Surplus Distribution with Inelastic Demand (Figure 8.12)

An insurance company is trying to understand why its deductible-based screening mechanism isn't perfectly sorting customers by risk. Match each customer profile with the most likely confounding factor that explains their choice of insurance plan.

Tax Burden and Market Responsiveness

Consider a market for a unique, handcrafted good where production is time-consuming, making supply relatively inelastic. A new production technique is introduced, allowing producers to quickly scale their output in response to price signals, thus making supply significantly more elastic. Assuming the demand for this good remains unchanged, how will this shift in supply elasticity affect the distribution of the total economic surplus?

True or False: In a market for a specific brand-name prescription drug, the introduction of a new, chemically identical generic alternative will cause the consumers of the original brand-name drug to capture a larger share of the total economic surplus from its sales, assuming supply conditions remain constant.

Surplus Distribution in Contrasting Markets

Policy Evaluation for Essential Goods

A pharmaceutical company's patent on a unique, life-saving drug with no substitutes has just expired. Arrange the following economic consequences in the correct chronological and causal order.

In a market where the quantity of a good is fixed and cannot be increased regardless of price, the economic surplus generated from a transaction will be captured almost entirely by the ____.

Match each market scenario with the most likely distribution of economic surplus and the underlying reason for that distribution.

Agricultural Subsidy Distribution

True or False: In a market for a specific brand-name prescription drug, the introduction of a new, chemically identical generic alternative will cause the consumers of the original brand-name drug to capture a larger share of the total economic surplus from its sales, assuming supply conditions remain constant.