Ch 4 & 5 (T/F)

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False

The more that a good is considered to be a "luxury" rather than a "neccessity," the less is the price elasticity of demand

True

The optimal allocation ofa public good is determined by the rule that marginal cost (MC) equals marginal revenue (MR)

True

An externality is a cost or benefit accruing to an individual or group -a third party- which is external to the market transaction

True

Political pressure can make it difficult to find and implement an economically efficient solution to an externality problem

True

Price elasticity of demand and the slope of the demand curve are two different things

False

Efficiency losses are increases in the combined consumer and producer surplus

True

For a substitute product, the coefficient of the cross elasticity of demand is positive

False

If an increase in product price results in no change in the quantity supplied, supply is perfectly elastic

False

If demand and supply reflected all the benefits and costs of a product, the equilibrium output of a competitive market would be identical with its optimal output

True

If demand and supply relfected all the benefits and costs of producing a product, there would be economic efficiency in the production of the product

True

If society has marginal costs of $10 for pollution abatement and the marginal benefit of pollution abatement is $8 to achieve an optimal amount of the pollution the society should increase the amount of pollution abtement

True

The degree of price elasticity of supply depends on how easily and quickly producers can shift resources between alternative uses

True

The degree to which consumers respond to a change in their incomes by buying more or less of a particular product is measured by the income elasticity of demand

True

The demand for most agricultural products is price inelastic. Consequently, an increase in supply will reduce the total income of producers of argriculture products

False

The higher the actual price, the less he amount of producer surplus

True

The market period is a time so short that producers cannot respond to a change in demand and price

True

the flatness or steepness of a demand curve is based on absolute changes in price and quantity, while elasticity is based on relative or percentage canges in price and quantity

False

A product with a price elasticity of demand equal to 1.5 is described as price inelastic

False

A state government seeking to increase its excisetax revenues is more likely to increase the tax rate on restaurant meals than on gasoline

True

Changes in technology or changes in society's attitudes toward pollution can affect the optimal amount of pollution abatement

False

Consumer surplus and price are directly or positively related

False

Consumer surplus is a utility surplus that reflects a gain in total utility or satisifaction

False

Consumer surplus is the difference between the minimum and maximum price a consumer is willing to pay for a good

False

Cross elasticity of demand is measured by the percentage change in quantity demanded over the percentage change in income

False

Demand tends to be inelastic at higher prices and elastic at lower prices along a down-sloping linear demand curve

True

Demand-side market failures arise when demand curves do not reflect consumers' full willingness to pay for a product

False

If the percentage change in price is greater than the percentage change in quantity demanded, the price elasticity coefficient is greater than 1

False

If the price of a product increases from $5 to $6 and the quantity demanded decreases from 45 to 25, then according to the total-revenue test, the product is price inelastic in this price range

True

If the quantity demanded for a product increases from 100 to 150 units when the price decreases from $14 to $10, using the midpoint formula, the price elasticity of demand for this product in this price range is 1.2.

True

In a competitive product market and in the absence of negative externalities, the supply curve relfects the costs of producing the product

False

In general, the larger the number of substitute goods that are available, the less the price elasticity of demand

False

Inferior goods have a positive income elasticity of demand

False

One solution to the negative externalities caused by pollution is to create a market for pollution rights in which the negative externalities from pollution are turned into private costs

False

One way for government to correct for a negative externality from the production of a product is to increase the demand for the product

True

Other things equal, the higher the price of a good relative to consumers' incomes, the greater the price elasticity of demand

True

Other things equal, the higher the price of a good relative to the longer the time period the purchase is considered, the greater the price elasticity of demand

True

Private goods are characterized by rivalry and excludability and public goods are caharacterized by nonrivalry and nonexludability

True

Producer surplus is the difference between the actual price a producer receives for a product and the minimum price the producer would have been willing to accept for the product

True

Subsidizing the firms producing goods that provide positive externalities will usually result in a better allocation of resources

True

Taxes that are imposed on businesses that create an externality wil lower the marginal cost of production and increase supply

False

The coase theorem suggests that government intervention is required whenever there are negative or positive externalities

True

The price elasticity of supply will tend to be more elastic in the long run

True

There is an underallocation of resources to the production of a commodity when negative externalities are present

True

Total revenue will not change when price changes if the price elasticity of demand is unitary

True

Two products are considered to be independent or unrelated when the cross elasticity of demand is zero

True

When determining the collective demand for a public good, you add the prices people are willing to pay for the last unit of the public good at each poosible quantity

True

When negative externalities are involved in the production of a product, more resources are allocated to the production of that product and more of the product is produced than is optimal or most efficient

True

When the absolute value of the price elasticity coefficient is greater than 1 and the price of the product decreases, then the total revenue will increase

True

When the marginal benefit of a public good exceeds the marginal cost, there will be an overallocation of resources to that public good use

False

there is a total revenue test for the elasticity of supply


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