Econ 2019
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
Which of the following conditions does not need to occur for a market to achieve allocative efficiency?
The total revenue received by producers equals the total cost of production
The socially optimal amount of pollution abatement occurs where society's marginal
benefit of abatement equals its marginal cost of abatement
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
Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas:
c + d.
The market system does not produce public goods because:
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
According to the Coase theorem:
private individuals can negotiate their own resolution of externality problems, without the need for government intervention
Which of the following is an example of market failure?
All of these Positive externalities. Public goods. Negative externalities.
Graphically, producer surplus is measured as the area:
above the supply curve and below the actual price.
Refer to the diagram. If actual production and consumption occur at Q1:
an efficiency loss (or deadweight loss) of b + d occurs.
Public goods are those for which there:
are nonrivalry and nonexcludability.
From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:
costs more to produce than it provides in benefits
From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:
costs more to produce than it provides in benefits.
Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external costs associated with the production of Z, then:
government should levy a per-unit excise tax on Z to shift the supply curve toward S1
Unlike a private good, a public good:
has benefits available to all, including nonpayers
Unlike a private good, a public good:
has benefits available to all, including nonpayers.
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.
A demand curve for a public good is determined by:
summing vertically the individual demand curves for the public good.
A positive externality or spillover benefit occurs when:
the benefits associated with a product exceed those accruing to people who consume it.
Because of the free-rider problem
the market demand for a public good is nonexistent or understated.
At the output level defining allocative efficiency:
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
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.
A negative externality or spillover cost occurs when:
the total cost of producing a good exceeds the costs borne by the producer.
Nonexcludability describes a condition where:
there is no effective way to keep people from using a good once it comes into being.
Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:
under the demand curve and above the actual price.
Nonrivalry and nonexcludability are the main characteristics of:
public goods.
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
the third unit should be produced.
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
An efficiency loss (or deadweight loss):
is measured as the combined loss of consumer surplus and producer surplus.
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. If the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be
3 units
Which of the following is an example of a public good?
A weather warning system
The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?
Supply-side market failure
If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true?
The benefit surpluses shared between consumers and producers will be maximized.
Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:
a + b
Refer to the diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is:
a + b + c + d.
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
Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach:
an overallocation of resources to this product.
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.
Refer to the diagram. If actual production and consumption occur at Q2:
efficiency is achieved.
Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial external benefits associated with the production of Z, then:
government can improve the allocation of resources by subsidizing consumers of Z.
Consumer surplus:
is the difference between the maximum prices consumers are willing to pay for a product and the 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.
At the optimal quantity of a public good:
marginal benefit equals marginal cost
At the optimal quantity of a public good:
marginal benefit equals marginal cost.
An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:
maximum willingness to pay exceeds minimum acceptable price.
Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that:
resources are currently underallocated to the provision of holiday lighting in Anytown.
Supply-side market failures occur when:
supply curves don't reflect the full cost of producing a good or service
Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. The shift of the supply curve from S to S1 in diagram (a) might be caused by a per-unit
tax on the producers of this product.
Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should:
tax producers so that the market supply curve shifts leftward (upward).
Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes:
the Coase theorem.
Allocative efficiency occurs only at that output where:
the combined amounts of consumer surplus and producer surplus are maximized.
Demand-side market failures occur when:
the demand curve does not reflect consumers' full willingness to pay for a good or service.
At the output where the combined amounts of consumer and producer surplus and deadweight loss are largest:
the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
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.
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.
Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for:
Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
