ECO 202 EXAM 2

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

nonrivalry and nonexcludability are the main characteristics of:

public goods

Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas:

c +d

consumer surplus:

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

producer surplus:

is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

Market failure is said to occur whenever:

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

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Refer to the data. The collective willingness of this society to pay for the second unit of this public good is:

$6

which of the following is an example of market failure?

All of these: Negative externalities, positive externalities, and public goods

Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:

a + b

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

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

which of the following is an example of a public good?

a weather warning system

Refer to the diagram. The area that identifies the maximum sum of consumer

a+b+c+d

refer to the diagram. If actual production and consumption occur at Q1:

an efficiency loss (or deadweight loss) of b +d occurs

Refer to the diagram. If actual production and consumption occur at Q3:

an efficiency loss (or deadweight loss) of e+f occurs

refer to the diagram. If actual production and consumption occur at Q2:

efficiency is achieved

allocative efficiency occurs only at that output where:

the combined amounts of consumer surplus and producer surplus are maximized