12. The relationship between quantity supplied and price is _____ and the relationship between...
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![Page 1: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/1.jpg)
12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.A) direct, inverse B) inverse, direct C) inverse, inverse D) direct, directE) strong, weak
13. A leftward shift of a supply curve might be caused by: A) an improvement in the relevant technique of production. B) a decline in the prices of needed inputs (resources). C) an increase in consumer incomes. D) some firms leaving a market.
![Page 2: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/2.jpg)
14. Which of the following statements is correct? A) If demand increases and supply decreases, equilibrium price will fall. B) If the demand and the supply both fall at the same time, quantity will be indeterminate C) If demand decreases and supply increases, equilibrium price will rise. D) If supply increases and demand decreases, equilibrium price will fall. E) If supply falls and demand remains constant, equilibrium price will fall.
![Page 3: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/3.jpg)
15. At price $20, there would be a SURPLUS of… A) 100 B) 150 C) 200 D) 50 E) 0
16. What would be the effect of a price floor at $60A) It would ineffective D) A shortage of 100 B) A shortage of 50 E) A surplus of 100C) Quantity demanded would increase
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17. Which of the following statements is correct? A) If demand increases and supply decreases, equilibrium price will fall. B) If the demand and the supply both fall at the same time, quantity will be indeterminate C) If demand decreases and supply increases, equilibrium price will rise. D) If supply increases and demand decreases, equilibrium price will fall. E) If supply falls and demand remains constant, equilibrium price will fall.
18. If Buyer’s Max=$300, Seller’s Min=$150, & Price=$350 thenA) consumer’s surplus is 50B) consumer’s surplus is 100C) producer’s surplus is 200D) producer’s surplus is 50E) there would be no exchange
![Page 5: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/5.jpg)
Government Intervention
Basic Economic Concepts #6
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Government Involvement
#1-Price Controls: Floors and Ceilings#2-Import Quotas#3-Subsidies#4-Excise Taxes
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#1-PRICE CONTROLSWho likes the idea of having a price ceiling on gas
so prices will never go over $1 per gallon?
7
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Qo
$5
4
3
2
1
P
10 20 30 40 50 60 70 80 8
D
S
Shortage(Qd>Qs)
Maximum legal price a seller can charge for a product.Goal: Make affordable by keeping price from reaching Eq.
Gasoline
Does this policy help consumers?
Result: BLACK MARKETS Price Ceiling
Price Ceiling
To have an effect, a price ceiling must be
below equilibrium
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Qo
$
4
3
2
1
P
10 20 30 40 50 60 70 80 9
D
SSurplus(Qd<Qs)
Minimum legal price a seller can sell a product.Goal: Keep price high by keeping price from falling to Eq.
Corn
Does this policy help
corn producers?
Price Floor
Price Floor
To have an effect, a price floor must be
above equilibrium
![Page 10: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/10.jpg)
Are Price Controls Good or Bad?To be “efficient” a market must maximize consumers
and producers surplus
Q
P
D
S
Pc
Qe
CS
PS
10
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Are Price Controls Good or Bad?To be “efficient” a market must maximize consumers and
producers surplus
Price FLOOR
Q
P
D
S
Pc
QeQfloor
DEADWEIGHT LOSS The Lost CS and PS.
INEFFICIENT!
CS
PS
11
![Page 12: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/12.jpg)
Are Price Controls Good or Bad?To be “efficient” a market must maximize consumers and
producers surplus
Q
P
D
S
Pc
Qe
CS
PS
12
![Page 13: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/13.jpg)
Are Price Controls Good or Bad?To be “efficient” a market must maximize consumers and
producers surplus
Price CEILING
Q
P
D
S
Pc
QeQceiling
DEADWEIGHT LOSS The Lost CS and PS.
INEFFICIENT!CS
PS
13
![Page 14: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/14.jpg)
#2 Import QuotasA quota is a limit on number of imports.
The government sets the maximum amount that can come in the country.
Purpose:•To protect domestic producers from a cheaper world price.•To prevent domestic unemployment
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International Trade and QuotasIdentify the following:1. CS with no trade2. PS with no trade3. CS if we trade at world
price (PW)4. PS if we trade at world
price (PW)5. Amount we import at
world price (PW)6. If the government sets
a quota on imports of Q4 - Q2, what happens to CS and PS?
This graphs show the domestic supply and demand for grain.
The letters represent area.
HTLI
HIJKLMNRS
T
Q5-Q1
CS smallerPS bigger
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#3 SubsidiesThe government just gives producers money.The goal is for them to make more of the goods that the government thinks are important.
Ex:•Agriculture (to prevent famine)•Pharmaceutical Companies•Environmentally Safe Vehicles•FAFSA
16
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Result of Subsidies to Corn Producers
Qo
Price of Corn
Quantity of Corn 17
SSSubsidy
Price DownQuantity Up
Everyone Wins, Right?
Pe
P1
Qe Q1
D
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18
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#4 Excise TaxesExcise Tax = A per unit tax on producers
For every unit made, the producer must pay $NOT a Lump Sum (one time only)TaxThe goal is for them to make less of the goods that the government deems dangerous or unwanted.
Ex:•Cigarettes “sin tax”•Alcohol “sin tax”•Tariffs on imported goods•Environmentally Unsafe Products•Etc.
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![Page 20: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/20.jpg)
Excise Taxes
Qo
$5
4
3
2
1
P
20
Supply Schedule
P Qs
$5 140
$4 120
$3 100
$2 80
$1 60 D
S
40 60 80 100 120 140
Government sets a $2 per unit tax on Cigarettes
![Page 21: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/21.jpg)
Excise Taxes
Qo
$5
4
3
2
1
P
21
Supply Schedule
P Qs
$5 $7 140
$4 $6 120
$3 $5 100
$2 $4 80
$1 $3 60 D
S
40 60 80 100 120 140
Government sets a $2 per unit tax on Cigarettes
![Page 22: 12. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A) direct, inverse.](https://reader033.fdocuments.in/reader033/viewer/2022061412/5697bffb1a28abf838cc0cef/html5/thumbnails/22.jpg)
Excise Taxes
Qo
$5
4
3
2
1
P
22
Supply Schedule
P Qs
$5 $7 140
$4 $6 120
$3 $5 100
$2 $4 80
$1 $3 60 D
S
40 60 80 100 120 140
Tax is the vertical distance between
supply curves
STax
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FRQ #2