1.4 Equilibrium

Equilibrium

everyone is simultaneously optimizing, so nobody would benefit by changing his or her own behavior

Suppose you are ready to check out and see two lines: Line A has three more people, while Line B has five people. Assuming that people choose lines at random and have not yet had the chance to switch lines. a) the situation will move toward equilibrium if the _____.

last person from the longer line switches to the shorter line

Suppose you are ready to check out and see two lines: Line A has three more people, while Line B has five people. Assuming that people choose lines at random and have not yet had the chance to switch lines. b) assume that all eight people are optimizing and the situation is in equilibrium. Given this information, you could infer that behavior of the _____ is most informative.

last person in the five-person line

Suppose the market price of gasoline is $2 per gallon and the market is in equilibrium. What are three conditions that need to be satisfied?

1. the amount of gasoline produced will equal the amount of gasoline purchased 2. oil companies will only operate wells where they can extract oil and produce gasoline at a cost that is less than the market price of gasoline. 3. the buyers will only use it for activities that are worth at least $2 per gallon and won't use it for activities that are worth less than $2

The Free-Rider problem - roomate example

Roommates: each roomate can spend their time contributing to the general well-being of the household, or each roomate can spend all of their time on activities that only benefit themselves. If one roomate spend all their time cleaning, the others won't have any incentive to cleans.

Which of the following is more susceptible to the free-rider problem: state parks or city-wide pest control

Use of city-wide pest control since even those who don't pay taxes still benefit, while state parks can charge for admission, so that everyone who goes pays their share.

When does free-riding occur?

When people's private benefits are out of sync with the public interest. ex: jumping the turnstile at the subway is cheaper than a subway ticket, watching tv is more fun that cleaning

free-rider

a person who receives the benefit of a good but avoids paying for it

If the price of a good in an equilibrium market is $112, all of the following statements are true except: a) producers know that if they colluded, they could increase the price b) retail outlets successfully sell what they stock at that price c) production costs are less than $112 d) consumers feel that they are getting their money's worth at that price

a) In an equilibrium market, everyone is simultaneous optimizing, so nobody would benefit by changing the price.

Suppose the market price of corn is $5.50 per bushel. Which of the following is not one of the three conditions that will need to be satisfied for the corn market to be in equilibrium at this price? a) The buyers of corn will only use it for activities that they feel are worth at least​ $5.50 per bushel. b) Both the buyers and sellers of corn could benefit by making small changes to their market behaviors. c) The cost to corn farmers of growing the corn must be less than​ $5.50 per bushel. d) The quantity of corn produced by corn farmers will equal the quantity purchased by buyers.

b)

One reason free-riders exists could be that a) People often act in the best interest of others b) The private benefit exceeds the private cost c)The social cost exceeds the private benefit d)The social cost ensures a strong, enforceable penalty.

b) Free-riders benefit from the work​ of others without contributing themselves. The private benefit outweighs any perceived cost.

Which of the following are subject to the free-rider problem? a) public libraries b) a neighborhood watch c) national security d) all of the above

d)

Suppose you are ready to check out and see two lines: Line A has three more people, while Line B has five people. Assuming that people choose lines at random and have not yet had the chance to switch lines. b) assume that all eight people are optimizing and the situation is in equilibrium. Given this information, you could infer that the shorter line will move ______ than the longer line.

slower