ch. 4 self study

chad sells oranges, and his minimum acceptable price for a bag of oranges is $8. If the actual price is $8, what is the value of his producer surplus?

$0

which of the following are characteristics of public goods?

- nonrivalry - nonexcludability

which of the following are the three options available to govt to correct spillover benefits or the underallocation of resources?

1. subsidies to buyers 2. subsidies to producers 3. government provision of public goods

what conditions exist for allocative efficiency to occur?

1. the maximum willingness to pay must equal the minimum acceptable price 2. marginal benefit must equal marginal cost bonus: 3. total surplus (sum of consumer and producer surplus) is at a maximum

T/F: at the equilibrium output, where the demand and supply curves intersect, marginal benefit equals marginal cost

T

T/F: markets that have downward-sloping demand curves yield consumer surplus

T

T/F: since the total profit from the sale of five bottles of water is $1, representing a 20% profit margin, this is a reason to "tap the market"

T

a comparison of marginal changes is known as:

a cost-benefit analysis

the law of diminishing marginal utility is important to the provision of public goods because ________, thus explaining the downward slope of the collective demand curve a. as is true for private goods, successive units of any good yield less and less added costs b. as is true for private goods, successive units of any good yield more and more added costs c. as is true for private goods, successive units of any good yield less and less added benefit d. as is true for private goods, successive units of any good yield more and more added benefit

c

the optimal size and scope of a project is determined by:

comparing marginal costs to marginal benefits

free and _______ markets produce equilibrium prices and quantities that maximize the combined consumer and producer surplus

competitive

what can help the government decide one the size and scope to which a public project should be pursued?

cost-benefit analysis

which of the following goods could be classified as nonexcludable?

country roads, enironmental protection

which of the following refers to reductions of combined consumer and producer surplus associated with the underproduction or overproduction of a product?

deadweight loss (efficiency loss)

how are producer surplus (PS) and price related?

directly

government intervention may be needed to achieve ________

economic efficiency when externalities affect large numbers of people or when community interests are at stake

economic _______ is achieved at the equilibrium quantity

efficiency

equilibrium quantity is efficient because the maximum willingness to pay is ________ the minimum acceptable price

equal to

equilibrium quantity is efficient because the maximum willingness to pay is _________ the minimum acceptable price

equal to

_______ means that sellers can restrict people who do not pay for a product from obtaining its benefits

excludability

A(n) ________ causes some of the benefits or costs of a market transaction to be passed on to a third party

externality

A(n) ________ is a cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction

externality

examples of quasi-public goods include:

fire departments, libraries, police

the _______ problem makes it difficult for firms to gather resources and profitably provide a good, as some may benefit from the good without contributing to its costs

free-rider

the situation when people can receive benefits from a good without having to pay for it is called the _______ problem.

free-rider

the direct way to reduce negative externalities from a certain activity is to pass ________ limiting that activity.

legislation

because an economy's resources are _______, decisions to use more resources in the public sector will mean fewer resources for the _______ sector

limited; private

quantity levels less or greater than the efficient quantity create efficiency or deadweight ________

loss

which of the following reduces producer surplus?

lower prices

what do points on the demand curve represent?

marginal benefit

the govt can provide the efficient amount of a public good by adhering to which rule?

marginal benefit equals marginal cost MB=MC

the supply curve is.....

marginal cost curve

allocative efficiency occurs at quantity levels where the combined consumer and producer surplus is:

maximized

if a third party to a market transaction is experiencing an uncompensated cost, then the transaction results in a market failure known as a _______ or ________

negative externality; spillover cost

another policy approach to _______ externalities is for government to levy a ______ or a charge specifically on the related good.

negative; taxes

_______ in consumption means that one person's consumption of a good does not preclude consumption of the good by others

nonrivalry

the market demand curve for positive externalities reflects __________

only the direct, private benefits to those who demand and use the product

negative externalities (or spillover costs) result in a(n) ______ of resources to the production of the good

overallocation

What kind of relationship exists between equilibrium price and the amount of producer surplus?

positive

a ___________ (or spillover benefit) resulting in an underallocation of resources to the market is a type of market failure

positive externality

goods that are provided by competitive markets because they incur profits are known as:

private goods

what is the difference between the actual price a seller receives and the minimum acceptable price?

producer surplus

if a good is nonrival and nonexcludable then it is known as a(n) _______ good.

public

a good that can be produced by the market system (since exclusion is possible) but government provides to avoid an underallocation of resources is called a:

quasi-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

private goods exhibit two consumption characteristics, ________ and ________.

rivalry; excludability

a positive externality has an uncompensated

spillover benefit

A positive externality has an uncompensated

spillover benefit **NEGATIVE externality- an uncompensated spillover cost

A ______ to a producer is a payment from the govt to decrease a producers cost in order to encourage more output of a product deemed beneficial to society

subsidy

the _______ curve, also known as the marginal cost curve, shows the sellers minimum acceptable price at each unit of the product

supply

market failures in competitive markets can be classified into:

supply-side; demand-side

govt can finance the provision of public goods through _________

taxation

producer surplus represents:

the difference between the minimum price producers are willing to accept for a product and the market price

producer surplus represents:

the difference between the minimum price producers are willing to pay for a product and the market price

the size of the deadweight loss will get smaller, when output is increased and

the maximum willingness to pay exceeds acceptable prices

society's marginal cost of each unit produced is measured by:

the supply curve