Econ CH4

(Figure: Understanding Price Ceilings and Floors) In the market depicted in the graph, which price would NOT allow for an effective price floor?

$50

Calculate the value of consumer surplus in the market depicted in the graph.

$50

Calculate the value of producer surplus in the market depicted in the graph.

$60

(Figure: Understanding Price Ceilings and Floors) In the market depicted in the graph, which price would NOT allow for an effective price ceiling?

$75

A market with external costs:

A market with external costs:

Driving your car in a large city during rush hour causes externalities because:

Driving your car in a large city during rush hour causes externalities because:

If a price ceiling is set above the equilibrium price in the market, producer surplus will be:

the same as it would be without the price floor.

If a person gets a meningitis vaccination, people around the person will have a lower chance of getting meningitis. This is an example of:

an external benefit.

Before a house is sold, the buyer usually inspects the property for problems. This mitigates which cause of market failure?

asymmetric information

Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is the market for flu shots characterized by market failure?

because the number of people who obtain flu shots is less than the socially optimal number

A lack of competition in a market can lead to market failure, with the quantity of goods sold _____ the optimal level and prices _____ the optimal level.

below; above

Deadweight loss refers to a reduction in:

consumer surplus and producer surplus.

Agricultural price supports have:

created surpluses.

A minimum wage law:

creates a price floor below which workers cannot be legally paid.

As a hurricane approaches, a local government enacts price-gouging laws, i.e., price ceilings on various items—such as gas, bottled water, and nonperishable foods—for which demand spikes during weather-related emergencies. Such laws:

do not alter the conditions of supply and thus cause shortages.

Suppose a price floor on cane sugar is set at approximately three times the equilibrium price. One effect of the price floor would be a(n):

drop in the quantity of sugar consumed.

A price ceiling is _____ if it is set _____ the market equilibrium price.

effective; below

the same as it would be without the price floor.

others cannot be excluded from enjoying it.

A gas tax that a government enacts to fight climate change works by:

internalizing the external cost of climate change.

Which of these would be considered a public good?

national defense

Laws that prohibit price gouging are often politically:

popular but result in shortages.

A(n) _____ is the minimum legal price that can be charged for a product.

price floor

When merchants raise prices of necessary goods during a crisis or disaster, this is known as:

price gouging.

An example of a government imposed-price ceiling is:

rent control

In the market depicted in the graph, if the government sets a price of $25, there is a:

shortage of 600 units.

Climate change mitigation efforts are systematically undersupplied in a laissez-fair economy, in part because the benefits of such efforts in a free-market setting are _____, whereas the costs are _____.

social; private

The government often provides goods that are nonrivalrous and nonexclusive to overcome which type of market failure?

the free rider problem

The total of consumer surplus plus producer surplus is maximized at:

the market equilibrium price.

An example of a government-imposed price floor is:

the minimum wage.

Public goods tend to be _____ because the provider of the good cannot prevent someone from enjoying the good without paying for it, which means the good is _____.

underproduced; nonexcludable