ECON CHAPTER 4 HW ASSIGNMENT

In the diagram to the​ right, illustrating a binding price ceiling at P3​, the amount of producer surplus transferred to consumers is represented by area __________ and the deadweight loss is equal to areas ________

C ; B&D

Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In the​ diagram, deadweight loss is equal to the​ area(s):

C​ & E.

How do property rights affect externalities and market​ failure?

Externalities and market failure will result from incomplete property rights.

_______ surplus is the difference between the lowest price a firm would be willing to accept and the price it actually receives. This component of economic surplus is illustrated in the diagram by area _______

Producer ; B

A black market is

a market in which buying and selling take place at prices that violate government price regulations.

Economic efficiency is

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

_______surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram by area_______

consumer ; A

In the​ diagram, marginal benefit __________ marginal cost at output level Q2. This output level is considered economically _______________

equal ; efficient

Suppose the figure to the right illustrates the marginal cost and marginal benefit from reducing sulfur dioxide pollution. How could the government use a command-and-control approach to reduce pollution to the optimal level for​ society? The government could

limit sulfur dioxide pollution to a particular quantity per year. ; is not efficient because firms can have different costs of reducing pollution.

A price ceiling is a legally determined __________ price that sellers may charge. A price floor is a legally determined _____________ price that sellers may receive.

max ; min

​"Rent controls, government farm​ programs, and other price ceilings and price floors are​ bad." This is an example of a

normative statement. The statement is concerned with what should be.

How do externalities in the production of college educations result in market failure? Because of​ externalities, the market for college educations will

provide insufficient college educations.

When the government imposes price floors or price​ ceilings,

some people​ win, some people​ lose, and there is a loss of economic efficiency.

_____ suppose the figure to the right illustrates the market for toilet​ paper, where S1 represents the marginal private cost of production and D1 represents the marginal private benefit from consumption. Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and​ lakes, causing substantial environmental damage. Assume that S2 represents the marginal social cost of producing toilet paper​ (incorporating the​ externality). What could the government do to internalize the​ externality? In the presence of a negative​ externality, the government could_________ toilet paper production.

tax ; $225

How do externalities affect​ markets? If a negative externality in production is present in a​ market, then

the private cost of production will be different than the social cost of production.

Economic surplus in a market is the sum of​ _____ surplus and​ _____ surplus. In a competitive​ market, with many buyers and sellers and no government​ restrictions, economic surplus is at a​ _____ when the market is in​ _____. Part 2

​consumer; producer;​ maximum; equilibrium

Consumer and producer surplus measure the​ _____ benefit rather than the​ _____ benefit.

​net; total

Suppose the United States has two​ utilities, Commonwealth Utilities and Consolidated Electric. Both produce 20 million tons of sulfur dioxide pollution per year.​ However, the marginal cost of reducing a ton of pollution for Consolidated Electric is ​$375 per ton and the marginal cost of reducing a ton of pollution for Commonwealth Utilities is ​$425 per ton. The​ government's goal is to cut sulfur dioxide pollution in half​ (by 20 million tons per​ year). Part 2 If the government issues 10 million tradable pollution permits to each​ utility, what will be the cost of eliminating half of the pollution to​ society? Using a cap-and-trade system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of ​$______million per year.

$7500 ; $8000

In the diagram to the​ right, illustrating a binding price floor at P1​, the amount of consumer surplus transferred to producers is represented by area______ and the deadweight loss is equal to areas.

B ; C & E