 - 2400P = 200 + 3200P1400=5600PP = $0.25Substitute into
22、Qd.QD = 1600 - 2400(0.25)QD = 1000b.QS = 200 + 3200(0.10)QS = 520QD = 1600 - 2400(0.10)QD = 1360There will be a shortage of 1360 - 520 or 840 calls.c.The telephone company would be expected to allow service to decline by not servicing broken phones, placing the required phones in very easily reservi
23、ced areas, and otherwise reducing the cost of complying with the requirement.Diff： 2Section: 9.147) In an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows: Supply
24、 P = 4 + 0.116Q Demand P = 25 - 0.10Q,where P represents unit price in dollars and Q represents number of units sold each year. Calculate the annual value of aggregate consumer surplus.Answer: We must calculate the area above the equilibrium price and below the demand curve. The equilibrium price is
25、:4 + 0.116Q = 25-0.10Q0.216Q = 21Q = 97.22 units per year.The area below the demand curve can be calculated after we know the height of demand at Q = 0 and Q = 97.22.At Q = 0, P = 25.AtQ = 97.22, P = 25- 0.10(97.22) = 15.28.Since demand is linear, we can use the deference of 25 and 15.28 or 9.72 as
26、the height of the space under demand.Area = 1/2 b h = (1/2)(97.22)(9.72) = $472.49Diff: 1Section: 9.148) The elected officials in a west coast university town are concerned about the exploitative rents being charged to college students. The town council is contemplating the imposition of a $350 per
27、month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as:QD = 5600 -8P Qs = 500 + 4P,where P = monthly rent, and Q = number of apartments available for rent. For purposes of this analysis, apartments can be treated as identical.a. Calcula
28、te the equilibrium price and quantity that would prevail without the price ceiling. Calculate producer and consumer surplus at this equilibrium (sketch a diagram showing both).b. What quantity will eventually be available if the rent ceiling is imposed? Calculate any gains or losses in consumer and/
29、or producer surplus.c. Does the proposed rent ceiling result in net welfare gains? Would you advise the town council to implement the policy?Answer:To calculate equilibrium set Qd = Qs and solve for P. 5600 - 8P = 500 + 4P5100=12PP = 425Substitute P into Qd to solve for Q.QD = 5600 - 8(425)Q = 2200$
30、700425125$700425125QD = 5600 - 8PP = 700 - 0.125QDQS = 500 - 4P P = 125 + 0.25QC.S. = area AC.S. = 0.5(700 - 425) x 2200C.S. = 302,500P.S.= area BP.S. = 0.5(425 -125) x 2200P.S. = 330,000Sum of producer and consumer surplus is: 302,500 + 330,000 = 632,500b.Eventually the market will settle at the qu
31、antity supplied corresponding to $350 rent.QS = 500 + 4(350)QS = 1900QD at P = 350QD = 5600 - 8(350) = 2800There will be a shortage of 900 apartments.Gain = Consumer surplus is area AArea A = (425 - 350) x 1900 = 142,500Area B = loss in consumer surplusTo find area B, first find consumer reservation
32、 price corresponding to an output of 1900.P = 700 - 0.125(1900) = 462.50Difference Q = 2200 - 1900 = 300Area B = 0.5(462.50 - 425) x (2200 -1900)Area B = 5625Loss in consumer surplus is 5625.Area C is loss in producer surplus not offset by gain in consumer surplus.Area C = 0.5(425 - 350) x (2200 -19
33、00)Area C = 11,250c.Area A is a gain in consumer surplus, but it is offset by a loss in producer surplus. The net changes are thus B (lost C.S.) and C (lost P.S.). The policy thus results in a deadweightloss.The deadweight loss = lost C.S. + lost P.S. or 5625 + 11250 = 16,875.Deadweight loss = 16,87
34、5Diff: 2Section: 9.1In an unregulated competitive market, supply and demand have been estimated as follows: Demand P = 25 - 0.10Q Supply P = 4 + 0.116Q,where P represents unit price in dollars, and Q represents number of units sold per year.a. Calculate annual aggregate consumer surplus.b. Calculate
35、 annual aggregate producer surplus.c. Define what producer surplus means.Answer:First compute equilibrium price.Qs = Qd4 + 0.116Q = 25-0.10Q0.216Q = 21Q = 97.22 units per yearAtQ = 97.22, P = 25- 0.10(97.22) = 15.28.Consumer surplus is the area of the triangle between the equilibrium price line 15.2
36、8 and the demand curve out to Q = 97.22Height of triangle is 25 -15.28 = 9.72Area = (1 (b)(h) = (0.5)(97.22)(9.72) = $472.49Consumer surplus = $472.49 per year.b.The producer surplus is the area of the triangle formed by the area bounded by the equilibrium price line and the supply curve.Height of t
37、riangle is = 15.28 - 4 (S at Q = 0).= 11.28Area of triangle = 1/2 b - h = (0.5)(97.22)(11.28) = $548.21 per year.Producer surplus represents the value of payments per unit of time to sellers over and above the marginal cost of producing the units. For the individual unit, it is the difference betwee
38、n the equilibrium price and the marginal cost of producing the unit.Diff: 2Section: 9.13) Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer surplus is: A) $30.B) $70.C) $400.D) $800.E) $1200.Answer: DDiff: 2Section: 9.1Refer to Figure 9.1.1 above. If the market is in equil
39、ibrium, total producer surplus is:A) $30.B) $70.C) $400.D) $800.E)$1200.Answer: CDiff： 2Section: 9.1Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;A) $0.B)$100.C) $800.D) $1200.E)$2000.Answer: DDiff： 1Section: 9.1Refer to Figure 9.1.1 above. If t
40、he government establishes a price ceiling of $20, how many widgets will be sold?A) 2030B) 4050C) 60Answer: ADiff： 1Section: 9.150) In a competitive market, the following supply and demand equations are given:Supply P = 5 + 0.36QDemand P = 100 - 0.04Q,where P represents price per unit in dollars, and
41、 Q represents rate of sales in units per year.a. Determine the equilibrium price and sales rate.b. Determine the deadweight loss that would result if the government were to impose a price ceiling of40 dollars per unit.Answer:a. Equate supply and demand to get equilibrium values.5 + 0.036Q = 100 - 0.
42、04Q0.076Q = 95Q = 1,250 units per yearThe equilibrium price isP = 5 + 0.036(1250) = $50.00 per unitWith a price ceiling of $40, the deadweight loss is the triangle between supply and demand bounded by Q of 1250 and the new sales rate at P of 40.Rearrange supply in terms of P.P = 5 + 0.036Q orQ = -13
43、8.89 + 27.78PAt P = 40, Q = -138.89 + 27.78(40)Q = 972.31 units per year.The base of the triangle (rotated 90 degrees) is the vertical distance between the heights of supply and demand when Q = 972.31Height of demand = P = 100 - 0.04(972.31) =61.11Height of supply = P = 5 + 0.036(972.31)=40.00Triang
44、le base is the deference =21.11Height of triangle = Q - Q = 1250 - 972.31 = 277.69Deadweight loss = 1/2 b - h = (1/2)(21.11)(277.69) = $2,931.Diff： 2Section: 9.151) The demand and supply functions for basic cable TV in the local market are given as:QD = 200,000 - 4,000P and Qg = 20,(X)0 + 2,000P. Ca
45、lculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. Are all consumers better o仔？ Are producers better off?Answer: First we must determine the mark
46、et equilibrium quantity and price. To do this, we set quantity demanded equal to quantity supplied and solve for equilibrium price.QD = 200,000 - 4,000P = Qs = 20,000 + 2,000P = P = 30. At a price of $30, the quantity exchanged will be: 80,000. The choke price (lowest price such that no units are tr
47、ansacted) is $50.The consumer surplus is CS = y(50 - 30) 80,000 = 800,000.Producer surplus is PS= 30(20,000) + y(80,000 - 20,000)30 = 1,500,000.If a price ceiling of $15 is implemented, producers will only bring 50,000 units to the market.Consumer surplus is CS* = 0.5(50,000)(50 - 37.5) + (50,000)(3
48、7.5 -15) =312,500 + 1,125,000 = 1,437,500Producer surplus becomes PS，= 20,000(15) + y(50,000 - 20,000)15 = 525,000.In this example, consumer surplus has risen by 637,500. However, not all consumers are better off as the price ceiling brings about a shortage. That is, some consumers are willing to pay $15 for cable TV yet are unable