Chapter 4: Market Failures: Public Goods and Externalities
Which would be considered a private good?
Automobiles Clothing
Consumer surplus can be illustrated as the area ____ the demand curve and ____ the market price.
Below;Above
Free and____ markets produce equilibrium prices and quantities that maximize the combined consumer and producer surplus.
Competitive
What is the difference between the maximum price a consumer is willing to pay for a product and the actual price?
Consumer surplus
____ is calculated as the difference between the maximum price a consumer is willing to pay for a product and the actual price paid.
Consumer surplus
Which goods could be classified as non-excludable?
County roads Environmental Protection Agency
A ___-side market failure occurs when a market does not reflect consumers' full willingness to pay for a good or service.
Demand
Market failures in competitive markets can be classified into:
Demand-side Supply-side
What happens when a market does not reflect consumers' full willingness to pay for a good or service?
Demand-side market failure
A ____-side market failure arises because it is impossible in certain cases to charge ___ what they are willing to pay for a product.
Demand; Consumers
Economic ____ is achieved at equilibrium quantity.
Efficiency
What is created when production does not provide the equilibrium quantity?
Efficiency losses or deadweight losses
_____ means that buyers who are willing and able to pay the market price for the product obtain its benefits, but those unable or unwilling to pay that price do not.
Excludability
A private good is ____ when a seller can prevent people who did not pay for a product from obtaining its benefits.
Excludable
The situation when people can receive the benefits from a good without having to pay for it is known at the ____ problem.
Free-rider
Consumer surplus is the difference between the ___ price a consumer is willing to pay for a product and the price paid.
Highest
Consumer surplus and price are _____ related.
Inversely
Which exemplify a rivalrous good?
John eats an apple for lunch Mary drinks a can of Pepsi
What do points on the demand curve represent?
Marginal benefit
The intersection of the demand and supply curves at the equilibrium output indicate that:
Marginal benefit equals marginal cost
____ in consumption means that one person's consumption of a good does not preclude consumption of the good by others.
Non-rivalry
Public goods are distinguished by:
Non-rivalry Non-excludability
What kind of relationship exists between equilibrium price and the amount of producer surplus?
Positive
Goods that are provided by competitive markets because they incur profits are known as:
Private goods
_____ surplus is the difference between the actual price a seller receives and the minimum acceptable price.
Producer
If a good is non-rival and non-excludable, then it is known as a:
Public good
A private good that displays _____ characteristics means that when someone buys and consumes that good, it is not available for someone else to buy and consume.
Rival
When the purchase and consumption of a good makes the purchase and consumption of that good unavailable to another person, it is known as
Rival
Characteristics of a pure private good include:
Rivalry Excludability
The ____ Curve shows the seller's minimum acceptable price at each unit of the production.
Supply
What happens when a market does not reflect the full cost of producing a good or service?
Supply-side market failure
A ____-side market failure arises in situations in which a ____ does not have to pay the full cost of production.
Supply; Firm
Demand-side failures arise in competitive markets when demand curves fail to reflect consumers' full willingness to pay for a good or service.
TRUE
Efficiency or deadweight losses are reduction of combined consumer and producer surplus associated with underproduction or overproduction of a product.
TRUE
A deadweight loss declines in size when a unit of output is produced, so that
The maximum willingness to pay exceeds acceptable prices
For a given supply curve, how do higher prices affect producer surplus?
They increase it