Exhibit 4-8 Refer to Exhibit 4-8.  Suppose That Wheat Producers  Lobby the Government for the Government

question 116

Multiple Choice

Exhibit 4-8
Refer to Exhibit 4-8.  Suppose that wheat producers  lobby the government for a price floor and receive one.  This price floor is set at P_F.  What is the change in the total surplus at the price floor, compared to at the equilibrium price?

• A)There was a gain in total surplus equal to (area 1 + 2 + 3)
• B)There was a gain in total surplus equal to (area 1 + 2 + 3 + 4 + 5)
• C)There was a loss in total surplus equal to (area 4 + 5)
• D)There was a loss in total surplus equal to (area 4 + 5 + 6 )

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Definitions:

P > MR

This inequality indicates a scenario in market pricing where the price (P) of a good exceeds its marginal revenue (MR), common in imperfectly competitive markets.

Positive Economic Profits

Occurs when the total revenues of a firm exceed the total costs, including opportunity costs.

Total Costs

The comprehensive total of all spending required for the creation of goods or services, covering expenses that are both stationary and those subject to change.

Public Utilities

Entities that provide essential services to the public, such as water, electricity, and natural gas, often under government regulation.