Econ chapter 12

in a perfect competition, the condition that ensures that the right things are produced is

P=MC

______ reflects household willingness to pay and _____ reflects the opportunity cost of the resources needed to produce a good

Price, marginal cost

if society will gain by producing more X, then it must be the case that currently

Px>MCx

which of the following questions is NOT answered by general equilibrium analysis

What outcome is most desirable for the whole society?

an example of a public good is

a joke

assume that an economy producing tow products, skateboards and in-line skates, is initially in equilibrium, and that skateboards and in-line skates are substitutes. if consumer preferences shift away from skateboards and toward in-line skates, which of the following will NOT occur

additional capital will begin to flow into skateboard production in the long run

a technological change in the production of cars will

affect input and output markets in the automobile industry and other related industries

scientists find that eating corn three times a day will prolong life. this leads to a shift in preferences away from wheat toward corn. as we move from one equilibrium to another, we can predict that

all input markets are affected

a gas tax holiday would

all of the above

to conduct a general equilibrium analysis of a change in consumer preferences away from beet and toward chicken, you must consider

all of the above

when all the conditions for perfect competition are met,

all of the above

which assumption(s) are necessary for an efficient allocation of resources among firms

all of the above

which of the following help to correct for the market failure of imperfect information

all of the above

which of the following would be an expected result of increased government subsidies for ethanol, a fuel produced from corn?

an increase in the price of land used to farm corn

the condition P=MC implies that

an individual who values the product at MORE than P will revive consumer surplus

all of the following are true about public goods except:

are only produced by government agencies

initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. if you are a cattle rancher, the best profit maximizing strategy is to

decrease output so as to minimize short run losses

it is essential to establish specific criteria to judge the performance of any economic system. Two such criteria are

efficiency and equity

a person who chooses not to be in the labor force reveals that

either leisure or the value of non paid labor is worth more to him that the value that society places on his potential product in the market

under perfect competition the person that ends up with the marginal unit is the person that values it

exactly at its price

sources of market failure include

externalities

a new technology is developed for producing microwave ovens that reduces production costs by 10%. which of the following is the most likely consequence of this technological change

firms must adopt this new technology to remain efficient

in order to have an efficient distribution of final products to households,

free and open markets are essential

you next door neighbor has a beautiful rose garden. but you are allergic to roses and cannot use your yard because of the rose pollen that drifts into your yard. in this case, the rose garden is an example of a

good that imposed an external cost

firms stop producing tapes and start producing compact disks because people prefer compact disks to tapes. this will

improve efficiency

ethanol, a fuel produced from corn, subsidies have increased the supply of corn. as a result, demand for farm land has ____. further, the supply of other grains has ______.

increased, decreased

suppose a policy change will generate $100000 of benefits for low income families and $120000 of costs for high-income families. this change best be described as

inefficient

bill sells Mary a worthless coin that bill deviously told Mary "belonged to an ancient Persian king an is of enormous value to coin collectors" economists would call this

inefficient exchange, as at least one party used false market information

assume that price underestimates the value that society placed on the flu vaccine. if firms produce where P=MC, firms will be producing

less than the socially efficient amount of flu vaccine

the opportunity cost of using resources to produce more of one good instead of more of another good is its

marginal cost

a household will buy a good as long as the

marginal utility from its consumption is greater than or equal to its market price

when resources are misallocated , or allocated inefficiently

market failure occurs

a freely functioning market

maximizes freedom of choice

one reason they require medical practitioners to be licensed is that

medical care consumers lack perfect information

which of the following is an example of an external benefit

more people start to ride the bus because they become more public-spirited and, as a result, air pollution is reduced

assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. by producing where P=MC, the firm will be producing

more than the efficient amount of steel

_____ is an example of a public good

national defense

pareto optimality is the condition in which

no change is possible that will make some members of society better off without making at least on e other member of society worse off

a ______ system is one in which all possible trades that make some societal members better off without making others wise off have been exhausted

pareto optimal

a condition in which no change is possible that will make some members of society better off without making some other members of society worse off is called

pareto optimality

in perfect competition, when firms are maximizing profits and households are maximizing utility

pareto optimality has been obtained

examining the equilibrium conditions of individual markets and for households and firms separately is referred to as

partial equilibrium analysis

if some gain and some lose as the result of a change, and it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be

potentially efficient

suppose a new government policy will generate $5000 of benefits and $3000 of costs. this policy can best be described as

potentially efficient

suppose a policy change will generate $180000 of benefits for low income families and $1550000 for high income and middle class families. this change can best be described as

potentially efficient

an economist has estimated that the maintenance of a public park costs $25000 a year and that the public park generates $30000 a year in revenue for merchants near the park. from society's point of view, the maintenance of this park is

potentially efficient because the value of gains exceed the value of the costs

society will produce the efficient mix of output if all firms equate

price and marginal cost

which of the following is NOT a source of market failure

price ceilings

preferences have just shifted away from beef into mutton. if you are a sheep rancher, the best profit-maximizing strategy is to

produce as much as possible to earn profits in the short run

if at the current output of X the Px<MCx, the society gains by

producing less of X

if at the current output of X the Px>Mcx, the society gains by

producing more X

if no one can be excluded from consuming its benefits and there is no rivalry in consumption, then the good is a ____ good

public

the whole class of goods that will be produced or not produced at all in a completely unregulated market economy are referred to as

public goods

imperfect information on the part of buyers and sellers

remains a barrier to achieving market efficiency, at least in some industries

market failure occurs when

resources are misallocated, air allocated inefficiently

suppose there is a permanent shift of consumer preferences way from pretzels and toward potato chips. the most likely result would be

short run profits in the potato chip market

some contend that the outcome of any free market is ultimately inequitable, because

some people become rich while others remain very poor

efficiency occurs when

the economy is producing what people want at least possible costs

public goods are generally produced by

the government

resources are allocated efficiently when

the market produces what the people want

in making labor supply decisions households weigh

the market wage against the value of leisure and time spent in unpaid household production

under perfect competition, the efficient level of output is produced because

the price equals marginal cost

suppose that a town has two major hospitals. one of these hospitals is unionized and the union has just negotiated a 10% wage increase each year for the next three years. which of the following will most likely occur

the price of labor will change in bout the unionized and non unionized hospitals. employment of labor and other inputs is also likely to change in both hospitals

because public goods are characterized by being collectively consumed,

the private sector may not provide them because they cannot exclude those who do not pay

if a restaurant runs a special and sells a lobster dinner for $4.50, amy buys one lobster a week. if lobster dinners are not on special and the price is $16.00, amy buys zero lobster dinners per week. which of the following is TRUE

the value of amy's marginal utility from a lobster dinner is at least $4.50 and less than $16.00

a voluntary exchange between Mike (the purchaser) and Wayne (the seller) occurs because

they both gain from the transaction

an activity that makes some people better off and nobody worse off is a

voluntary exchange

marginal cost is a good measure of

what society gives up by using resources to produce more of a good or service

you value your favorite shirt at $110. someone else values it as $150, and that person is willing to pay you $120 for your shirt. would selling your shift to this person for $120 be pareto efficient

yes because both of you are better off as a result of the trade

you value your economics textbook at $10. someone else values it at $25, and that person is willing to pay you $20 for your textbook. would selling your textbook to this person for $20 be pareto efficient

yes, because both of you are better off as a result of the trade

which of the following would be classified as an external cost

you are not able to study at night because there is so much noise coming from the dorm next to yours