5 You currently have a television that 122 You can either pi

5. You currently have a television that 122 You can either pick a price and try to sell it at you or auction it off on eBay. Which method do LO 5.7 Calculate deadweight will yield a higher producer surplus? Why\' ILo when the quantity of a good that is bought and sold equilib- Deadweight loss is the loss of total surplus that occurs 6. Consider a market in equilibrium. Suppose this market decreases. How will this affect vention that moves a market away from the rium price and quantity causes deadweight loss. Fewer is below the market equilibrium quantity. Any inter- surplus? Explain. [LO 5.3] 7. Consider the market for plane tickets to Hawa winter in the mainland United States increases exchanges take place, so there are fewer opportunities for tropical vacations, shifting the demand for the generation of surplus right. The supply curve stays constant. Does Explain why correcting a missing market can plus increase or decrease? (Hint: Sketch LO 5.8 make everyone better oft supply and demand curve and look at what to the size of the triangle that represents total A market is \"missing\" when there is a situation in when the demand curve shifts right) [LO 5.4] which people would like to engage in mutually benefi- You need to paint your fence, but you really 8. cial trades of goods and services but can\'t because no task. You decide to hire the kid next door market for them exists. A missing market is a special you. You would be willing to pay him up to St case of a market in which quantity is held below the equilibrium-in this case, at or close to zero. Missing markets can occur for many reasons, including gov- but you start by offering $50, expectin ate. To your great surprise, he accepts your When you tell your friend about the great deal she is shocked that you would take advanta one. What can you tell your friend to assure her $50 offe ernment intervention or a lack of information or tech- nology. When missing markets are filled, people are able to trade, which generates surplus. u did not cheat the kid next door? [Lo 5.4) New York City has a long-standing policy of Review Questions 1. Bill is a professional photographer. His camera is bro- ling rents in certain parts of the city-in essenc. price ceiling on rent. Is the market for apartments lileh to be efficient or inefficient? What does this imply fr ken and he needs a new one within the next hour, or he will miss an important deadline. Lisa is a high-school student who doesn\'t have a camera but wants to get one to take pictures at her prom next month. Who do y think would have a higher willingness to pay for a par- ticular camera today? Why? [Lo 5.1) he size of total surplus? [LO 5.5] tal surplus is maximized at the equilibeium d quantity. When demand increases, price increse Explain how total surplus is still maximized if increases due to an increase in demand. [LO 5.5) 2. You are in the market for a new couch and have found II. When the price of gasoline was very high in the two advertisements for the kind of couch you want to buy. One seller notes in her ad that she is selling because she is moving to a smaller apartment, and the couch won\'t fit in the new space. The other seller says he is selling because the couch doesn\'t match his other furniture. Which seller do you expect to buy from? Why? (Hint: Think who would be the more motivated 12. Consider a policy to help struggling farmers seller.) [LO 51 Suppose you are at a flea market and are considering buying a box of vintage records. You are trying to bar- 13. I gain down the price, but the seller overhears you telling a friend that you are willing to pay up to $50. Why is your consumer surplus now likely to be lower than it would have been if the seller hadn\'t overheard you? [LO 5.2) Consider a market in equilibrium. Suppose supply in mer of 2008, several U.S. presidential candidales posed implementing a national price ceiling fuel affordable. How would this policy have afical producer and consumer surplus? How woulditha affected total surplus? [LO 5.6 a minimum trade price for wheat. Will this be tive way to increase their surplus? Explain. ILoss If rent control creates deadweight loss for ers and suppliers of housing, why are consumers cs in favor of this policy? [LO 5.7 14. Suppose price is 5 percent above equili 4. markets: a market for a necessity anda ury good. All else equal (including supply in which market do you expect deadweigh greater? Explain. [LO 5.7) market increases. How will this affect consumer Explain. [LO 5.2)

Solution

Review Question

Question 1

Willingness to pay for a good depends on the intensity of a want. Magnitude of intensity of want depends on the time period with in which wants have to be fulfilled.

Shorter the time period with in which want has to be fulfilled, higher will be the intensity of want and higher would be the willingness to pay for the good.

Greater the time period with in which want has to be fulfilled, lower will be the intensity of want and lower would be the willingness to pay for the good.

In given case, the time period with in which Bill needs camera is much shorter than time period with in which Lisa wants the camera.

So, intensity of want with respect to Bill would be higher relative to Lisa.

Hence, Bill would have a higher willingness to pay for a particular camera today.