Micro Test 1 Study Guide

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Which one of the following expressions best states the idea of opportunity cost?

"There is no such thing as a free lunch."

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

$1

Between 2002 and 2011, U.S. farmers received yearly direct subsidies from the federal government averaging about

$20 billion

Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates

the moral hazard problem

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in

the price of some other product

A firm's supply curve is upsloping because

the production costs of additional units of output will rise with increase in production, thereby requiring product price to go up

It takes a considerable amount of time to increase the production of pork. This implies that

the short-run supply curve for pork is less elastic than the long-run supply curve for pork

Import quotas on sugar may cost sugar consumers $2 billion per year. But this quota goes unchallenged because the $10 average annual cost per person is so small that probably not one voter in 200 knows the quota exists. This statement describes

the special-interest effect

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

the third unit should be produced

A negative externality or spillover cost occurs when

the total cost of producing a good exceeds the costs borne by the producer

Buyers will opt out of markets in which

there is inadequate information about sellers and their products

As it applies to insurance, the adverse selection problem is the tendency for

those most likely to collect on insurance to buy it

As it applies to insurance, the moral hazard problem is the tendency for

those who buy insurance to take less precaution in avoiding the insured risk

Which of the following goods will least likely suffer a decline in demand during a recession?

toothpaste

In part as a result of the U.S. government's ethanol program, between 2005 and 2012 the inflation-adjusted price of a bushel of corn

tripled

In a free-market economy, a product which entails a positive externality will tend to be

underproduced

Economists consider governments to be "wasteful"

whenever they over- or underallocate resources to a project

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price

will increase, but equilibrium quantity will be unchanged

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint formula) is

1.37

It is estimated that the price elasticity coefficient for farm products is 0.2. Therefore, in order for consumers to increase their purchases of farm products by 10 percent, the prices of these products would have to fall

50 percent

Which type of goods is most adversely affected by recessions?

Goods for which the income elasticity coefficient is relatively high and positive

Refer to the diagram for the corn market. What effect will a price support of B have on the gross income of farmers?

Gross income will increase from 0AJH to 0BCG

Which of the following illustrates the basic idea of "parity" as a cornerstone of U.S. agricultural policy?

If a bushel of corn exchanged for a pair of pants at a previous time, the same rate of exchange should prevail today

Which of the following is correct?

If demand is elastic, a decrease in price will increase total revenue

Which of the following statements is correct?

If the demand for agricultural products is inelastic, a relatively small decrease in supply will increase gross farm incomes

Which of the following statements is true?

Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole

In which of the following instances will the total revenue of a firm decline?

Price rises and demand is elastic

Which of the following statements about the agriculture price policy is correct?

Price supports induce an overallocation of resources to farm products

Which of the following has been an effect of the U.S. government's ethanol program?

Prices for beef, pork, and chicken have risen

Which of the following is a determinant of supply?

Product taxes and subsidies

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply

<-- <--- Refer to the diagram, in which S is the market supply curve and S 1 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. Without government interference, this market will reach

an overallocation of resources to this product

Refer to the diagram for the corn market. Assuming no externalities, a price support of B causes

an overallocation of resources to this product

Farm programs such as those of the United States and the European Union

cause a misallocation of agricultural resources internationally

If a firm's demand for labor is elastic, a union-negotiated wage increase will

cause the firm's total payroll expenses to decline

Black markets are associated with

ceiling prices and the resulting product shortages

Cost-benefit analysis attempts to

compare the benefits and costs associated with any economic project or activity

The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called

consumer surplus

The demand for a product is inelastic with respect to price if

consumers are largely unresponsive to a per unit price change

When an economist says that the demand for a product has increased, this means that

consumers are now willing to purchase more of this product at each possible price

If the parity ratio goes from 0.8 to 0.7, it means that the prices received by farmers had

fallen by 12.5 percent relative to the prices they paid

Which of the following is an example of a negative externality?

falling property values in a neighborhood where a factory is emitting smoke in the atmosphere

Refer to the diagram. If output changes from a poor crop, Qp, to a bumper crop, Qb,

farm incomes will decrease

In a cap-and-trade program,

government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other

A price floor means that

government is imposing a minimum legal price that is typically above the equilibrium price

The demand for agricultural products

has a price elasticity coefficient of about .20 to .25

If the demand curve for wheat is price inelastic, then total farm income from wheat will be

higher in years of low yields and lower in years of high yields

The price elasticity of demand coefficient measures

how strongly buyers change their consumption of a product due to a change on its price

A market price is referred to as the equilibrium price

if the amount producers want to sell is equal to the amount consumers want to buy at that price

You should decide to go to a movie

if the marginal benefit of the movie exceeds its marginal cost

The demand for agricultural products rises less rapidly than income. This means that the demand for agricultural products is

income inelastic

Since 1950, U.S. farm exports have

increased as a percentage of U.S. farm output

The reason for the long-run decline of the agricultural industry is that the

increases in the demand for farm products have been less than the increases in the supply of farm products

A demand curve

indicates the quantity demanded at each price in a series of prices

Gigantic State University raises tuition fee for the purpose of increasing its revenue so that more faculty can be hired. In that case, GSU is assuming that the demand for education at GSU is

inelastic

Where there is asymmetric information between buyers and sellers,

markets can produce inefficient outcomes

If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that

more consumer goods can only be produced at the cost of fewer capital goods

Price, Quantity Supplied $10 10 8 9 6 8 4 8 2 6 Refer to the table. Over the $6-$4 price range, supply is

perfectly inelastic

The following data are for a series of increasingly extensive flood-control projects. Total Cost Per Year Total Benefit Per Year Plan A = Levees $10,000 $16,000 Plan B = Small Reservoir 24,000 36,000 Plan C = Medium Reservoir 44,000 52,000 Plan D = Large Reservoir 72,000 64,000 On the basis of cost-benefit analysis, government should undertake

plan B

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

positive, and therefore X is a normal good

Irving Tiller received an insurance payment because his wheat crop sold for a price below an established threshold. Under the Agricultural Act of 2014, Tiller received payment under

price loss coverage

The market system does not produce public goods because

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them

According to the Coase theorem,

private individuals can often negotiate their own resolution of externality problems, without the need for government intervention

Market failure is said to occur whenever

private markets do not allocate resources in the most economically desirable way

The law of supply indicates that, other things equal,

producers will offer more of a product at high prices than at low prices

The supply curve shows the relationship between

product price and quantity supplied of the product

The formula for cross elasticity of demand is percentage change in

quantity demanded of X/percentage change in price of Y

Acreage allotment programs were designed to

reduce the supply of agricultural products

The demand for agricultural products is

relatively inelastic with respect to price

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

relatively price elastic

The demand schedules for such products as eggs, bread, and electricity tend to be

relatively price inelastic

Farm groups spend considerable amounts of money to maintain and enlarge political support for farm subsidies. This illustrates

rent-seeking activity

Public choice theory would suggest that the lobbying of Congress by farm organizations for legislation that would increase the appropriations from the U.S. government for agricultural programs is an example of

rent-seeking behavior

The price elasticity of supply measures how

responsive the quantity supplied of X is to changes in the price of X

A production possibilities curve shows

the maximum amounts of two goods that can be produced, assuming the full use of available resources

If one person's consumption of a good does not preclude another's consumption, the good is said to be

nonrival in consumption

The two main characteristics of a public good are

nonrivalry and nonexcludability

The demand for most products varies directly with changes in consumer incomes. Such products are known as

normal goods

If quantity demanded is completely unresponsive to price changes (as for gasoline), demand is

perfectly inelastic and absolute price elasticity will equal zero

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

positive, and therefore X is a normal good

We would expect the cross elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods

An effective price ceiling will

result in a product shortage

An effective price floor on wheat will

result in a surplus of wheat

Market failures

result in overproduction or underproduction of a good

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then

the demand for the product is elastic in the $6-$5 price range

Productive efficiency refers to

the use of the least-cost method of production

If the prices paid by farmers increase and the prices received by farmers decrease, then the parity ratio

will necessarily decrease

The following data are for a series of increasingly extensive flood-control projects. Plan D = Large Reservoir Total Cost Per Year= $72,000 Total Benefit Per Year= $64,000 For Plan D marginal costs and marginal benefits are

$28,000 and $12,000, respectively

Quantity Demanded, Price, Quantity Supplied 5 $7 9 6 6 8 7 5 7 8 4 6 9 3 5 10 2 4 11 1 3 Refer to the above table. If demand decreased by 4 units at each price, what would the new equilibrium price and quantity be?

$3 and 5 units

Quantity Demanded, Price, Quantity Supplied 5 $7 9 6 6 8 7 5 7 8 4 6 9 3 5 10 2 4 11 1 3 Refer to the above table. In this market, the equilibrium price and quantity will be?

$5 and 7 units

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Q Pa Pb 1 $3 $5 2 2 4 3 1 3 4 0 2 5 0 1 The collective willingness of this society to pay for the second unit of this public good is

$6

Answer the question on the basis of the data given in the following production possibilities table. Production Possibilities Alternative C Capital Goods 3 Consumer Goods 9 Refer to the table. If the economy is producing at production alternative C, the opportunity cost of producing 3 additional units of consumer goods will be

1 unit of capital goods

A consumer's weekly income is $300, and the consumer buys 5 bars of chocolate per week. When income increases to $330, the consumer buys 6 bars per week. The income elasticity of demand for chocolate by this consumer is about

2

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Q Pa Pb 1 $3 $5 2 2 4 3 1 3 4 0 2 5 0 1 If the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be

3 units

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Q Pa Pb 1 $3 $5 2 2 4 3 1 3 4 0 2 5 0 1 If this good were a private good instead of a public one, the total quantity demanded at a $3 market price would be

4 units

If in a certain year the indices of prices received and paid by farmers were 115 and 142 respectively, the parity ratio (in percentage terms) would be

81

If the demand curve for product B shifts to the right as the price of product A declines, then

A and B are complementary goods

Which of the following is the best example of a supply-side market failure?

A firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area

Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for

Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music

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 consumers' full willingness to pay

Which statement best characterizes the long-run decline in the agricultural industry?

The growth in the supply of farm products has exceeded the growth in the demand for such products, causing falling farm product prices and falling farm income

Which of the following best describes the short-run problem faced by farms?

The highly inelastic nature of agricultural demand, together with fluctuations in exports of farm goods, has caused small year-to-year fluctuations in farm output to result in highly unstable farm incomes

Which of the following statements is correct?

The parity ratio has generally declined over the past five decades

Which of the following statements best describes the parity concept that used to justify subsidies in the agricultural sector?

The production of a given real output entitles the producer to the same real income over time

Which of the following best describes the main problem faced by farms in the long run?

The supply of farm products has increased relative to the demand for them, and, because demand is inelastic, farm prices and incomes have therefore declined

Suppose the income elasticity of demand for toys is +2.00. This means that`

a 10 percent increase in income will increase the purchase of toys by 20 percent

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by

a change in buyer tastes

The economic perspective entails

a comparison of marginal benefits and marginal costs in decision making

Which of the following is a labor resource?

a computer programmer

Suppose that a firm has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge

a higher price to the group that has the less elastic demand

A bumper crop (good harvest) of farm products causes

a large decline in the price of farm products because the demand for farm products is price inelastic

An extraordinarily small crop of farm products due to drought causes

a large increase in the price of farm products because the demand for farm products is price inelastic

The main determinant of elasticity of supply is the

amount of time the producer has to adjust inputs in response to a price change

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the

adverse selection problem

The misallocation of resources associated with price supports

affects both domestic and foreign economies

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that

all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant

Which of the following is an example of market failure?

all of these

Refer to the graph of the market for wheat. The government adopts a price support program for wheat and supports the wheat price at P 2. The area of Q 1 ABQ 2 would measure the

amount government will pay to wheat famers

Pigovian taxes

are used to correct negative externalities

A cap-and-trade program

assigns a property right to polluting the atmosphere

Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates

asymmetric information

A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that

beer and marijuana are complementary goods

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

bicycles are normal goods

Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile

Over the past several decades, farm employment in the U.S. has

declined both absolutely and as a percentage of total employment

Farm share of U.S. national output has

declined from about 7 percent in 1950 to about 1 percent today

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand ( D) for, or supply ( S) of, X; (2) the equilibrium price ( P) of X; and (3) the equilibrium quantity ( Q) of X. An increase in the prices of resources used to produce X will

decrease S, increase P, and decrease Q

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will

decrease, quantity demanded will increase, and quantity supplied will decrease

Demand-side market failures occur when

demand curves don't reflect consumers' full willingness to pay for a good or service

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a

demand-side market failure

In 2015, Farmer Lactose's dairy farm lost money. Under the Agricultural Act of 2014 dairy margin protection program, which of the following events would have triggered payments to Farmer Lactose?

either the price of milk falling too low or the price of feed rising too high

Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

elastic demand to see movies in the afternoon

A significant reason that increases in demand for agricultural products have been relatively small is because increases in the

incomes of U.S. consumers result in less than proportionate increases in their spending on agricultural products

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand ( D) for, or supply ( S) of, X; (2) the equilibrium price ( P) of X; and (3) the equilibrium quantity ( Q) of X. If X is a normal good, an increase in income will

increase D, increase P, and increase Q

If the government tightens up on drug dealers and raises the costs of dealing illegal drugs, then the drug addicts' dollar expenditures to feed their addiction will tend to

increase because their demand is price-Inelastic

If the demand for bacon is relatively price elastic, a 10 percent decline in the price of bacon will

increase the amount demanded by more than 10 percent

The food-stamp program is designed to

increase the demand for farm products

If the absolute value of price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

increase the quantity demanded by about 25 percent

If the price elasticity of demand for a product is unity, a decrease in price will

increase the quantity demanded, but total revenue will be unchanged

If the demand for product X is inelastic, a 4 percent decrease in the price of X will

increase the quantity of X demanded by less than 4 percent

Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will

increase, quantity demanded will decrease, and quantity supplied will increase

Sellers will opt out of markets in which

information about buyers is inadequate, and some buyers can impose high costs on the sellers

A market

is an institution that brings together buyers and sellers

The parity ratio

is the ratio of prices received by farmers to prices paid by farmers

With a fixed level of farm production, a increase in demand for a crop (shown by rightward shift of the demand curve) will cause a

large drop in price if demand is quite inelastic

Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is

less than 1, and therefore supply is inelastic

Farm employment in the United States amounted to about what percentage of the total employment in 2015?

less than 2 percent

The economizing problem is one of deciding how to make the best use of

limited resources to satisfy virtually unlimited wants

When economists say that people act rationally in their self-interest, they mean that individuals

look for and pursue opportunities to increase their utility

If the demand for an agricultural product is inelastic, a bumper crop will

lower price and decrease total revenues

Microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. This implies that Microsoft views the demand curve for the software upgrade to be

more elastic than the demand for the original software

Suppose that a 20 percent increase in the price of good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

negative, and therefore these goods are complements

We would expect the cross elasticity of demand between dress shirts and ties to be

negative, indicating complementary goods

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of

opportunity costs

When producers do not have to pay the full cost of producing a product, they tend to

overproduce the product because of a supply-side market failure

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

Refer to the diagram for the corn market. As a consequence of a price support of B, consumers will

pay a higher price, B rather than A, for the product

The basic formula for the price elasticity of demand coefficient is

percentage change in quantity demanded/percentage change in price

A demand curve that is parallel to the horizontal (quantity) axis is

perfectly elastic

A firm can sell as much as it wants at a constant price. Demand is thus

perfectly elastic and absolute price elasticity will be very large

A straight line demand curve that is completely vertical to the horizontal (quantity) axis is

perfectly inelastic

If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its

price and output would increase

The demand curve shows the relationship between

price and quantity demanded

The law of demand states that, other things equal,

price and quantity demanded are inversely related

Quantity Demanded, Price, Quantity Supplied 52 $50 73 62 45 62 72 40 51 82 35 42 92 30 33 In this market, economists would call a government-set maximum price of $40 a

price ceiling

Quantity Demanded, Price, Quantity Supplied 52 $50 73 62 45 62 72 40 51 82 35 42 92 30 33 In this market, economists would call a government-set minimum price of $50 a

price floor

An improvement in production technology will

shift the supply curve to the right

Which of the following is a capital resource?

software used by a firm

If the income elasticity of demand for store brand macaroni and cheese is −3.00, this means that

store brand macaroni and cheese is an inferior good

If some activity (e.g. Research & Development) creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

subsidized

In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are

substitute goods, and the higher price for oil increased the demand for natural gas

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the

supply curve for cigarettes leftward

Supply-side market failures occur when

supply curves don't reflect the full cost of producing a good or service

The main reason for the high price of antiques is that

supply is relatively inelastic and demand increases over time

Quantity Demanded, Price, Quantity Supplied 52 $50 73 62 45 62 72 40 51 82 35 42 92 30 33 If government set a minimum price of $50 in the market, a

surplus of 21 units would occur

<-- <--- Refer to the diagram, in which S is the market supply curve and S 1 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

Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes

the Coase theorem

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then

the absolute price elasticity of demand is 2.25

A positive externality or spillover benefit occurs when

the benefits associated with a product exceed those accruing to people who consume it

We would expect

the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers goes doen from $16 to $14 billion. Thus,

the demand for peanuts is inelastic

The elasticity of demand for a product is likely to be greater,

the greater the amount of time over which buyers adjust to a price change

An increase in demand will increase equilibrium price to a greater extent

the less elastic the supply curve

Because of the free-rider problem,

the market demand for a public good is nonexistent or understated

Consumer surplus arises in a market because

the market price is below what some consumers are willing to pay for the product

Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Q Pa Pb 1 $3 $5 2 2 4 3 1 3 4 0 2 5 0 1 Suppose government has already produced 4 units of this public good. The amount individual B is willing voluntarily to pay for the fourth unit is

$0

Quantity Demanded, Price, Quantity Supplied 5 $7 9 6 6 8 7 5 7 8 4 6 9 3 5 10 2 4 11 1 3 Refer to the above table. If supply decreased by 2 units at each price, what would the new equilibrium price and quantity be?

$6 and 6 units

The supply of product X is elastic if the price of X rises by

5 percent and quantity supplied rises by 7 percent

Measured in terms of farm employment and the number of farms, agriculture in the U.S. has been

a declining industry

Refer to the diagram for the corn market. As the result of a supported corn price of B,

a surplus of LG will result

A shift to the right in the demand curve for product A can be most reasonably explained by saying that

consumer preferences have changed in favor of A so that they now want to buy more at each possible price

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

equilibrium quantity, but equilibrium price will be unchanged

If demand for a product is price elastic, the absolute value of the price elasticity coefficient is

greater than one

Unlike a private good, a public good

has benefits available to all, including nonpayers

Because government price supports cause surplus agricultural production, government policies have been designed to

increase demand and decrease supply of farm products

If turnips are an example of an inferior good, then a decrease in the demand for turnips could happen due to

increase in consumer incomes

The equilibrium price and quantity in a market usually produce allocative efficiency because

marginal benefit and marginal cost are equal at that point

At the optimal quantity of a public good,

marginal benefit equals marginal cost

One consequence of the long-run problem faced by farms has been a

massive exit of workers from agriculture to other sectors of the economy


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