Chapter 4 Econ 2302

How are producer surplus (PS) and price related? Multiple choice question. Unrelated Inversely Directly

directly

Economic ______________ is achieved at the equilibrium quantity. (Enter one word in the blank.)

efficiency

Equilibrium quantity is efficient because the maximum willingness to pay is ______ the minimum acceptable price. Multiple choice question. less than greater than equal to

equal to

Points on the ____________ curve represent marginal cost.

supply

Points on the ______________ curve represent marginal cost.

supply

The seller's minimum acceptable price at each unit of the product forms a point on the _________________ curve, also known as the marginal cost curve. (Remember to type only one word in the blank.)

supply

When a producer's supply curve is to the right of (or below) the total-cost supply curve, this represents the fact that its ______. Multiple choice question. demand curve does not capture all the costs legitimately associated with the production of its goods supply curve does not capture all the costs legitimately associated with the production of its goods supply curve does not capture all the revenue legitimately associated with the production of its goods supply curve captures all the costs legitimately associated with the production of its goods

supply curve does not capture all the costs legitimately associated with the production of its goods

Chad sells oranges, and his minimum acceptable price for a bag of oranges is $8. If the actual price is $8, what is the value of his producer surplus? Multiple choice question. $16 $0 $8

$0

An ice cream shop sells single-scoop cones for $5, but its minimum acceptable price is $3. What is the ice cream shop's producer surplus? Multiple choice question. $2 $3 $8 $5

$2

If Bob is willing to pay $13 for a bag of oranges and the actual price is $8, what is the amount of his consumer surplus? Multiple choice question. $5 $21 $13

$5

True or false: At the equilibrium output, where the demand and supply curves intersect, marginal benefit equals marginal cost. True false question. True False

True

True or false: Efficiency losses are reductions of combined consumer surplus and producer surplus associated with either underproduction or overproduction of a product. True false question. True False

True

True or false: Markets that have downward-sloping demand curves and upward-sloping supply curves yield consumer and producer surplus. True false question. True False

True

In which situation are governments likely to use subsidies or government provision to achieve economic efficiency? Multiple choice question. When monopoly power results in price fixing When positive externalities cause underproduction When negative externalities cause overproduction When competition forces prices to come down

When positive externalities cause underproduction

The area depicted below the demand curve and above the market price is known as ______. Multiple choice question. economic surplus producer surplus a shortage consumer surplus

consumer surplus

Assuming demand reflects consumers' full willingness to pay and supply reflects all costs, which of the following are scenarios that would result in efficiency losses? Multiple select question. -Consumers' maximum willingness to pay is less than producers' minimum acceptable price. -Consumers' maximum willingness to pay is equal to producers' minimum acceptable price. -Consumers' maximum willingness to pay exceeds producers' minimum acceptable price. -Output is equal to the equilibrium quantity.

-Consumers' maximum willingness to pay is less than producers' minimum acceptable price. -Consumers' maximum willingness to pay exceeds producers' minimum acceptable price.

Select all that apply In the figure, which of the following statements concerning positive externalities that accrue to society are correct? Multiple select question. The equilibrium output point is on market demand curve Dt. The optimal output point is on market demand curve D. The equilibrium output point is on market demand curve D. The optimal output point is on market demand curve Dt.

-The equilibrium output point is on market demand curve D. -The optimal output point is on market demand curve Dt.

What conditions must exist for allocative efficiency to occur? Multiple select question. The maximum willingness to pay must equal the minimum acceptable price. Price must be equal to the lowest average total cost of production. Marginal benefit must equal marginal cost. Combined consumer and producer surplus must be at a minimum.

-The maximum willingness to pay must equal the minimum acceptable price. -Marginal benefit must equal marginal cost.

Which of the following could give rise to a negative externality? Multiple choice question. An improved health care system Unemployed workers A coal generated power plant A vaccination program

A coal generated power plant

When positive externalities exist, what is the ideal response from producers? Multiple choice question. Reducing resource allocation and output to below equilibrium levels. Maintaining the current level of resource allocation and output. Increasing resource allocation but reducing output. Allocating more resources to increase production from equilibrium output to optimal output.

Allocating more resources to increase production from equilibrium output to optimal output.

What is achieved when output is produced at the point at which maximum willingness to pay exactly equals the minimum acceptable price? Multiple choice question. Capital efficiency Productive efficiency Allocative efficiency Retroactive efficiency

Allocative efficiency

What occurs when marginal benefits are equal to marginal cost, maximum willingness to pay is equal to minimum acceptable price, and total surplus is at a maximum? Multiple choice question. Productive efficiency Allocative efficiency Deadweight losses Negative externalities

Allocative efficiency

Which of the following are achieved at the equilibrium quantity of a good or service? Multiple select question. Allocative efficiency A shortage of the good or service A surplus of the good or service Productive efficiency

Allocative efficiency Productive efficiency

What causes the shift in the supply curve for a firm targeted by a Pigovian tax? Multiple choice question. An increase in marginal cost A decrease in total cost A decrease in demand An increase in market price

An increase in marginal cost

Which of the following refers to reductions of combined consumer and producer surplus associated with the underproduction or overproduction of a good or service? Multiple choice question. Inefficiency loss Triangle loss Surplus loss Deadweight loss

Deadweight loss

How do positive externalities affect demand curves? Multiple choice question. Demand curves shift to the right. Demand curves become horizontal lines. Demand curves shift to the left. Demand curves become vertical lines.

Demand curves shift to the left.

Which type of intervention has the government primarily used to discourage or limit harmful air pollution? Multiple choice question. Pigovian taxes Subsidies Government provision Direct controls

Direct controls

What is created when output does not meet the equilibrium quantity? Multiple choice question. No change in efficiency Efficiency (deadweight) losses Efficiency (deadweight) gains

Efficiency (deadweight) losses

Which of the following are direct controls that have been used by the US government to address pollution? Multiple select question. Emission standards Clean-water legislation Subsidies for green businesses Toxic-waste laws

Emission standards Clean-water legislation Toxic-waste laws

When negative externalities are present, the production of which units result in a net loss to society? Multiple choice question. Every unit below optimal output Every unit produced Every unit above equilibrium output Every unit above optimal output

Every unit above optimal output

True or false: Competitive markets produce equilibrium prices and quantities that minimize the sum of consumer and producer surplus. True false question. True False

False

True or false: When positive externalities occur, the market demand curve lies to the right of the total-benefits demand curve. True false question. True False

False

Which of the following is a common remedy when externalities affect large numbers of people or community interests are at stake? Multiple choice question. Free-market competition Government intervention Rent-seeking behavior Labor arbitrage

Government intervention

Select all that apply Solar panels provide a benefit to those who buy them by reducing their electricity bill. They also benefit society as a whole by reducing pollution and resource consumption. Because producers calculate demand based on actual purchases rather than total benefit, solar panels are underproduced. Which types of government intervention could be used to counter this situation? Multiple select question. Direct controls Government provision Pigovian taxes Subsidies

Government provision Subsidies

Which of the following markets are more likely to experience positive externalities? Immunizations Education Coal power generation Airline travel

Immunizations Education

A pair of sneakers priced at $100 yields a consumer surplus of $25. What would happen to the consumer surplus if the price increased to $110? Multiple choice question. It would decrease. It would increase. It would disappear. It would stay the same.

It would decrease.

At an equilibrium price of $15 for a dozen roses, Terry's Flowers earns a producer surplus of $5. If the equilibrium price were to increase to $20, what would happen to Terry's Flowers' producer surplus? Multiple choice question. It would shrink. It would stay the same. It would disappear. It would grow

It would grow

At an equilibrium price of $15 for a dozen roses, Terry's Flowers earns a producer surplus of $5. If the equilibrium price were to increase to $20, what would happen to Terry's Flowers' producer surplus? Multiple choice question. It would stay the same. It would shrink. It would disappear. It would grow.

It would grow.

Which of the following reduces producer surplus? Multiple choice question. Constant prices Higher prices Greater economic surplus Lower prices Lower consumer surplus

Lower prices

What do points on the demand curve represent? Multiple choice question. Marginal revenue Marginal benefit Efficiency in production Marginal cost

Marginal benefit

Which of the following statements is true regarding the marginal costs and benefits to society for every unit of production between optimal output and equilibrium output in the presence of negative externalities? Multiple choice question. Marginal benefits exceed marginal costs. Marginal costs exceed marginal benefits. Marginal benefits are equal to marginal costs. Marginal costs and marginal benefits are both zero.

Marginal costs exceed marginal benefits.

A market failure that occurs when a third party to a transaction experiences uncompensated costs is called a(n) ___________________ externality, or spillover cost.

Negative

Pigovian taxes and direct controls are two government solutions for which market situation? Multiple choice question. Negative externalities Competitive markets Pure monopoly Positive externalities

Negative externalities

What kind of market situation results in equilibrium output being larger than optimal output, leading to an overallocation of resources? Multiple choice question. Negative externalities Positive externalities Monopoly Price ceiling

Negative externalities

What kind of market situation results in equilibrium output being larger than optimal output, leading to an overallocation of resources? Multiple choice question. Price ceiling Negative externalities Positive externalities Monopoly

Negative externalities

Which of the following results in an overallocation of resources to the production of a good or service? Multiple choice question. Positive externality Economic surplus Negative externality Spillover benefit

Negative externality

The government can correct for a situation in which negative externalities result in the overallocation of resources by using which of the following types of interventions? Multiple select question. Pigovian taxes Direct controls Subsidies Government provision

Pigovian taxes Direct controls

Which of the following are solutions that governments use to counter overproduction caused by negative externalities? Multiple select question. Pigovian taxes Government provision Subsidies Direct controls

Pigovian taxes Direct controls

What kind of relationship exists between equilibrium price and the amount of producer surplus? Multiple choice question. Inverse Negative Positive

Positive

What is the difference between the actual price a seller receives and the minimum acceptable price? Multiple choice question. Producer profit Consumer surplus Producer surplus Extra surplus

Producer surplus

__________________ _______________ is the difference between the actual price a seller receives and the minimum acceptable price. (Enter one word in each blank.)

Producer surplus

What is achieved when competition forces producers to minimize the per-unit cost of the output they produce? Multiple choice question. Preservative efficiency Productive efficiency Consumptive efficiency Allocative efficiency

Productive efficiency

In the figure, which of the following statements concerning positive externalities are correct? Multiple select question. Quantity point Qe represents the equilibrium output point. Quantity point Qe represents the optimal output point. Quantity point Qo represents the equilibrium output point. Quantity point Qo represents the optimal output point.

Quantity point Qe represents the equilibrium output point. Quantity point Qo represents the optimal output point.

Select all that apply In the figure, which of the following statements concerning positive externalities are correct? Multiple select question. Quantity point Qe represents the optimal output point. Quantity point Qo represents the equilibrium output point. Quantity point Qo represents the optimal output point. Quantity point Qe represents the equilibrium output point. Description of the pic: Horizontal axis represents quantity while the vertical axis represents price. Demand D sub t is above D. Supply S sub t and demand D sub t intersect at z. Supply S sub t and demand D intersect at x. The distance between D and D sub t is positive externalities. Point y is to the left of z. The distance between vertical lines Q sub e x y and Q sub O z is under allocation. The triangle formed xyz is shaded. Note: All data is approximate

Quantity point Qo represents the optimal output point. Quantity point Qe represents the equilibrium output point.

Which curve shows the seller's minimum acceptable price for each unit of the product? Multiple choice question. Supply curve Revenue curve Demand curve

Supply curve

Why does a firm's supply curve shift to the right when negative externalities are present? Multiple choice question. The cost of production declines under negative externalities. The firm is paying more than the full cost of production. Demand increases when negative externalities are present. The firm is not paying the full cost of production.

The firm is not paying the full cost of production.

Select all that apply What conditions must exist for allocative efficiency to occur? Multiple select question. -The maximum willingness to pay must equal the minimum acceptable price. -Combined consumer and producer surplus must be at a minimum. -Marginal benefit must equal marginal cost. -Price must be equal to the lowest average total cost of production.

The maximum willingness to pay must equal the minimum acceptable price. Marginal benefit must equal marginal cost.

Why does allocative efficiency occur at the equilibrium quantity, where maximum willingness to pay is exactly equal to the minimum acceptable price? Multiple choice question. The quantity produced minimizes the sum of consumer and producer surplus. The costs of units produced at this quantity far exceed the benefits. The benefits of units produced at this quantity far exceed the costs. The quantity produced maximizes the sum of consumer and producer surplus.

The quantity produced maximizes the sum of consumer and producer surplus.

In competitive markets where demand curves reflect buyers' full willingness to pay and supply curves reflect all the costs facing sellers, what is maximized when output equals the equilibrium quantity? Multiple choice question. The difference between benefits to society and the costs incurred The sum of consumer and producer surplus The actual price of the good sold The incentive for new businesses to enter the market

The sum of consumer and producer surplus

In competitive markets where demand curves reflect buyers' full willingness to pay and supply curves reflect all the costs facing sellers, what is maximized when output equals the equilibrium quantity? Multiple choice question. The sum of consumer and producer surplus The difference between benefits to society and the costs incurred The actual price of the good sold The incentive for new businesses to enter the market

The sum of consumer and producer surplus

For a given supply curve, how do higher prices affect producer surplus? Multiple choice question. They decrease it. They increase it. It stays the same.

They increase it.

True or false: Markets that have downward-sloping demand curves and upward-sloping supply curves yield consumer and producer surplus. True false question. True False

True

When is allocative efficiency of a product achieved? Multiple choice question. When the correct quantity of the product is produced relative to other goods and services When demand for the product peaks When the per-unit cost of the product is minimized When the benefit of additional production is less than the opportunity cost of redirecting those resources

When the correct quantity of the product is produced relative to other goods and services

Is there a relation between consumer surplus and price? Multiple choice question. Yes, they are directly related No, they are unrelated Yes, they are inversely related

Yes, they are inversely related

A form of economic efficiency called _________________ efficiency is achieved when the quantity of output at equilibrium is produced.

allocative

A form of economic efficiency called ____________________ _______________is achieved when resources are directed toward their highest-valued use. (Enter one word in each blank.)

allocative efficiency

A deadweight loss is also known as ______. Multiple choice question. economic surplus an efficiency loss a producer surplus a consumer surplus

an efficiency loss

Consumer surplus can be illustrated as the area _____ the demand curve and ______ the market price. Multiple choice question. below; below above; above below; above above; below

below; above

All markets that have downward-sloping demand curves and upward-sloping supply curves yield _________________ and ________________ surplus. (Remember to type only one word per blank.)

consumer producer

When external benefits occur, the market demand curve D lies to the left of (below) the total-benefits demand curve, Dt. At any particular price, fewer units of output are demanded along D than along Dt. That's because D includes only the benefits received by people paying for the product, while Dt includes not only those paid-for benefits but also the external benefits received by free riders. Dt is the demand curve that would exist if everybody receiving benefits had to pay for them.

external benefits

A cost or a benefit accruing to an individual or group that is external to a market transaction is known as a(n) ______. Multiple choice question. - internal cost - producer surplus - deadweight loss - externality

externality

A(n) ___________________ is a cost or a benefit accruing to an individual or a group, a third party, that is external to a market transaction. (Enter one word in the blank.)

externality

A(n)__________________ (one word) accrues some of the benefits or costs of a market transaction to be passed on to a third party.

externality

An externality occurs when some of the costs or benefits of a good or service are passed onto or "spill over to" someone other than the immediate buyer or seller. These spillovers are called "externalities" because they accrue to some third party that is external to the market transaction.

externality

Water and air pollution both result in a market failure known as a negative _____________ , or a spillover cost. (Enter one word in the blank.)

externality

The result of positive externalities is that the market produces too ______ units of a product that could benefit society, resulting in producers ______ resources to that product. Multiple choice question. few; underallocating many; overallocating many; underallocating few; overallocating

few; underallocating

A person who receives benefits from a market transaction without having to pay for them is called a(n) _______________ rider.

free

People who receive the benefits from a good without having to pay for it are known as ______. Multiple choice question. moral hazards free riders underallocators arbitrages

free riders

Consumer surplus and price are _____ related. Multiple choice question. independently indirectly positively inversely

inversely

Consumer surplus and price are __________________ related because, with a given demand curve, higher prices reduce consumer surplus. (Enter one word in the blank)

inversely

When positive externalities occur, the market demand curve lies to the ______ the total-benefits demand curve. Multiple choice question. left of (above) right of (below) right of (above) left of (below)

left of (below)

A less-direct action than passing legislation to correct a negative externality is for the government to ______. Multiple choice question. impose a one-time fine on the buyer of the related good levy a specific tax on the producers of the related good provide subsidy to the consumers of the related good provide subsidy to the producers of the related good

levy a specific tax on the producers of the related good

As a result of negative externalities that are imposed by producers, costs are transferred to society and therefore firms incur ______ production costs and have supply curves that are ______ the full cost associated with producing their goods. Multiple choice question. higher; below lower; above lower; below higher; above

lower; below

The intersection of the demand and supply curves at the equilibrium output indicates that ______. Multiple choice question. the efficient level of output has not been reached marginal costs exceed marginal benefits marginal benefit equals marginal cost marginal benefit exceeds marginal cost

marginal benefit equals marginal cost

The ______ curve for positive externalities reflects the benefit to the individuals who pay for the product. Multiple choice question. total-benefit demand market demand market supply total-cost supply

market demand

Allocative efficiency occurs at quantity levels where the combined consumer and producer surplus is ______. Multiple choice question. reduced by the area of deadweight loss at the area of deadweight loss maximized minimized

maximized

Productive efficiency is achieved when production costs are _____. Multiple choice question. equal to allocative efficiency minimized equalized maximized

minimized

If a market transaction imposes an uncompensated cost on a third party not directly involved in the transaction, the transaction results in a market failure known as a ______. Multiple choice question. spillover benefit market intervention negative externality positive externality

negative externality

Consumer surplus and price are ______________ related because, with a given demand curve, higher prices reduce consumer surplus. (Enter one word in the blank)

negatively

When positive externalities exist, every unit produced between equilibrium output and optimal output represents a(n) ______ to society. Multiple choice question. neutral event net benefit net cost uncertain trajectory

net benefit

The market demand curve for positive externalities reflects ______. Multiple choice question. benefits to those who do not use the product in any form all of the collective benefits to society only the benefits to free riders only the benefits to those who pay for and use the product

only the benefits to those who pay for and use the product

The market demand curve for positive externalities reflects ______. Multiple choice question. benefits to those who do not use the product in any form only the benefits to those who pay for and use the product only the benefits to free riders all of the collective benefits to society

only the benefits to those who pay for and use the product

Negative externalities (or spillover costs) result in a(n) ______ of resources to the production of the good. Multiple choice question. overallocation redistribution equalization underallocation

overallocation

A negative externality results when there is an ______ of resources to the production of a good and too ______ units are produced. Multiple choice question. overallocation; few underallocation; few underallocation; many overallocation; many

overallocation; many

The direct way to reduce negative externalities from a certain activity is to ______. Multiple choice question. ensure that a positive externality occurs from that activity ensure that private sector undertakes that activity pass legislation limiting that activity pass legislation encouraging that activity

pass legislation limiting that activity

There is a(n) ___________ (positive/negative) relationship between equilibrium price and the amount of producer surplus.

positive

Vaccinations against common diseases are an example of a ______ externality. Multiple choice question. horizontal negative positive vertical

positive

When positive externalities are present, market demand curves fail to include the willingness to pay of the people who receive the positive externality. This failure to account for all benefits—including those received by people not directly involved in the market transaction—shifts market demand curves to the left of (below) where they would be if they included all benefits and total willingness to pay. In such cases, markets fail to produce all units for which benefits (including those that are received by third parties) exceed costs. As a result, products featuring positive externalities are underproduced.

positive

Direct controls ________________the marginal cost of production because firms must operate and maintain pollution control equipment.

raise

A polluting producer's supply curve lies farther to the _________________ than it does when the firm bears the full costs of production.

right

Direct controls on pollution raise the marginal cost of production because ______. Multiple choice question. the firms must pay new taxes on overproduction and overallocation of resources the firms must produce additional units to meet demand the firms must purchase, operate, and maintain pollution-control equipment the firms must pay taxes in order to operate and maintain pollution control equipment

the firms must purchase, operate, and maintain pollution-control equipment

Direct controls on pollution raise the marginal cost of production because ______. Multiple choice question. the firms must produce additional units to meet demand the firms must pay taxes in order to operate and maintain pollution control equipment the firms must pay new taxes on overproduction and overallocation of resources the firms must purchase, operate, and maintain pollution-control equipment

the firms must purchase, operate, and maintain pollution-control equipment

The size of the deadweight loss will get smaller when output is increased and ______. Multiple choice question. the producer's surplus exceeds consumer surplus the maximum willingness to pay exceeds acceptable prices marginal cost exceeds marginal benefit for the consumer

the maximum willingness to pay exceeds acceptable prices

Some individuals do not directly consume a product but accrue indirect benefits from others who do consume the product. As a result, there is a(n) ______. Multiple choice question. overallocation of resources to the beneficial product an urgency to maintain resources at the same level in the production of the beneficial product underallocation of resources to the beneficial product demand for government to mandate use of the beneficial product by society

underallocation of resources to the beneficial product

When positive externalities exist, demand curves fail to reflect the willingness to pay of the people who receive the positive externality, resulting in products being ______. Multiple choice question. overpriced overproduced pulled from the market underproduced

underproduced

When positive externalities exist, demand curves fail to reflect the willingness to pay of the people who receive the positive externality, resulting in products being ______. Multiple choice question. overpriced pulled from the market overproduced underproduced

underproduced