Question 1:

Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve for oranges to shift to the left. Briefly explain whether each of the following will increase or decrease. Use demand and supply graphs to illustrate your answers.

a. Consumer surplus.
b. Producer surplus.

Question 2:

A student makes the following argument: "When a market is in equilibrium, there is no consumer surplus. We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good." Briefly explain whether you agree with the student's argument. Draw a graph to support your answer.

Question 3 :

Briefly explain whether you agree with the following statement: "If at the current quantity marginal benefit is greater than marginal cost, there will be a deadweight loss in the market.

However, there is no deadweight loss when marginal cost is greater than marginal benefit." Use a graph to support your answer.

Question 4:

Suppose the competitive equilibrium rent for a standard two-bedroom apartment in Lawrence is $600. Now suppose the city council passes a rent control law, imposing a price ceiling of $500. Use a demand and supply graph to illustrate the impact of the rent control law. Suppose that shortly after the law is passed, a large employer in the area announces that it will close a plant in Lawrence and lay off 5,000 workers. Show on your graph how this will affect the market for rental property in Lawrence.