The graph below represents the market for alfalfa. The equilibrium price is $7.00 per bushel, but the market price is $9.00 per bushel. Identify the areas representing consumer surplus, producer surplus, and deadweight loss at the equilibrium price of
$7.00 and at the market price of $9.00.
What will be an ideal response?
At the equilibrium price of $7.00:
Consumer surplus is represented by area A + B + C.
Producer surplus is represented by area D + E.
There is no deadweight loss.
At the market price of $9.00:
Consumer surplus is represented by area A.
Producer surplus is represented by area B + D.
Deadweight loss is represented by area C + E.
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A) interest rate will fall. B) interest rate will rise. C) interest rate will fall immediately below the initial level when the money supply grows. D) interest rate will rise immediately above the initial level when the money supply grows.
A new law applied to a competitive market that requires laid off workers be paid a large severance payment will
A) not generate a deadweight loss. B) increase total welfare. C) increase consumer surplus in the market. D) decrease consumer surplus in the market.
Depreciation allowance ________ the profit subject to taxation, which ________ the amount of tax the firm pays.
A) decreases; decreases B) increases; increases C) increases; decreases D) decreases; increases
All of the following explain the downward slope of the aggregate demand curve EXCEPT
A) changes in the stock of real wealth held by individuals. B) the effect of changing interest rates on the quantity demanded of interest-rate-sensitive goods. C) the availability of foreign substitute goods. D) the presence of unused production capacity and unemployment.