In a country, cigarettes are forbidden, so people trade cigarettes in a black market. The cigarette demand is and the cigarette supply is . The government becomes aware of the black market and reinforces the police so that half of the cigarette supply would be seized and destroyed. How does the consumer surplus change between the two situations?
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In a country, cigarettes are forbidden, so people trade cigarettes in a black market. The cigarette demand is Q_D = 12 - P and the cigarette supply is Q_S = 2P. The government becomes aware of the black market and reinforces the police so that half of the cigarette supply would be seized and destroyed. How does the consumer surplus change between the two situations? (A) Remains the same (B) Decreases by 10 (C) Decreases by 14 (D) Increases by 8
Perfect competition has come up 115 times in 7 exams since 2006.
This question is on Consumer and producer surplus and deadweight loss, part of Perfect competition in Microeconomics.
Measuring gains from trade in a competitive market and the loss when it is distorted.
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Question from the JNU SIS 2011 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.