Chapter 4: Market Failures: Public Goods and Externalities

Which would be considered a private good?

Automobiles Clothing

Consumer surplus can be illustrated as the area ____ the demand curve and ____ the market price.

Below;Above

Free and____ markets produce equilibrium prices and quantities that maximize the combined consumer and producer surplus.

Competitive

What is the difference between the maximum price a consumer is willing to pay for a product and the actual price?

Consumer surplus

____ is calculated as the difference between the maximum price a consumer is willing to pay for a product and the actual price paid.

Consumer surplus

Which goods could be classified as non-excludable?

County roads Environmental Protection Agency

A ___-side market failure occurs when a market does not reflect consumers' full willingness to pay for a good or service.

Demand

Market failures in competitive markets can be classified into:

Demand-side Supply-side

What happens when a market does not reflect consumers' full willingness to pay for a good or service?

Demand-side market failure

A ____-side market failure arises because it is impossible in certain cases to charge ___ what they are willing to pay for a product.

Demand; Consumers

Economic ____ is achieved at equilibrium quantity.

Efficiency

What is created when production does not provide the equilibrium quantity?

Efficiency losses or deadweight losses

_____ means that buyers who are willing and able to pay the market price for the product obtain its benefits, but those unable or unwilling to pay that price do not.

Excludability

A private good is ____ when a seller can prevent people who did not pay for a product from obtaining its benefits.

Excludable

The situation when people can receive the benefits from a good without having to pay for it is known at the ____ problem.

Free-rider

Consumer surplus is the difference between the ___ price a consumer is willing to pay for a product and the price paid.

Highest

Consumer surplus and price are _____ related.

Inversely

Which exemplify a rivalrous good?

John eats an apple for lunch Mary drinks a can of Pepsi

What do points on the demand curve represent?

Marginal benefit

The intersection of the demand and supply curves at the equilibrium output indicate that:

Marginal benefit equals marginal cost

____ in consumption means that one person's consumption of a good does not preclude consumption of the good by others.

Non-rivalry

Public goods are distinguished by:

Non-rivalry Non-excludability

What kind of relationship exists between equilibrium price and the amount of producer surplus?

Positive

Goods that are provided by competitive markets because they incur profits are known as:

Private goods

_____ surplus is the difference between the actual price a seller receives and the minimum acceptable price.

Producer

If a good is non-rival and non-excludable, then it is known as a:

Public good

A private good that displays _____ characteristics means that when someone buys and consumes that good, it is not available for someone else to buy and consume.

Rival

When the purchase and consumption of a good makes the purchase and consumption of that good unavailable to another person, it is known as

Rival

Characteristics of a pure private good include:

Rivalry Excludability

The ____ Curve shows the seller's minimum acceptable price at each unit of the production.

Supply

What happens when a market does not reflect the full cost of producing a good or service?

Supply-side market failure

A ____-side market failure arises in situations in which a ____ does not have to pay the full cost of production.

Supply; Firm

Demand-side failures arise in competitive markets when demand curves fail to reflect consumers' full willingness to pay for a good or service.

TRUE

Efficiency or deadweight losses are reduction of combined consumer and producer surplus associated with underproduction or overproduction of a product.

TRUE

A deadweight loss declines in size when a unit of output is produced, so that

The maximum willingness to pay exceeds acceptable prices

For a given supply curve, how do higher prices affect producer surplus?

They increase it