When economists say that market equilibrium is consistent with economic efficiency, they meanthe total gains from trade (the combined area of producer and consumer surplus) are smaller than potentially couldbe the case at a different price and quantity.all units creating more benefit than cost have been produced.some units have been produced that cost more than the benefits they create.consumers and producers have made decisions without properly taking into account the market price.

Economic efficiency implies that all the resources are completely utilized. Total surplus, including…

Answered: When economists say that market…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas?
Sofia, a political science student, thinks that the government should intervene to revive declining industries like video stores and print newspapers. The government, she reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with her? Explain your answer. OA. No, these industries are declining not because of coordination problems but, rather, because of falling demand. OB. Yes, the coordination problems of these industries suggest that the invisible hand is failing, so government intervention would revive these industries. OC. Yes, government intervention is necessary to generate more buyers for these industries, thus coordinating buyers with existing sellers. OD. No, these declining industries are plagued by coordination problems, but government intervention is never the answer.
Zone Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas? When the consumers' utility goes beyond, goes below) the price paid, consumer surplus is generated. Likewise, when producers receive a price (greater, smaller ) than marginal cost, producer surplus is created. By producing up to the point where MB = MC, the maximum potential consumer surplus (CS) and producer surplus (PS) is generated. Producing (more. less ) than the equilibrium level means that potential surplus is left unrealized (underproduction). Overproduction subtracts from the surplus because society values the use of the additional resources in other pursuits more than it values them in consumption of that good.
Consider the market for blueberries (a homogeneous product) in Madagascar, which is con- sidered a small country. Demand for a good is given by QD = 100– P. Domestic supply for the good is given by: Qs = P. Each country that exports blueberries has different marginal cost: $30 per crate in South Africa, $25 per crate in Peru, and $20 per crate in Chile. (a) Calculate the price, domestic output, consumption, imports, consumer surplus, and producer surplus associated with blueberries in the Madagascar free-trade equilibrium. (b) In the free-trade equilibrium, how many crates of blueberries are imported from each of the three source countries? (c) Calculate the price, domestic output, consumption, imports, consumer surplus, pro- ducer surplus, and government revenue associated with blueberries if Madagascar adopts a $15 MFN tariff on all WTO members. How many crates of blueberries are imported from each of the three source countries? (d) With the adoption of a Southern African Free Trade…
The market for bread is competitive with the demand and supply functions as follow:• Supply: P=1+0.0025Q• Demand: P=5-0.0015Q i. Examine the equilibrium quantity and price of the market. Draw a diagram toillustrate the market equilibrium and size of consumer surplus, producer surplusand total economic surplus.ii. Suppose that the bakeries get together to form a cartel. They agree to raise theprice to $4.5 and jointly cut production to supply the quantity of loaves thatmeets the quantity demanded at the cartel’s fixed price. Compare the newmarket quantity with the one without cartel and measure the sizes of consumersurplus, producer surplus, and deadweight loss caused by the cartel. You mustillustrate the welfare loss with an appropriate diagram. Round your answers to2 decimal places if necessary.
The second column shows Shane’s marginal value schedule, which is also his demand schedule when he is offered a single price and can buy as many donuts as he wants at that price. The third column shows Miriam’s marginal cost schedule. Answer the following questions, and include a couple of sentences providing an explanation for your answer. If Miriam can charge a different price for different quantities, and if she is trying to maximize her producer surplus how many donuts will she sell? Does your answer to (a.) violate our result that profit is maximized by setting the quantity where marginal revenue equals marginal cost?
Markets are said to generate a benefit to society in the form of "gains from trade." These gains from trade can be calculated in the form of ___ A. the total surplus.B. the bargaining agreement.C. the producer surplus.D. the consumer surplus.
Name two types of market failure. Explain why eachmay cause market outcomes to be inefficient.
A competitive equilibrium is defined by the price P* and quantity Q*. Suppose theconsumers become less price sensitive, but the same price-quantity equilibrium is maintained.Illustrate the change on a graph, labeling the old and new linear demand curves. What happensto consumer and producer surplus?
Ivan has inherited his grandmother’s 1963 Chevrolet Corvette (trust me this is a hot car to own – if you watched Lucifer on TV you know it), which he values at $45,000. He decides that he might be willing to sell it so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000. Would Ivan and Samantha want to voluntarily engage in trade? How much economic surplus is created for both of them as a result of this exchange? Show your calculations. What is the total economic surplus? Explain how you arrived at this number.
Suppose that the U.S. Congress passes legislation that imposes a one-time lump-sum tariff on the product that a foreign firm exports to the United States. a. What happens to the foreign firm’s marginal cost curve as a result of the lump-sum tariff? b. Will the lump-sum tariff cause the foreign firm to export more or less of the good? Explain carefully.
In the market for gold jewelry (unlike the marketfor gold ore), products come in a range of designs,styles, and levels of quality. Which of the characteristics of a competitive market is violated in thejewelry market? What does this imply for consumers’ willingness to buy from different producers?

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