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Questions and Answers
What does Economic Surplus consist of?
What does Economic Surplus consist of?
Deadweight Loss only occurs due to underproduction.
Deadweight Loss only occurs due to underproduction.
False
What is the value of Deadweight Loss when a tax is implemented?
What is the value of Deadweight Loss when a tax is implemented?
$6*(50-30)/2
A _____ is a government payment to a producer.
A _____ is a government payment to a producer.
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If a Consumer pays $22/unit and the Producer receives $14/unit from the government due to a subsidy, how much does the Producer actually receive in total?
If a Consumer pays $22/unit and the Producer receives $14/unit from the government due to a subsidy, how much does the Producer actually receive in total?
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Match the following terms with their definitions:
Match the following terms with their definitions:
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A price ceiling can create a Deadweight Loss.
A price ceiling can create a Deadweight Loss.
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What does Allocative Efficiency refer to?
What does Allocative Efficiency refer to?
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The equation for calculating Tax Revenue is _____ multiplied by quantity sold.
The equation for calculating Tax Revenue is _____ multiplied by quantity sold.
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What is a measure of Productive Efficiency?
What is a measure of Productive Efficiency?
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Study Notes
Economic Surplus
- Market surplus is the sum of the surplus of each quantity exchanged
- Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the price they actually pay.
- Producer surplus is the difference between the minimum price a producer is willing to accept for a good and the price they actually receive.
- Economic surplus is the sum of consumer surplus and producer surplus.
Deadweight Loss
- Deadweight Loss is the value of economic surplus forgone when the market is not adjusted to its competitive equilibrium.
- When there is underproduction, it could be caused by price controls (ceiling or floor) or taxes.
- When there is overproduction, it could be caused by a subsidy.
Price Controls and Deadweight Loss
- When a price floor is set at 100, consumer surplus decreases, producer surplus increases, and deadweight loss occurs.
- When a price ceiling is set at 40, consumer surplus increases, producer surplus decreases, and deadweight loss occurs.
Tax and Deadweight Loss
- Tax Revenue is part of Economic Surplus.
- Tax Revenue comes from producer and/or consumer surplus.
- Tax revenue is collected by the government when a tax is imposed on a good.
- The government collects tax revenue, but also creates deadweight loss.
Subsidy and Deadweight Loss
- A subsidy is essentially a negative tax, and it is funded by economic surplus in the market for another good.
- Deadweight loss is the area of the triangle to the right of the equilibrium quantity.
Productive vs. Allocative Efficiency
- Productive efficiency is achieved when production is at the lowest average total cost, or when the economy is producing on the production possibilities frontier (PPF).
- Allocative efficiency is achieved when the marginal benefit (MB) of production equals the marginal cost (MC).
- Allocative efficiency is achieved at the competitive equilibrium level of production.
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Description
This quiz covers key concepts in economics including market surplus, consumer and producer surplus, and the impact of price controls on economic efficiency. Explore how deadweight loss affects market equilibrium and the overall economic surplus. Test your understanding of these critical economic principles.
