Econ chap 6-7, 10

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is

$175

Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer?

$2,300

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases.

Which of the following statements is correct?

Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.

Which of the following is an example of a positive externality?

Mary not catching the flu from Sue because Sue got a flu vaccine

A positive externality arises when a person engages in an activity that has

a beneficial effect on a bystander who does not pay the person who causes the effect.

price ceiling

a legal maximum on the price of a good or service example-rent

Price Floor

a legal minimum on the price of a good or service example- minimum wage

The term market failure refers to

a market that fails to allocate resources efficiently

Rent-control laws dictate

a maximum rent that landlords may charge tenants.

Minimum-wage laws dictate

a minimum wage that firms may pay workers

A corrective tax

allocates pollution to those factories that face the highest cost of reducing it.

Regulations to reduce pollution

are a more costly solution to society than a corrective tax.

Price controls

can generate inequities of their own.

Emission controls on automobiles are an example of a

command-and-control policy to increase social efficiency.

Total surplus in a market is equal to

consumer surplus + producer surplus.

The difference between social cost and private cost is a measure of the

cost of an externality.

Corrective taxes

give factory owners an economic incentive to reduce pollution.

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

give sellers the incentive to account for the external effects of their actions.

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

internalize the externality.

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

internalize the negative externality.

In a market economy, government intervention

may improve market outcomes in the presence of externalities.

Consumer surplus

measures the benefit buyers receive from participating in a market.

A cost imposed on someone who is neither the consumer nor the producer is called a

negative externality.

An externality is the impact of

one person's actions on the well-being of a bystander

Research into new technologies provides a

positive externality, and too few resources are devoted to research as a result.

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the

quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.

Markets are often inefficient when negative externalities are present because

social costs exceed private costs at the private market solution.

If a sawmill creates too much noise for local residents,

the government can raise economic well-being through noise-control regulations.

If education produces positive externalities, we would expect

the government to subsidize education.

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

the quantity of physicals demanded increases. there is shortage of physicals. the quantity of physicals supplied decreases.

At the equilibrium price of a good, the good will be purchased by those buyers who

value the good more than price.

Price controls are usually enacted

when policymakers believe that the market price of a good or service is unfair to buyers or sellers

At the equilibrium price of a good, the good will be sold by those sellers

whose cost is less than price.

Consider the market for gasoline. Buyers

would lobby for a price ceiling, whereas sellers would lobby for a price floor.