In which of the following situations can you say, without further information, that consumer surplus decreases relative to the market equilibrium level? Your state passes a law that pushes the interest rate (i.e., the price) for payday loans below the equilibrium rate. The federal government enforces a law that raises the price of dairy goods above the equilibrium. Your city passes a local property tax, under which buyers of new houses have to pay an additional 5 percent on top of the purchase price. The government lowers the effective price of food purchases through a food-stamp program.

In which of the following situations can you say, without further information, that consumer surplus decreases relative to the market equilibrium level?

Your state passes a law that pushes the interest rate (i.e., the price) for payday loans below the equilibrium rate.
The federal government enforces a law that raises the price of dairy goods above the equilibrium.
Your city passes a local property tax, under which buyers of new houses have to pay an additional 5 percent on top of the purchase price.
The government lowers the effective price of food purchases through a food-stamp program.

 

 

 

Answer:

option 2. The federal government enforces a law that raises the price of dairy goods above the equilibrium.

Your city passes a local property tax, under which buyers of new houses have to pay an additional 5 percent on top of the purchase price.

Reason:
In both of these cases, the actual price paid by consumer increases.As a result, the prices are above the equilibrium price level.Since the consumer surplus is the area under the demand curve and above the equilibrium price, this leads to a fall in the consumer surplus relative to the market equilibrium level.

Asked on February 14, 2018 in economics.
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