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 and social welfare from such a policy. Compare this
result to the competitive equilibrium.
What will be an ideal response?
Producer surplus is maximized at a price that is midway between the supply curve and the demand curve intercept. Compared to the competitive equilibrium, a lower quantity is sold at a higher price. The area from this new quantity to the competitive quantity in between the demand and supply curves represents the loss of consumer surplus that is not gained by anyone—the deadweight loss.
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Higher energy prices can be used to adequately explain the productivity slowdown in
A. the United States and the rest of the world. B. the United States but not the rest of the world. C. the rest of the world but not the United States. D. neither the United States nor the rest of the world.
In 2000, McDonald's introduced the "McSalad Shaker." It turned out to be an unsuccessful product. In the marketplace for fast-food products, this lack of success is an example of:
A. consumer sovereignty. B. normal profit. C. economic costs. D. medium of exchange.
According to the law of demand, an increase in the price of baseball trading cards causes:
A. baseball trading cards to grow in abundance. B. the scarcity of baseball trading cards to increase. C. people to buy fewer trading cards. D. people to buy more trading cards.
The effect of spreading out the fixed costs outweighing the effect of diminishing returns is illustrated by the ________ average cost curve ________.
A. long-run; decreasing B. long-run; increasing C. short-run; decreasing D. short-run; increasing