Micro Quiz 2
The law of demand states that, other things equal
Price and quantity demanded are inversely related
Which of the following will not cause the demand for product K to change?
a change in price of product k
The value that consumers get (from consuming a product) over and above what they actually paid for the product is called
consumer surplus
an increase in the price of a product will reduce the amount of it purchased because
consumers will substitute other products for the one whose price has risen
the law of demand states that, other things equal,
price and quantity demanded are inversely related
what can private businesses use to overcome information difficulties without government intervention
product warranties and franchising
when buyers have more info than sellers
reduced market activity
producer surplus is the difference between
the minimum prices producers are willing to accept for a product and the higher equilibrium price
If the price of product L increases, the demand curve for close-substitute product J will
shift to the right
which of these statements is correct
if supply increases and demand decreases, equilibrium price will fall
Other things equal, if consumers believe that gas prices will rise in a week, the demand for gas today will ______.
increase
decrease in supply while holding demand constant results in an
increase in equilibrium price and decrease in quantity
which of the following will cause a decrease in market equilibrium price and increase in equilibrium quantity
increase in supply
When is allocative efficiency achieved?
when the correct quantitiy of the product is produced and relative to other goods and services
refer to the diagram, a surplus of 160 units would be encountered if the price was
$1.60
Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is
$60
if demand is represented by columns 3 & 1 and supply is 3 & 4, equilibrium price and quantity will be
$9 and 60 units
Refer to the diagram. With MB1 and MC1, society's optimal amount of pollution abatement is
Q1 (lowest)
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 has a producer surplus of $3
if two goods are complements,
a decrease in the price of one will increase the demand for the other
Which of the following would be an example of a moral hazard problem?
a person who purchases auto insurance and then drives more recklessly
pigovian taxes
are used to correct negative externalities
In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the total revenues received by sellers would be represented by the area
b + c
Refer to the diagram. Which of the following areas best represents the efficiency loss from underproduction?
b + d
Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the
buyer and seller
market failure is said to occur whenever
competitive markets don't allocate resources in the most economically desireable way
A decrease in demand while holding supply constant results in ______ in both equilibrium price and quantity.
decline
what describes the effects on equilibrium price and quantity as a result o a decrease in supply and increase in demand
equilibrium price rises and the change in equilibrium quantity is indeterminate
example of negative externality
falling property values in a neighborhood where a disreputable nightclub is operating
sellers will opt out of markets in which
information about buyers is inadequate which allows some buyers to consequently impose high costs on the sellers.
price floors and price ceilings both
interfere with the rationing function of prices
A market
is an institution that brings together buyers and sellers
Where there is asymmetric information between buyers and sellers,
markets can produce inefficient outcomes
refer to the diagram, an increase in quantity supplied is depicted by
move from point y to point x
There is an adverse selection problem in the market for used cars because
owners of poor-quality cars have a strong incentive to sell their cars, while owners of high-quality used cars have more incentive to keep their cars.
what solutions do governments use to counter overproduction by negative externalities
pigovian taxes & direct controls
Which of the following are the effects of a subsidy to producers?
supply curve shifts to the right, quantity of product increases, and subsidy reduces the marginal cost of producing the good
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 consumer's full willingness to pay
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then
supply has decreased and equilibrium quantity has decreased
The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer
surplus
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
positive externality or spillover benefit occurs when
the benefits associated with a product exceed those accruing to people who consumer it
if z is an inferior good, an increase in money income will shift
the demand curve for z to the left
graphically, the market demand curve is
the horizontal sum of individual demand curves
Private bargaining, markets for externality rights, specific taxes, liability rules and lawsuits, and direct controls are all examples of methods for correcting ______.
the overallocation of resources caused by negative externalities
government subsidies decrease producer's costs, shifting the supply curve
to the right and correcting the underallocation of resources by producers
A negative externality or spillover cost occurs when
total cost of producing a good exceeds the costs borne by the producer
a negative externality or spillover cost occurs when
total cost of producing a good exceeds the costs borne by the producer
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
supply is an
upward sloping curve
