32. A production quota program:
D. is like a subsidy in that it reduces the price that buyers pay for a good.
33. A production quota program:
D. places minimums on the quantity that individual firms must produce.
34. A voluntary production reduction program:
D. forces firms to increase their production.
35. All of the following statements are true regarding voluntary production reduction programs
EXCEPT:
A. they offer firms incentives to reduce their production voluntarily.
36. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal. How
much wheat goes to waste under the program?
A. 10 billion bushels per year
37. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a price support program to achieve their
goal. How much wheat must the government buy?
A. 10 billion bushels per year
38. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a voluntary production reduction
program to achieve their goal. How much would the government have to pay farmers?
A. $1.5 billion
39. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a voluntary production reduction
program to achieve their goal. What is the size of the deadweight loss from the program?
D. $18 billion
40. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a voluntary production reduction
program to achieve their goal. What is the size of the producer surplus?
A. $8 billion
41. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a voluntary production reduction
program to achieve their goal. What is the size of the consumer surplus?
D. $6 billion
42. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a voluntary production reduction
program to achieve their goal. What is the size of the aggregate surplus?
D. $6 billion
43. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal. What
is the size of the consumer surplus?
D. $6 billion
44. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal. What
is the size of the producer surplus?
A. $4 billion
45. The market demand function for wheat is
Q
d
= 10 – 2
P
and the market supply function is
Q
s
= 4
P
– 2, both measured in billions of bushels per year. Suppose the government wants to
increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal. What
is the size of the aggregate surplus?
A. $4 billion
46. A tariff:
D. directly limits the total quantity of a good that can be exported.
47. A quota:
D. directly limits the total quantity of a good that can be exported.
48. Domestic aggregate surplus:
A. is the sum of consumer surplus, deadweight loss and government revenue.
49. If the import supply curve is upward-sloping:
D. neither a tariff nor a quota can increase domestic aggregate surplus.
50. If the import supply curve is horizontal at the world price:
D. a quota will increase domestic aggregate surplus.
51. Suppose the domestic market demand function in a certain market where
Q
is measured
in thousands of units is
Q
d
= 20 – 2.5
P
, and the domestic market supply function is
Q
s
= 2.5
P
– 7.5.
Suppose further that the world price for the good in question is $3.40 per unit. Under conditions of
free trade, how much consumer surplus will there be?
D. $53,300
52. Suppose the domestic market demand function in a certain market where
Q
is measured
in thousands of units is
Q
d
= 20 – 2.5
P
, and the domestic market supply function is
Q
s
= 2.5
P
– 7.5.
Suppose further that the world price for the good in question is $3.40 per unit. Under conditions of
free trade, how much producer surplus will there be?
D. $600
53. Suppose the domestic market demand function in a certain market where
Q
is measured
in thousands of units is
Q
d
= 20 – 2.5
P
, and the domestic market supply function is
Q
s
= 2.5
P
– 7.5.
Suppose further that the world price for the good in question is $3.40 per unit. If the government
places a $1.20 tariff on imported units of this good, by how much is consumer surplus reduced?
A. $14,450
54. Suppose the domestic market demand function in a certain market where
Q
is measured
in thousands of units is
Q
d
= 20 – 2.5
P
, and the domestic market supply function is
Q
s
= 2.5
P
– 7.5.
Suppose further that the world price for the good in question is $3.40 per unit. If the government
places a $1.20 tariff on imported units of this good, by how much is producer surplus increased?
A. $3,200
55. Suppose the domestic market demand function in a certain market where
Q
is measured
in thousands of units is
Q
d
= 20 – 2.5
P
, and the domestic market supply function is
Q
s
= 2.5
P
– 7.5.
Suppose further that the world price for the good in question is $3.40 per unit. If the government
places a $1.20 tariff on imported units of this good, how much revenue does the tariff generate?
A. $3,200
56. Suppose the domestic market demand function in a certain market where
Q
is measured
in thousands of units is
Q
d
= 20 – 2.5
P
, and the domestic market supply function is
Q
s
= 2.5
P
– 7.5.
Suppose further that the world price for the good in question is $3.40 per unit. How much
deadweight loss would be caused by a $1.20 tariff on imported units of this good?
D. $3,000
Essay Questions
57. Suppose the government wants to increase the price of a specific agricultural product.
Discuss the welfare effects of four possible policies: price floor, price support, production quota
and voluntary production reduction. Which policy is least efficient? Discuss the differences in the
benefits to farmers and the cost to the government.
58. Discuss why the government would implement a program to lower the price of a good and
the welfare effects of such a program. Give an example of good for which such a policy has been
implemented and explain the purpose of the policy.