micro chapter 4

Alex, Kara, and Susie are the only three people in a community and Alex is willing to pay $20 for the fifth unit of a public good; Kara, $15; and Susie, $25. Government should produce the fifth unit of the public good if the marginal cost is less than or equal to:

$60

at the optimal quantity of a public good

MB = MC

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:

a consumer surplus of $9 and Nathan experiences a producer surplus of $3

demand-side market failures occur when

demand and supply curves don't reflect consumers full willingness to pay for a good or service

a public good

is available to all and cannot be denied to anyone

because of the free rider problem

market demand for a public good is nonexistent or understated

where there is asymmetric information between buyers and sellers

markets can produce ineffienct outcomes

at the output level defining allocative efficency

maximum willingness to pay for the last unit of output equals the minimum acceptable pruce of that unit of output

market failure is said to occur whenever:

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

(Consider This) Suppose that a new band, "Balin and the Wolf Riders," tries to sell its music on the internet. Economists would expect:

some of those enjoying the music to "free ride" through illegal file sharing and digital piracy.

supply-side market failures occur when:

the demand and supply curves dont reflect the full cost of producing a good or service

as it applies to insurance, the adverse selection problem is the tendency for

the most likely to collect insurance to buy it

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that:

the third unit should be produced

as it applies to insurance, the moral hazard problem is the tendency for

those who buy insurance to take less precaution in avoiding the insured risk

negative externality or spillover cost occurs when

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

(Consider This) Brinley is the hottest new pop singer, but his agent discovers that Internet sales of Brinley's music have been poor due to Internet piracy, but concerts are regularly sold out and merchandise (such as T-shirts) sells well. If Brinley wants to enhance profits, economists would most likely recommend that he:

. keep prices of downloads low and raise prices for concerts and merchandise.

for which one of the following good would be need to sum individual demand curves vertically to obtain the total demand curve?

A. Frozen yogurt. B. Bubble gum. C. Microwave popcorn. ****D. COURTS OF LAW****

graphically, producer surplus is measured as the area

above the supply curve and below the actual price

cap & trade program

assigns a property right to polluting the atmosphere

product reviews help to alleviate problems associated with

asymmetric information

professional buyers of antiques often have more information about the value of antique objects than do the sellers, this illustrates

asymmetric information

allocative efficiency occurs only at that output where

combined amounts of consumer surplus and producer surplus are maximized

from societys perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:

costs more to produce than it proves in benefits

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:

demand-side market failure

consumer surplus

difference between maximum prices consumers are willing to pay for a product and the lower equilibrium price

producer surplus

difference between the minimum prices consumers are willing to pay for a product and the higher equilibrium price

marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of

diminishing returns

In response to the financial crisis that began in 2007, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future. This illustrates:

moral hazard problem

upon buying a car with airbags, Indy begins to drive recklessly. this is an example of

moral hazard problem

which is an example of market failure?

negative externalities, positive externalities and public goods (all of the above)

two main characteristics of a public good

nonrivalry & nonexcludability

according to MC MB rule

optimal project size the one for which MB = MC

demand curve for a public good is determined by

summing vertically the individual demand curves for the public good

what two conditions must hold for a competitve market to produce efficient outcomes?

supply curves must reflect all costs of production, and demand curves must reflect consumers full willingness to pay