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