“Supporters of import restrictions and protectionist policies place greater weight on producer welfare than on consumer welfare.” Comment. What will be an ideal response? ANSWER Import restrictions increase the producer surplus of domestic producers. Consumer surplus, however, decreases by more than producers gain. Thus, the statement seems to be correct.
Tariffs and quotas create a loss in social welfare because A) producer surplus declines. B) revenues from tariffs are misspent. C) consumer surplus declines. D) All of the above. ANSWER C
Why do firms engage in price discrimination? A) to decrease cost B) to increase profits C) to increase consumer surplus D) to prohibit the resale of their products ANSWER B
The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then social welfare will most likely A) not change, but there will be a transfer from consumer to producer. B) not change, but there will be […]
Suppose an industry trade group has convinced legislators that a price floor should be used so that producer surplus is maximized in the market for milk. The group argues that such a policy would save the “family farm.” Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve, determine the resulting price, output […]
If a city decides to restrict the number of pizza parlors, A) the price of pizza will increase. B) pizza parlors will make higher profits. C) total welfare will decrease. D) All of the above. ANSWER D
Suppose a consumer advocacy group has convinced legislators that vitamin pills should be free to consumers. Such a policy would enhance the health of the citizenry, they argue. Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve, determine the resulting output and social welfare from such a policy. Compare this result to […]
Policies that restrict supply could generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus. Indicate whether the statement is true or false ANSWER False. One impact of a supply restriction is an exchange from consumers to producers. The net effect on social welfare is […]
If a market produces a level of output that exceeds the competitive equilibrium output, then A) social welfare will be higher. B) producer surplus will be higher. C) marginal cost will exceed price. D) All of the above. ANSWER C
While producing less than the competitive output decreases social welfare, the same cannot be said about producing more than the competitive output. Indicate whether the statement is true or false ANSWER False. When more than the competitive output is produced each unit sold cost more than it is valued at. This reduces social welfare […]
