Microeconomics I, UPNA

7. Competitive Markets: Applications

Multiple Choice
1. Suppose the government ecies to create a price support !"loor# on the price o" corn,
$hich o" the "ollo$ing is a true statement%
a# A &ining price support'"loor $ill ten to lo$er the price o" corn "or poorer
people.
&# I" the government oes not &u( an( $heat, there $ill ten to &e an e)cess suppl(
o" $heat in the marketplace, i" the price "loor is &ining.
c# A non*&ining price support'"loor &elo$ the e+uili&rium price in the market $ill
also lea to a rise in the price o" corn.
# It is likel( that the total surplus !consumer surplus plus proucer surplus# $ill rise
$ith a price support program.
Ans: ,
-. .ith an acreage limitation program !compare $ith the initial situation o" no program#,
$hich o" the "ollo$ing statements is true%
a# /he impact on the government0s &uget is 1ero, consumer surplus increases an
proucer surplus ecreases.
&# /he impact on the government0s &uget is positive, consumer surplus ecreases
an proucer surplus increases.
c# /he impact on the government0s &uget is negative, consumer surplus increases
an proucer surplus ecreases.
# /he impact on the government0s &uget is negative, consumer surplus ecreases,
proucer surplus increases, an there is a ea$eight loss.
Ans: 2
3. It is al$a(s the case that
a# the ea$eight loss $ill &e lo$er $ith a +uota s(stem than a tari"" s(stem.
&# there $ill &e a ea$eight loss "rom imposing tari""s on imports, even though the
government ma( have a nee "or the revenue "rom the tari""s.
c# "ree trae $ill lea to a ea$eight loss.
# the ea$eight loss $ill &e lo$er $ith a tari"" s(stem than a +uota s(stem.
Ans: ,
Microeconomics I, UPNA
4. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . Suppose the government imposes an e)cise ta) o" 64 per unit on
this market. .hat is total surplus !consumer surplus plus proucer surplus# after the
government imposes the ta)%
a# 7-
&# 78
c# 144
# 179
:. An anal(sis that etermines the e+uili&rium prices an +uantities in more than one market
simultaneousl( is calle
a# partial e+uili&rium anal(sis
&# general e+uili&rium anal(sis
c# e)ternalit( anal(sis
# market e+uili&rium anal(sis
9. .hen a per"ectl( competitive market is in e+uili&rium,
a# consumer an proucer surplus are ma)imi1e.
&# price is ma)imi1e.
c# +uantit( is ma)imi1e.
# ea$eight loss is positive.
7. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . .hat is the e+uili&rium +uantit( in this market%
a# 1-
&# 14
c# 19
# 18
8. In a per"ectl( competitive market, $hich o" the "ollo$ing $ill not occur as a result o" an
e)cise ta)%
a# /he market $ill uner*prouce relative to the e""icient level.
&# Consumer surplus $ill &e higher than $ith no ta) since the ta) is impose on
suppliers.
c# Proucer surplus $ill &e lo$er than $ith no ta).
# /he ta) causes a ea$eight loss.
Ans: ,
Microeconomics I, UPNA
7. Suppose that a market is initiall( in e+uili&rium. /he initial eman curve is 75
d
P Q =
. /he initial suppl( curve is -
s
P Q = . Suppose that the government imposes a 63 ta) on
this market. ;o$ much o" this 63 is pai "or &( proucers%
a# 65.
&# 61.
c# 61.:5.
# 6-.
Ans: 2
15. Suppose that a market is initiall( in e+uili&rium. /he initial eman curve is 75
d
P Q =
. /he initial suppl( curve is -
s
P Q = . Suppose that the government imposes a 63 ta) on
this market. .hat is the change in consumer surplus ue to the ta)%
a# 64:5.
&# 64-5.:5.
c# 6-7.:5.
# 65.:5.
Ans: C
11. Suppose that a market is initiall( in e+uili&rium. /he initial eman curve is 75
d
P Q =
. /he initial suppl( curve is -
s
P Q = . Suppose that the government imposes a 63 ta) on
this market. .hat are the government receipts "rom the ta)%
a# 675.
&# 687.
c# 64:.
# 643.:5.
1-. I" suppl( is relativel( inelastic $hen compare $ith eman in a per"ectl( competitive
market,
a# consumers $ill share a larger &uren o" an e)cise ta) than proucers.
&# consumers an proucers $ill share the &uren o" an e)cise ta) e+uall(.
c# proucers $ill share a larger &uren o" an e)cise ta) than consumers.
# the incience o" the ta) cannot &e etermine $ithout more in"ormation.
Ans: C
13. .hen a ta) is impose on the proucers o" a prouct, $hich o" the "ollo$ing is incorrect%
a# /he consumers an proucers each &ear some part o" the &uren.
Microeconomics I, UPNA
&# I" the eman curve is relativel( inelastic, the &uren &orne &( consumers
increases.
c# I" the suppl( curve is relativel( elastic, the &uren &orne &( consumers increases.
# I" the ta) is levie on proucers, the proucers &ear the &uren o" the ta)< i" the
ta) is levie on consumers, the consumers &ear the &uren o" the ta).
Ans: 2
14. In a per"ectl( competitive market, $hich o" the "ollo$ing $ill not occur as a result o" a
su&si(%
a# /he market $ill overprouce relative to the e""icient level.
&# Consumer surplus $ill &e higher than $ith no su&si(.
c# Proucer surplus $ill &e higher than $ith no su&si(.
# /here $ill &e no ea$eight loss "rom the su&si(.
Ans: 2
1:. Consier a per"ectl( competitive market $ith inverse market suppl( : 3
s
P Q = + an
inverse market eman :5 -
d
P Q = . Suppose the government su&sii1es this market
$ith a su&si( o" 6: per unit. .hat are the e+uili&rium price an +uantit( trae before
the su&si(%
a) P = 30; Q = 10
b) P = 25; Q = 12.5
c) P = 32; Q = 9
d) P = 35; Q = 7.5
Ans: C
19. Consier a per"ectl( competitive market $ith inverse market suppl( : 3
s
P Q = + an
inverse market eman :5 -
d
P Q = . Suppose the government su&sii1es this market
$ith a su&si( o" 6: per unit. .hat is the e+uili&rium +uantit( trae after imposition o"
the su&si(%
a) Q = 10
b) Q = 12.5
c) Q = 9
d) Q = 7.5
17. Consier a per"ectl( competitive market $ith inverse market suppl( : 3
s
P Q = + an
inverse market eman :5 -
d
P Q = . Suppose the government su&sii1es this market
$ith a su&si( o" 6: per unit. .hat is the increase in consumer surplus resulting "rom the
su&si(%
a# 17
Microeconomics I, UPNA
&# 17
c# -1
# -3
18. Consier a per"ectl( competitive market $ith inverse market suppl( : 3
s
P Q = + an
inverse market eman :5 -
d
P Q = . Suppose the government su&sii1es this market
$ith a su&si( o" 6: per unit. .hat is the ea$eight loss resulting "rom the su&si(%
a# 5, su&siies o not have a ea$eight loss
&# -.:
c# :
# 7.:
Ans: ,
17. Consier a per"ectl( competitive market $ith inverse market suppl( : 3
s
P Q = + an
inverse market eman :5 -
d
P Q = . Suppose the government su&sii1es this market
$ith a su&si( o" 6: per unit. .hat is the impact on the government0s &uget resulting
"rom the su&si(%
a# *4:
&# *:5
c# *-75
# =355
>>?e"erence: Use the "ollo$ing "igure to ans$er the ne)t "our +uestions !-4*-7#.
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
0 200 400
Quantity
Price
75 150 225 375
25
50
75
100
125
Demand
Supply
Microeconomics I, UPNA
-5. >>2etermine the level o" consumer surplus at the market e+uili&rium.
a# 19,87:
&# 11,-:5
c# 7,:55
# 3,7:5
-1. >>2etermine the level o" proucer surplus at the market e+uili&rium.
a# 19,87:
&# 11,-:5
c# 7,:55
# 3,7:5
--. >>Suppose the government sets a price ceiling o" 6:5 in this market. .hat is the
ma)imum level o" consumer surplus $ith the price ceiling%
a# 19,87:
&# 11,-:5
c# 8,437.:5
# 4,843.7:
-3. >>Suppose the government sets a price ceiling o" 6:5 in this market. .hat is the
minimum level o" ea$eight loss $ith the price ceiling%
a# 7,:55
&# 3,7:5
c# 1,87:
# 737.:5
Ans: C
-4. .hich o" the "ollo$ing statements is false%
a# .ith a price "loor, the market $ill not clear.
&# .ith a price "loor, consumers $ill &u( less o" the goo than the( $oul in a "ree
market.
c# .ith a price "loor, proucer surplus $ill al$a(s increase.
# .ith a price "loor there $ill &e e)cess suppl(.
Ans: C
Microeconomics I, UPNA
-:. Suppose that the market "or corn is initiall( in e+uili&rium an is per"ectl( competitive.
/he eman curve can &e e)presse as 15
d
P Q = < the suppl( curve can &e e)presse as
5.-:
s
P Q = . @uantit( is e)presse in millions o" &ushels. .hat is the e+uili&rium
+uantit( trae an price in this market%
a# Q A 8< P A -
&# Q = -< P A 8
c# Q = 7< P = 3
# Q = 3< P A 7
-9. Suppose that the market "or corn is initiall( in e+uili&rium an is per"ectl( competitive.
/he eman curve can &e e)presse as 15
d
P Q = < the suppl( curve can &e e)presse as
5.-:
s
P Q = . @uantit( is e)presse in millions o" &ushels. No$ suppose that the "eeral
government imposes a price "loor o" 63 per &ushel o" corn. .hich o" the "ollo$ing &est
escri&es the market a"ter the price "loor is impose%
a# /here $ill &e a shortage o" : million &ushels.
&# /here $ill &e a surplus o" : million &ushels.
c# /here $ill &e a surplus o" 7 million &ushels.
# /here $ill &e a surplus o" 1- million &ushels.
Ans: ,
-7. Suppose that the market "or corn is initiall( in e+uili&rium an is per"ectl( competitive.
/he eman curve can &e e)presse as 15
d
P Q = < the suppl( curve can &e e)presse as
5.-:
s
P Q = . @uantit( is e)presse in millions o" &ushels. No$ suppose that the "eeral
government imposes a price "loor o" 63 per &ushel o" corn. .hat is the ea*$eight loss
!per million &ushels# associate $ith the price "loor $hen the most e""icient proucers are
active%
a# 67.37:
&# 6-.-:.
c# 61.
# 65.93.
Ans: 2
-8. Suppose that the market "or corn is initiall( in e+uili&rium an is per"ectl( competitive.
/he eman curve can &e e)presse as 15
d
P Q = < the suppl( curve can &e e)presse as
5.-:
s
P Q = . @uantit( is e)presse in millions o" &ushels. No$ suppose that the "eeral
government imposes a price "loor o" 63 per &ushel o" corn. .hat is the ea*$eight loss
!per million &ushels# associate $ith the price "loor $hen the least e""icient proucers are
active%
a# 67.37:
Microeconomics I, UPNA
&# 6-.-:.
c# 61.
# 65.93.
-7. In a per"ectl( competitive market, a prouction +uota
a# sets a limit on the level o" imports o" a goo.
&# has the e""ect o" keeping the market price &elo$ the e+uili&rium level.
c# $ill create e)cess suppl( in the market.
# creates no ea$eight loss.
Ans: C
35. .hich o" the "ollo$ing statements is not generall( true o" a prouction +uota%
a# /he market $ill not clear ue to the e)cess suppl( o" that goo.
&# Consumer surplus increases $hen compare to the market &e"ore the +uota.
c# Proucer surplus ma( increase or ecrease.
# Some o" the consumer surplus $ill &e trans"erre to proucers.
31. Suppose that the market "or cigarettes is initiall( in e+uili&rium an is per"ectl(
competitive. /he eman curve can &e e)presse as 95
d
P Q = < the suppl( curve can
&e e)presse as 5.:
s
P Q = . @uantit( is e)presse in millions o" &o)es per month. .hat
are the amount trae an the price "or this market%
a# Q = 45< P A -5
&# Q A -5< P A 45
c# Q = 35< P = 35
# Q = 35< P A 1:
3-. Suppose that the market "or cigarettes is initiall( in e+uili&rium an is per"ectl(
competitive. /he eman curve can &e e)presse as 95
d
P Q = < the suppl( curve can
&e e)presse as 5.:
s
P Q = . @uantit( is e)presse in millions o" &o)es per month. No$
suppose that the "eeral government imposes a prouction +uota on cigarettes o" 35
million &o)es per month. .hat are the ne$ amount trae an the price in this market%
a# Q = 45< P A -5
&# Q A -5< P A 45
c# Q = 35< P = 35
# Q = 35< P A 1:
Ans: C
Microeconomics I, UPNA
33. Suppose that the market "or cigarettes is initiall( in e+uili&rium an is per"ectl(
competitive. /he eman curve can &e e)presse as 95
d
P Q = < the suppl( curve can
&e e)presse as 5.:
s
P Q = . @uantit( is e)presse in millions o" &o)es per month. No$
suppose that the "eeral government imposes a prouction +uota on cigarettes o" 35
million &o)es per month. .hat is the level o" e)cess suppl( in this market%
a# /here is no e)cess suppl(. /here is an e)cess eman o" Q = 30.
&# /here is no e)cess suppl( or eman.
c# /here is an e)cess suppl( o" Q = 30.
# /here is an e)cess suppl( o" Q = 20.
34. In a per"ectl( competitive market, an import +uota
a# sets a minimum level o" prouction that omestic "irms must prouce.
&# sets a minimum level o" imports "or a countr(.
c# sets a ma)imum level o" prouction that omestic "irms ma( prouce.
# sets a ma)imum level o" imports into a countr(.
Ans: 2
3:. In a per"ectl( competitive market, a tari""
a# is another term "or an e)cise ta) impose on an( goo.
&# sets the price o" an importe goo.
c# is a ta) on an importe goo.
# is the same as an import +uota.
Ans: C
39. Ienti"( the truth"ulness o" the "ollo$ing statements.
I. In a per"ectl( competitive market, import +uotas an tari""s ten to lea to higher
omestic prices an ea$eight loss.
II. In a per"ectl( competitive market, import +uotas an tari""s ten to lea to higher
omestic prices $ithout the usual ea$eight loss that $oul accompan( them.
a# ,oth I an II are true.
&# ,oth I an II are "alse.
c# I is true< II is "alse.
# I is "alse< II is true.
Ans: C
37. /he omestic market "or calculators is per"ectl( competitive an is in e+uili&rium.
2omestic eman is given &( Q
d
= 100 P an omestic suppl( is given &( Q
s
= 4P.
/he $orl price "or calculators is 615. ;o$ man( units o" calculators $ill &e importe%
a# 5
&# 15
c# 35
Microeconomics I, UPNA
# :5
38. /he omestic market "or calculators is per"ectl( competitive an is in e+uili&rium.
2omestic eman is given &( Q
d
= 100 P an omestic suppl( is given &( Q
s
= 4P.
/he $orl price "or calculators is 615. No$, a tari"" o" 615 is impose on all imports.
;o$ man( units o" calculators $ill &e importe no$%
a# 5
&# 15
c# 35
# :5
37. /he omestic market "or calculators is per"ectl( competitive an is in e+uili&rium.
2omestic eman is given &( Q
d
= 100 P an omestic suppl( is given &( Q
s
= 4P.
/he $orl price "or calculators is 615. No$, a tari"" o" 615 is impose on all imports.
;o$ much revenue oes this polic( generate "or the government%
a# 5
&# 15
c# 35
# :5
Ans: A
45. Ienti"( the truth"ulness o" the "ollo$ing statements.
I. In per"ectl( competitive markets there are no e)ternalities. /hat is, actions o"
ecision*makers on each others0 $ell &eing o not e)ten &e(on those e""ects
transmitte &( prices.
II. Partial e+uili&rium anal(sis etermines e+uili&rium in a single market, taking the
prices an outputs o" other markets as "i)e.
a# ,oth I an II are true.
&# ,oth I an II are "alse.
c# I is true< II is "alse.
# I is "alse< II is true.
Ans: A
41. Suppose that a market is initiall( in e+uili&rium. /he initial eman curve is 75
d
P Q =
. /he initial suppl( curve is -
s
P Q = . Suppose that the government imposes a 63 ta) on
this market. ;o$ much o" this 63 ta) is pai &( consumers%
a# 61.
&# 61.:5.
c# 6-.
# 63
Microeconomics I, UPNA
4-. In a per"ectl( competitive market, $hich o" the "ollo$ing $ill not occur as a result o" a
su&si(%
a# /he market $ill uner*prouce relative to the e""icient level.
&# Consumer surplus $ill &e higher than $ith no su&si(.
c# Proucer surplus $ill &e higher $ith no su&si(.
# /he su&si( causes a ea$eight loss.
43. Suppose that the market "or corn is initiall( in e+uili&rium an is per"ectl( competitive.
/he eman curve can &e e)presse as 15
d
P Q = < the suppl( curve can &e e)presse as
5.-:
s
P Q = . @uantit( is e)presse in millions o" &ushels. No$ suppose that the "eeral
government imposes a price "loor o" 63 per &ushel o" corn. .hat is the ne$ e+uili&rium
+uantit( trae in this market%
a# Q A 8<
&# Q = -<
c# Q = 7
# Q = 3
44. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . .hat is consumer surplus in this market%
a# 78
&# 1-8
c# 179
# -:9
4:. In a market $ith an up$ar*sloping suppl( curve an a o$n$ar*sloping eman curve,
the e""ects o" an e)cise ta) are as "ollo$s e)cept:
a# Consumer surplus $ill &e lo$er than $ith no ta).
&# Proucer surplus $ill &e lo$er than $ith no ta).
c# /he impact on the government &uget $ill &e positive.
# /he ta) $ill generall( lea to a ea$eight gain.
Ans: 2
49. I" there is an e)cise ta) collecte &( suppliers o" a particular prouct, $hen $e ra$ the
graph o" suppl( an eman $e $oul normall( represent the e)cise ta) &(
Microeconomics I, UPNA
a# a hori1ontal shi"t o" the suppl( curve to the le"t &( the amount o" the e)cise ta).
&# a hori1ontal shi"t o" the suppl( curve to the right &( the amount o" the e)cise ta).
c# a vertical shi"t up o" the eman curve &( the amount o" the e)cise ta).
# a vertical shi"t up o" the suppl( curve &( the amount o" the e)cise ta).
Ans: 2
47. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . .hat is total surplus in this market%
a# 78
&# 1-8
c# 179
# -:9
48. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . Suppose the government imposes an e)cise ta) o" 64 per unit on
this market. .hat is total surplus !consumer surplus plus proucer surplus# before the
government imposes the ta)%
a# 7-
&# 78
c# 144
# 179
47. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . Suppose the government imposes an e)cise ta) o" 64 per unit on
this market. .hat is total surplus !consumer surplus plus proucer surplus# after the
government imposes the ta)%
a# 7-
&# 78
c# 144
# 179
Ans: C
:5. 2ea$eight loss can &e e)plaine as
a# An increase in economic &ene"its resulting ue to e""icient allocation o" resources
&# A reuction in net economic &ene"its resulting "rom an ine""icient allocation o"
resources
c# An increase in economic &ene"its resulting ue to ine""icient allocation o"
resources
Microeconomics I, UPNA

:1. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . Suppose the government imposes an e)cise ta) o" 64 per unit on
this market. .hat is the ea$eight loss "rom this ta)%
a# -
&# 4
c# 9
# 8
:-. Suppose that a market is initiall( in e+uili&rium. /he initial eman curve is 75
d
P Q =
. /he initial suppl( curve is -
s
P Q = . Suppose that the government imposes a 63 ta) on
this market. .hat is the ea*$eight loss ue to the ta)%
a# 63.
&# 6-.
c# 61.:5.
# 61.55.
:3. Consier a per"ectl( competitive market $ith market suppl( -
s
Q P = + an market
eman 35
d
Q P = . Suppose the government imposes an e)cise ta) o" 64 per unit on
this market. .hat are the net &ene"its "rom this ta)%
a# 48
&# 144
c# 17-
# 7-
Ans: C
:4. Suppose that a market is initiall( in e+uili&rium. /he initial eman curve is 75
d
P Q =
. /he initial suppl( curve is -
s
P Q = . Suppose that the government imposes a 63 ta) on
this market. .hat is the change in proucer surplus ue to the ta)%
a# 6755.
&# 6841.
c# 6:7.
# 6-7.:5.
Microeconomics I, UPNA
::. Suppose that the market "or cigarettes is initiall( in e+uili&rium an is per"ectl(
competitive. /he eman curve can &e e)presse as 95
d
P Q = < the suppl( curve can
&e e)presse as 5.:
s
P Q = . @uantit( is e)presse in millions o" &o)es per month. No$
suppose that the "eeral government imposes a prouction +uota on cigarettes o" 35
million &o)es per month. .hat is the ea*$eight loss !per million &o)es# associate
$ith the +uota%
a# 6-7:.
&# 67:.
c# 6:5.
# 6-:.
Ans: ,
:9. Suppose that the market "or cigarettes is initiall( in e+uili&rium an is per"ectl(
competitive. /he eman curve can &e e)presse as 95
d
P Q = < the suppl( curve can
&e e)presse as 5.:
s
P Q = . @uantit( is e)presse in millions o" &o)es per month. No$
suppose that the "eeral government imposes a prouction +uota on cigarettes o" 35
million &o)es per month. .hat is the chane in consumer surplus !per million &o)es#
associate $ith the +uota%
a# 64:5.
&# 63:5.
c# 6355.
# 6:5.
:7. Suppose that the market "or cigarettes is initiall( in e+uili&rium an is per"ectl(
competitive. /he eman curve can &e e)presse as 95
d
P Q = < the suppl( curve can
&e e)presse as 5.:
s
P Q = . @uantit( is e)presse in millions o" &o)es per month. No$
suppose that the "eeral government imposes a prouction +uota on cigarettes o" 35
million &o)es per month. .hat is the chane in proucer surplus !per million &o)es#
associate $ith the +uota%
a# 6-7:.
&# 67:.
c# 6:5.
# 6-:.
:8. Acreage limitations are use &( the government &ecause
a# /he( inuce less ea$eight loss than cash trans"ers to "armers.
&# the( raise the market price o" an agricultural prouct $ithout the surpluses
associate $ith price supports.
c# the government $ishes to lo$er agricultural prices.
# the( are an e""ective $a( to "ee poor people.
Microeconomics I, UPNA
Ans: ,
:7. Ienti"( the truth"ulness o" the "ollo$ing statements.
I. Bovernment purchase programs in agriculture ten not to &e more e)pensive than
acreage limitation programs.
II. Bovernment purchase programs in agriculture ten to &e politicall( more
palata&le than irect cash trans"ers, even though the( inuce more ea$eight loss.
a# ,oth I an II are true.
&# ,oth I an II are "alse.
c# I is true< II is "alse.
# I is "alse< II is true.
Ans: A
95. .hich o" the "ollo$ing is not a escription o" $hat a tari"" can achieve in a per"ectl(
competitive market%
a# A tari"" can achieve man( o" the same goals as an import +uota.
&# A tari"" can create less omestic ea$eight loss than a +uota i" the tari"" revenues
are reistri&ute omesticall(.
c# A tari"" can create greater government revenues than a +uota.
# A tari"" creates enough government revenue to completel( o""set the impact o"
ea$eight loss, there&( increasing total surplus.
Ans: 2
91. /he omestic market "or calculators is per"ectl( competitive an is in e+uili&rium.
2omestic eman is given &( Q
d
= 100 P an omestic suppl( is given &( Q
s
= 4P.
/he $orl price "or calculators is 615. As an alternative to a tari"" o" 615 per unit, the
government consiers an outright trae prohi&ition on calculators. .hich is &etter "or the
omestic econom(%
a# /he trae prohi&ition is &etter.
&# /he tari"" is &etter.
c# /he trae prohi&ition is &etter "or proucers< the tari"" is &etter "or consumers.
# ,oth policies generate e)actl( the same surpluses.
Ans: 2
9-. Suppose the government ecies to create a ceiling on the price o" gasoline, $hich o" the
"ollo$ing is not likel( to &e true uner the escri&e circumstances%
a# /he ceiling $ill have no e""ect i" the ceiling is a&ove the e+uili&rium market price.
&# Proucer surplus $ill likel( increase i" the ceiling is &elo$ the e+uili&rium market
price.
Microeconomics I, UPNA
c# Proucer surplus $ill &e lo$er $ith a &ining ceiling !&elo$ the initial market
e+uili&rium price#.
# /he ceiling $ill lea to shortages i" the ceiling is &elo$ the initial market price.
93. .hich o" the "ollo$ing statements regaring a price ceiling in a per"ectl( competitive
market is incorrect%
a# /here $ill &e no ea$eight loss $ith the price ceiling.
&# /he $ill &e e)cess eman resulting "rom the price ceiling.
c# /he market $ill uner prouce relative to the e""icient level.
# Consumer surplus ma( either increase or ecrease $ith a price ceiling.