Ch.4

Non excludablity 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 curve are linear consumer surplus is measured as the triangle

under the demand curve and above the actual price

Demand side market failure occur when

demand curves dont reflect consumers full willingness to pay for a good or service

Market Failures

result in overproduction or underproduction of a good

producer surplus is the difference between

the minimum prices producers are willing to accept for a product and the higher equilibrium price

In the market for a particular pair of shoes, jena is willing to pay 75 dollars for a pair, while jane is willing to pay 85 dollars for a pair. The actual price that each has to pay for a pair of these shoes is 65. What is the total amount of the two girls combined consumer surplus

$30

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

Jennifer buys a piece of costume jewelry for $33, for which she is 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

If many people in a community get flu shots, the whole community benefits including those that did not get flu shots. Therefore, not enough people may decide to get the shots. This is one illustration of:

Demand side market failure

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

Which of the following statements about market failure is not true

Market failure always results from some government action or policy in a market

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. In the situation described above, we would expect an:

Overproduction of paper in the mills

Which of the following statements is not true

Public goods are only provided by government

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

Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following except:

Taxing sellers of the product

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

a+b

Graphically, producer surplus is measured as the area

above the supply curve and below the actual price

Pigovian taxes

are used to correct negative externalities

At the optimal quantity of a public good

marginal benefit equals marginal cost

The two main characteristic of a public good are

nonrivalry an nonexcludability

The market system does not produce public goods because

private firms cannot stop consumers who are unwilling to pay for such goods from benefitting from them

Suppose that 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

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

Among the following examples, the one that best illustrates a public good

the bike paths around a city or town

Allocative efficiency occurs only at that output where

the combined amounts of consumer surplus and producer surplus are maximized