Chapter 4 and 13 MICRO

Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is $1.50. Based on this information, which of the following would you expect to take place in the market?

We would expect to see a surplus of carrots.

Which is one of the reasons why markets fail?

a mismatch of information

A price ceiling is _____ if it is set _____ the market price.

effective; below

Which of these would NOT yield an external cost?

helping an elderly person across the street

Which of these would be considered a public good?

national defense

The government often strictly regulates noise and chemical pollution by industry to overcome which market failure?

negative externality (external costs)

If a price ceiling is set above the equilibrium price:

no impact is felt in the market.

The government often provides goods that are nonrival and nonexcludable to overcome which market failure?

public goods

Implementing a price ceiling can cause:

shortage

Flu vaccination shots provide external benefits. Thus:

too few flu vaccination shots are given.

Which of the following price floors for milk would not cause a surplus in the market if the equilibrium price for milk is $3.60?

$3.50

If a government imposes a $2 maximum price on a gallon of gasoline in the petroleum market, this would be an example of:

a price ceiling

Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is this considered a market failure due to external benefits?

because the number of people who obtain flu shots is less than the socially optimal quantity

An effective price ceiling occurs at a price _____ the equilibrium price and causes a _____.

below; shortage

Jessica lists her faulty treadmill for sale on craigslist but does not disclose the problems with it. If Blake buys the treadmill believing that it's problem-free, this is an example of market failure due to:

lack of information

Public goods are difficult to provide in the private market because they have the characteristics of:

non-rivalry and non-excludability

Implementing a price floor can cause:

surplus

The best definition of externalities is:

the economic effects of individual actions on third parties.

Markets tend to produce:

too much of a good exhibiting external costs

Public goods tend to be _____ because the provider of the good cannot prevent someone from enjoying the good without paying for it, which means the good is _____.

underproduced; nonexcludable