Q: What is consumer surplus with free trade in the sugar market?

$$(P^* - P_w) \times Q_5$ / 2$$

Question 1

Which of the following best describes the 'invisible hand' as used in microeconomics?

Accepted Answer

It refers to natural market forces, driving prices toward efficient outcomes.

Question 2

Suppose a hurricane damages homes in a coastal community. According to the concept of the invisible hand, what is the most likely market response?

Accepted Answer

The price of generators would rise, incentivizing more generators to be sold in that area.

Question 3

Given that the United States can produce 100 units of cars or 100 units of beef, and Canada can produce 25 cars or 100 units of beef, which country has a comparative advantage in beef production?

Accepted Answer

Canada

Question 4

If both the United States and Canada perfectly specialize in the good for which they have a comparative advantage, how many units of cars and beef will the United States produce?

Accepted Answer

100 cars and zero beef

Question 5

Suppose the terms of trade is 1 unit of car for 2 units of beef. If the U.S. sends 10 cars to Canada, how many cars and beef will be consumed in the United States?

Accepted Answer

90 cars and 20 beef

Question 6

If the U.S. is in autarky (no trade), what is the volume of sugar imports?

Accepted Answer

$$0$$

Question 7

If the U.S. trades sugar with the rest of the world but imposes a tariff of $$t on $$each unit of sugar imported, what is the volume of imports?

Accepted Answer

$$Q4 - Q2$$

Question 8

What is the value of tariff revenue generated for the U.S. government when a tariff of $$t is $$imposed on sugar imports?

Accepted Answer

$$(Q4 - Q2) 	imes t$$

Question 9

What is consumer surplus with free trade in the sugar market?

Accepted Answer

$$(P^* - P_w) 	imes Q_5$ / 2$$

Question 10

Who is made better off and who is made worse off by free trade in the U.S. sugar market?

Accepted Answer

Both U.S. sugar producers are made worse off and U.S. consumers of sugar are made better off

Question 11

What is the equation of the marginal cost (MC) curve if the MC increases from $$2 at$$ $$q=0 to$$ $$10 at$$ $$q=100$$?

Accepted Answer

$$MC = 2 + 0.08q$$

Question 12

Suppose a factory's marginal benefit of polluting is $$MB = 500 - q$$ and the marginal cost to a fishing fleet is $$MC = 2q. If $$property rights are not defined or enforced, how many units of pollution will be generated?

Accepted Answer

$$200$$

Question 13

If the government wants to correct a negative externality where the per-unit external cost is $$6$$, what policy should it implement?

Accepted Answer

Enforce a tax of $$6$$ per unit of output

Question 14

Which of the following is a characteristic of a public good?

Accepted Answer

Non-rival, non-excludable

Question 15

Public goods can lead to market failures primarily because of:

Accepted Answer

Free riding

Question 16

Which of the following is an example of a common-pool resource?

Accepted Answer

Fish

Question 17

What is a progressive tax?

Accepted Answer

A tax in which lower-income people pay a lower tax rate than higher-income people.

Question 18

Suppose a tax is placed on the producer of a good. If the demand curve is less elastic than the supply curve, who will bear the brunt of the tax?

Accepted Answer

Consumers

Question 19

Is a deadweight loss necessarily created by a tax?

Accepted Answer

No, not if there is a negative externality

Microeconomics Midterm 2 Study Guide: Step-by-Step Guidance

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