Acc/291 Week 5

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WEEK 5 Economic Efficiency, Government price setting and Taxes First, answer these questions-: Question 1: If the market price is $5, this means all consumers pay $5 for the quantity of goods or services they want at that price. This means, consumers have valued those goods and services at $5 each. 1. True 2. False Question 2: Free markets – that is, when there are lots of buyers and sellers interacting freely to reach equilibrium prices – always have the best outcomes. 1. Yes, they are always efficient and equitable 2. Yes, they are always equitable 3. No, they may be efficient but not necessarily equitable 4. No, they may be equitable but not necessarily efficient Question 3: When Governments intervene…show more content…
Explain and calculate consumer and producer surplus 2. Explain the efficient market equilibrium 3. Identify the conditions under which market equilibrium will be efficient 4. Discuss the efficiency of non-price rationing mechanisms 5. Discuss surplus-enhancing transactions in markets 6. Explain how elasticity affects the way in which the burden of a per-unit tax is shared between buyers and sellers 7. Explain how elasticity affects the size of the deadweight loss created by a per-unit tax **NOTE: All of chapter 5 of Hubbard, Garnett, Lewis and O’Brien (2011) Microeconomics, 2nd edition, Pearson is required reading. 1. Consumer surplus The difference between the highest price a consumer is willing to pay for a good or service, and the price they actually pay. For example, you are willing to pay $90 for a new Xbox game, but it is selling for $80. As the market price is below that price, the consumers’ can be said to have benefited – they have received a ‘surplus’. The Demand curve is also the marginal benefit curve: the marginal benefit is the additional benefit to a consumer of consuming one more unit. Calculating consumer

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