Econ 202 Chapter 3 & 4

Refer to the above diagram. The equilibrium price and quantity in this market will be:

$1.00 and 200.

One reason that the quantity demanded of a good increases when its price falls is that the

lower price increases the real incomes of buyers, enabling them to buy more

Which of the following will NOT cause the demand for product K to change?

a change in the price of product K

Refer to the diagram, in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach

an overallocation of resources to this product.

A market is in equilibrium

at all prices above that shown by the intersection of the supply and demand curves.

Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S2?

the development of a more effective insecticide against corn rootworm.

A negative externality or spillover cost occurs when

the total cost of producing a good exceeds the costs borne by the producer

Which of the diagrams illustrates the effect of an increase in automobile workers wage on the market for automobiles?

D only

A surplus indicates that the quantity demanded is greater than the quantity supplied at that price.

False

An increase in consumer incomes will cause a decrease in demand for a normal good.

False

Producing a good in the least costly way is known as allocative efficiency.

False

Refer to the diagram. A decrease in demand is depicted by a

Shift from D2 to D1

What two conditions must hold for a competitive market to produce efficient outcomes?

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will

decrease, quantity demanded will increase, and quantity supplied will decrease

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand?

diminishing marginal utility

An increase in quantity supplied might be caused by an increase in production costs.

false

The law of demand states that, other things equal,

price and quantity demanded are inversely related

The supply curve shows the relationship between

price and quantity supplied

Market failure is said to occur whenever

private markets do not allocate resources in the most economically desirable way.

A public good

s available to all and cannot be denied to anyone.