Chapter 4 Homework

Which of the following scenarios represents a reason for firms to "tap the market"? The average industry profit margin is ____% for providing cell phone service The production of vinyl records has not been able to keep up with ____.

40% Demand

Which of the following not only makes private goods available to consumers but also allocates society's resources efficiently to the particular product?

A competitive market

Which is achieved at equilibrium quantity? ____ efficiency ____ efficiency

Allocative Productive

A cost-____ analysis involves an assessment of marginal changes.

Benefit

When comparing different public project plans, it is critical to follow the guideline stating: Consider engaging in an activity as long as marginal ____ exceeds marginal ____.

Benefit Cost

The market demand curve for positive externalities reflects only the direct, private ____ to those who demand and use the product.

Benefits

Free and ____ markets produce equilibrium prices and quantities that maximize the combined consumer and producer surplus.

Competitive

What is the difference between the maximum price a consumer is willing to pay for a product and the actual price?

Consumer surplus

Which of the following refers to reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product?

Deadweight loss

Government subsidies ____ producers' costs, shifting the supply curve to the ___ and correcting the ____-allocation of resources by producers.

Decreases Right Under

A ____-side market failure arises because it is impossible in certain cases to charge ____ what they are willing to pay for a product.

Demand Consumers

Market failures in competitive markets can be classified into ____-side and ____-side.

Demand Supply

Government intervention may be needed to achieve ____ efficiency when externalities affect large numbers of people or when community interests are at stake.

Economic

Two examples of government corrections for an under-allocation of resources in a market (a positive externality) are providing ____ budgets and financial aid.

Education

Which of the following are examples of markets that are more likely to experience positive externalities? (3)

Education Health care Immunizations

Which of the following are true statements about competitive markets? A competitive market allocates resources ____. A competitive market makes ____ goods available to consumers.

Efficiently Private

A deadweight loss declines in size when a unit of output is produced, so that the maximum willingness to pay ____ acceptable prices.

Exceeds

Completely eliminating pollution may be undesirable for the following reasons: At some point, marginal cost may rise so high that it ____ society's marginal benefit of further pollution abatement. Additional actions to reduce pollution will ____ society's well-being because total cost will rise more than total benefit.

Exceeds Lower

The ____ characteristic of a private good is the ability of a seller to prevent people who did not pay for a product from obtaining its benefits.

Excludability

Characteristics of a pure private good include: (2)

Excludability Rivalry

An ____ is a cost or benefit accruing to an individual or group, a third party, that is external to a market transaction.

Externality

Suppose that the technology of pollution-control equipment improves noticeably. One would expect: The cost of pollution abatement to ____. The optimal quantity level of abatement to ____. Society's marginal cost curve to shift ____.

Fall Rise Rightward

The result of positive externalities is that the market produces too ____ units of a product that could benefit society because producers ____-allocate resources to that product because some individuals do not consume the product but accrue benefits from others.

Few Under

The situation when people can receive the benefits from a good without having to pay for it is called the ____-rider problem.

Free

According to the Coase Theorem, ____ should restrict its involvement to remedying external costs or benefits.

Government

Market failures can be used to justify ____ intervention in the economy.

Government

Government solutions for negative externalities are designed to ____ external costs by imposing a cost on the offending firm.

Internalize

The optimal reduction of an externality occurs when society's marginal cost ____ the marginal benefit of reducing that externality.

Is equal to

The supply curve for any good, private or public is:

Its marginal-cost curve

Resources should be shifted from the private to the public sector: If the cost of the forgone private goods is ____ than the benefit associated with the extra public goods If the benefit from the extra public goods exceeds the cost that results from having ____ private goods

Less Fewer

Examples of quasi-public goods include: (3)

Libraries Police Fire departments

The direct way to reduce negative externalities from a certain activity is to pass legislation ____ that activity.

Limiting

Producer surplus is calculated as the difference between the actual price a producer receives and the ____ acceptable price.

Lowest

The ____ rule actually tells us which plan provides the maximum excess of total benefits over total costs, or in other words, the plan that provides society with the maximum net benefit.

Marginal cost-marginal benefit

The downward-sloping willingness-to-pay curves for public goods are also known as:

Marginal-benefit curves

When markets fail to incorporate all benefits and/or all costs into the market supply and demand curves, then the competitive market system is experiencing a ____ failure.

Market

Reducing a ____ externality has a cost and society must decide how much of a reduction in the externality it wants to pay for.

Negative

Another policy approach to ____ externalities is for government to levy a ____ or a charge specifically on the related good.

Negative Tax

If a third party to a market transaction is experiencing an uncompensated cost, then the transaction results in a market failure known as a ____ or ____.

Negative externality Spillover cost

Consumer surplus and price are ____ related.

Negatively

Public goods are extinguished by: (2)

Nonexcludability Nonrivalry

____ in consumption means that one person's consumption of a good does not preclude consumption of the good by others.

Nonrivalry

A supply-side market failure arises in situations in which a firm does not have to pay the full cost of producing its ____.

Output

A negative externality occurs when an ____ of a product occurs and there is an ____ of resources to this product.

Overproduction Overallocation

There is a ____ relationship between equilibrium price and the amount of producer surplus.

Positive

____ surplus is the difference between the actual price a seller receives and the minimum acceptable price.

Producer

When government gives money to public colleges and universities in order to correct for an under-allocation of resources or underproduction of education, this is called a:

Producer subsidy

Identify policies for coping with the under-allocation of resources associated with positive externalities. Subsidies to ____ Subsidies to ____ Government provision Private bargaining

Producers Consumers

The three options available to government in order to correct spillover benefits or the under-allocation of resources are: Government provision of ____ goods Subsidies to ____ Subsidies to ____

Public Buyers Producers

Government provision refers to the government providing a ____ good in order to correct for positive externalities where the positive externality is extremely ____.

Public Large

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

Raise

It has been stated that a cap-and-trade program ____ society's costs by allowing pollution rights to be bought and sold.

Reduce

When government subsidizes producers of a product, the expected change that occurs in that particular market is that supply increases causing a shift ____ of the supply curve.

Rightward

Which of the following describes the effect on the demand curve when the government encourages more consumption of a beneficial product by subsidizing consumers? The demand curve shifts to the right causing price to ____ and quantity to ____ to its optimal output.

Rise Rise

The marginal cost to firms and hence to society ____ as pollution is reduced more and more.

Rises

A private good that displays ____ characteristics means that when someone buys and consumes that good, it is not available for someone else to buy and consume.

Rivalry

A positive externality is an uncompensated ____ benefit.

Spillover

A ____ to a producer is a payment from the government to decrease the producers' cost in order to encourage more output of a product beneficial to society.

Subsidy

When government gives money to a community college student, this is an example of consumer ____.

Subsidy

How can the government deal with the underallocation of resources resulting from positive externalities? By subsidizing ____ By subdizing ____ By providing goods via ____

Suppliers Consumers Government

The ____ curve shows the seller's minimum acceptable price at each unit of the product.

Supply

When a producer's marginal cost or supply curve is to the right of (or below) the full cost marginal cost curve, this represents the fact that its ____ curve does not capture all the costs legitimately associated with the production of its goods

Supply

Government can finance the demand for public goods through ____.

Taxation

Two types of government solutions for negative externalities are: Legislation Specific ____

Taxes

An externality causes some of the benefits or costs of a market transaction to be passed on to a:

Third party

Government can correct the ____ of resources by subsidizing consumers of the product.

Under-allocation

The marginal benefit curve for pollution reduction slopes downward because of the law of diminishing marginal ____.

Utility