Scenario: the Table Below Shows the Reservation Values of Ten

question 184

Multiple Choice

Scenario: The table below shows the reservation values of ten buyers and a seller for a loaf of bread. Each buyer would buy at most one loaf and the seller can make up to ten loaves. Initially trades happen under the market mechanism with each agent making a decision according to the market price and his or her own reservation value. Then the government imposes a price ceiling of $1.00 per unit.

-Refer to the scenario above.Suppose that,after the price ceiling is imposed,the government inspector extorts a bribe of $1.00 per loaf from the seller,so the seller can sell each loaf at the market price while the inspector looks the other way.Which of the following is a consequence of the bribe taking?

• A) There will be a deadweight loss of $5.00.
• B) There will be no deadweight loss, but the inspector will pocket $5.00.
• C) There will a deadweight loss of $12.00
• D) There will be no deadweight loss, but the social surplus will be reduced by $5.00.

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Definitions:

Tariff

A tax imposed by a government on imported or exported goods to regulate trade and protect domestic industries.

Imports

Goods and services bought by residents of a country from foreign producers, representing an inflow of goods into the country.

Free Trade

An economic policy allowing unrestricted import and export of goods between countries without the imposition of tariffs, quotas, or other restrictions.

Consumers

Individuals or organizations that use goods and services generated within the economy.