Nss Exploring Economics 3 ch. 16

NSS Exploring Economics 3 (Second Edition)

Consolidation Worksheets

Chapter 16 Competition and efficiency

Test yourself
16.1 Refer to the following table. Quantity
(units)
MB ($)
MC ($)
1
13
1
2
11
2
3
8
3
4
4
4
5
0
5

Calculate the value of the deadweight loss for each of the following output levels. Based on your result, determine which of them is inefficient.
a. 2 units
b. 4 units
c. 5 units

Answers:
a. Deadweight loss = (______ of 3rd unit – ______ of 3rd unit) + (______ of 4th unit – ______ of 4th unit) = $__ + $__ = $__  Efficient / Inefficient
b. Deadweight loss = $__  Efficient / Inefficient
c. Deadweight loss = ______ of 5th unit – ______ of 5th unit = $__  Efficient / Inefficient

16.2 Summarise the effects of an effective price ceiling and an effective price floor in a perfectly competitive market by choosing the correct answers in the table below.

Answers:

Effective price ceiling
Effective price floor
Is MB greater than, equal to or smaller than MC at quantity transacted?
MB > / = / < MC
MB > / = / < MC
Change in TSS
 /  / uncertain
 /  / uncertain
Achieve efficiency in resource allocation?

Yes / No
(underproduction / overproduction)
Yes / No
(underproduction / overproduction)
Change in Q
 /  / uncertain
 /  / uncertain
Change in P
 /  / uncertain
 /  / uncertain
Change in CS
 /  / uncertain
 /  / uncertain
Change in PS
 /  / uncertain
 /  / uncertain

16.3 Suppose the government has imposed an effective price ceiling on rental housing. Without using a diagram, what can you tell about the change in TSS and the state of market efficiency under each of the following situations?
a. The price ceiling becomes ineffective due to a decrease in demand for rental housing.
b. The government removes the price ceiling.

Answers:
a. TSS will increase / decrease but market efficiency is / is not achieved.
b. TSS will increase / decrease and market efficiency