EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 10, Problem 9RQ
To determine
The result of passing a law requiring that
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Can it be efficient for one trader to consume all units of the goods while the other trader consumes nothing? In other words, does this point lie on the contract curve?
A competitive equilibrium is not Pareto efficient if some members of society are unable to afford a necessary good.
Show that when all consumers and producers are price takers, a competitive equilibrium is always Pareto optimal.
A Gain from Trade occurs when a unit is sold for a price greater than the unit of the good is worth to a seller and, simultaneously, bought for a price less than the good is worth to a buyer.
Consider the first 2 units of the good that would be sold in this market (the vertical red line on the graph). Which answer choices are correct?
If Kai and Mint sold one unit each to Gob and Yam at a price of $6, the trade would be mutually beneficial.
At a price of $6, Gob would benefit by $3 because she is paying $6 for a unit of the good which is worth $9 to her.
At a price of $6, Kai would benefit by $4 because she is getting $6 for a unit of the good which is worth $2 to her.
For the first 2 units of the good there is potential gain from trade of $7 for each of the 2 units.
For the first 2 units of the good sold the difference between the value to buyer and seller is $9 each. This means there is a potential gain from trade of $9 per unit.
If the first 2 units of the…
Chapter 10 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 10.2 - Prob. 1MQCh. 10.4 - Prob. 1MQCh. 10.4 - Prob. 2MQCh. 10.4 - Prob. 1.1MQCh. 10.5 - Prob. 1TTACh. 10.5 - Prob. 2TTACh. 10.7 - Prob. 1MQCh. 10.7 - Prob. 2MQCh. 10.7 - Prob. 3MQCh. 10.8 - Prob. 1TTA
Ch. 10.8 - Prob. 2TTACh. 10.8 - Prob. 1MQCh. 10.8 - Prob. 2MQCh. 10 - Prob. 1RQCh. 10 - Prob. 2RQCh. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQCh. 10 - Prob. 10.1PCh. 10 - Prob. 10.2PCh. 10 - Prob. 10.3PCh. 10 - Prob. 10.4PCh. 10 - Prob. 10.5PCh. 10 - Prob. 10.6PCh. 10 - Prob. 10.7PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10P
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- Suppose the market for hats is competitive, with many small producers of hats, each of them unable to affect the market price of hats, and many consumers. And suppose there is an increase in the demand for hats. (a) How would an increase in demand affect the demand curve and supply curve for hats; and how would it change the equilibrium price and quantity of hats sold? (b) The Core Economics text observes that "price-taking is no longer a “Nash equilibrium". What is a “Nash equilibrium"? And why is price-taking no longer one? (c) When the market is not in equilibrium, it is said that the short side of the market dominates. What does this mean? (d) What are "economic rents"? How does "rent seeking" enter the process of price adjustment? (e) In what ways might the market for hats differ from "the labour market"?arrow_forwardSuppose the demand for shoes is given by: QD= 210 -2P. The supply of shoes is given by: QS= 9P -120. Calculate the Gains from Trade (also known as Economic Surplus) that would exist in this market in a competitive equilibrium.arrow_forwardDemonstrate that if the markets for two commodities are in equilibrium, the third market must also be in equilibrium.arrow_forward
- Which of the quantity (Q) and price (P) combinations in the accompanying graph represents the market at competitive equilibrium?arrow_forwardQ.5 Suppose that the production of goods X and Y is described using the production functions: X = BL, K, Y = (2/L, +2/K, )x. Determine the competitive equilibrium and the social equilibrium. Also calculate the rate of the Pigouvian subsidy to correct for the misallocation of resources under competitive equilibrium.arrow_forwardIn the above graph, suppose equilibrium is at point D. What would cause equilibrium to shift to point B? A. A decrease in the number of buyers and an increase in resource prices. B. A decrease in the price of a substitute and an increase in the number of firms. C. An increase in the number of buyers and a decrease in resource prices. D. An increase in the price of a substitute and a decrease in the number of firms. E. A decrease in the price of a complement and a decrease in firms's taxes.arrow_forward
- Q.4 (a)Define fully a general competitive equilibrium. What are the essential economic and mathematical elements of the proof of the existence of general equilibrium? Enumerate them and explain how an absence of/or any violation in their requirements will affect the outcome in respect of the existence of general equilibrium?arrow_forward3-1 Competitive Markets True or False (Why): In a competitive market, buyers and sellers have significant market power. 3-2 Demand What is the difference between an individual demand curve and a market demand curve? If the price of zucchini increases, causing the demand for yellow squash to rise, what do we call the relationship between zucchini and yellow squash? If plane travel is a normal good and bus travel is an inferior good, what will happen to the demand curves for plane and bus travel if incomes increase? What would be the effects of each of the following on the demand for hamburger in Hilo, Hawaii? In each case, identify the responsible determinant of demand. a) The price of chicken falls. b) The price of hamburger buns doubles. c) Scientists find that eating hamburger prolongs life. d) The population of Hilo doubles. 3-3 Supply What is the reason that a supply curve is positively sloped? If the price of corn rose, a) What would be the effect on the supply of corn? b)…arrow_forwardSuppose the demand and the supply for lumber (harvested wood processed in a sawmill) used for construction in Australia are given byQD =100 – 2PQS = 1/2PAssume also that the market is perfectly competitive. 7. Steel is a substitute for lumber in construction. Now suppose the price for steel rises. Use a graph of supply and demand to show what happens in equilibrium. Show changes relative to the original equilibrium you found. 8. back to the orginial graph once more, the government introduces a subsidy of s=5 per unit of lumber transacted in the market. Calculate the new equilibrium quantity and the price paid by consumers and received by producers.9. Given the subsidy in 8, calculate and illustrate in a graph the consumer surplus, producer surplus and subsidy expenditure.10. Calculate the deadweight loss caused by the subsidy in 8 and illustrate it in a graph. 11. Who benefits more from the subsidy, consumers or producers? Why?arrow_forward
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