Chapter 3: Q. 11 (page 78)
If a price floor benefits producers, why does a price floor reduce social surplus?
Short Answer
Consumer surplus lost is greater than the producer surplus gained.
Chapter 3: Q. 11 (page 78)
If a price floor benefits producers, why does a price floor reduce social surplus?
Consumer surplus lost is greater than the producer surplus gained.
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Get started for freeReview Figure 3.4 again. Suppose the price of gasoline is . Will the quantity demanded be lower or higher than at the equilibrium price of per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?
Most government policy decisions have winners
and losers. What are the effects of raising the minimum wage? It is more complex than simply producers lose and workers gain. Who are the winners and who are the losers, and what exactly do they win and lose? To what extent does the policy change achieve its goals?
In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.
a. There have recently been some important cost-saving inventions in the technology for making paint.
b. Paint is lasting longer, so that property owners need not repaint as often.
c. Because of severe hailstorms, many people need to repaint now.
d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.
How can you locate the equilibrium point on a
demand and supply graph?
What determines the level of prices in a market?
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