Microeconomics Exam #3

If the government imposes a price ceiling of $50 in this market, then the new producer surplus will be

$100.

Calvin--$150 Sam--$135 Andrew--$120 Lori--$100 Based on the above table, if price of the product is $135, then the total consumer surplus is

$15.

If the equilibrium price rises from $200 to $350, what is the additional producer surplus?

$22,500

At the equilibrium price, total surplus is

$250

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?

$350.

Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is

$64

If the equilibrium price rises from $60 to $120, what is the producer surplus to producers in the market?

$7,200.

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

Because corrective taxes correct market externalities, they take into consideration the well-being of bystanders.

Which is the socially-optimal quantity of output in this market?

10 units.

Which of the following illustrates the concept of a negative externality?

A college student plays loud music on his new stereo system at 2:00am.

The term market failure refers to

A market that fails to allocate resources efficiently.

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

The impact of one person's actions on the well-being of a bystander is called

An externality.

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders.

Which of the following statements is not correct about a market in equilibrium?

Consumer surplus will be equal to producer surplus.

Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650. Denise

Does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $0.

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Emit a higher level of smoke than is socially efficient.

Who among the following is a free rider?

Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Impose a tax on alcohol that is equal to the per-unit externality.

Consumer surplus

Is the amount a consumer is willing to pay minus the amount the consumer actually pays.

The social cost curve is above the supply curve because

It takes into account the external costs imposed on society by the concert.

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

Making it illegal to "Disturb the Peace".

Which of the Ten Principles of Economics does welfare economics explain more fully?

Markets are usually a good way to organize economic activity.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

Maximizes the combined welfare of buyers and sellers.

A view of a spectacular sunset along a private beach is an example of a

Private good.

An externality

Results in an equilibrium that does not maximize the total benefits to society.

A supply curve can be used to measure producer surplus because it reflects

Seller's costs.

An externality is

The uncompensated impact of one person's actions on the well-being of a bystander.

Suppose that an MBA degrees creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

The equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.

If a sawmill creates too much noise for local residents,

The government can raise economic well-being through noise-control regulations.

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander.

At the equilibrium price of a good, the good will be purchased by those buyers who

Value the good more than price.

Under which of the following scenarios would a park be considered a public good?

Visitors can enter the park free of charge and there are always plenty of empty picnic tables.

At the equilibrium price of a good, the good will be sold by those sellers

Whose cost is less than price.

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

Willingness to pay.

A demand curve reflects each of the following except the

ability of buyers to obtain the quantity they desire.

A seller's willingness to sell is

measured by the seller's cost of production. related to her supply curve, just as a buyer's willingness to buy is related to his demand curve, and less than the price received if producer surplus is a positive number.

The overuse of a common resource relative to its economically efficient use is called

the Tragedy of the Commons.