Ch 4 & 5 (T/F)
False
The more that a good is considered to be a "luxury" rather than a "neccessity," the less is the price elasticity of demand
True
The optimal allocation ofa public good is determined by the rule that marginal cost (MC) equals marginal revenue (MR)
True
An externality is a cost or benefit accruing to an individual or group -a third party- which is external to the market transaction
True
Political pressure can make it difficult to find and implement an economically efficient solution to an externality problem
True
Price elasticity of demand and the slope of the demand curve are two different things
False
Efficiency losses are increases in the combined consumer and producer surplus
True
For a substitute product, the coefficient of the cross elasticity of demand is positive
False
If an increase in product price results in no change in the quantity supplied, supply is perfectly elastic
False
If demand and supply reflected all the benefits and costs of a product, the equilibrium output of a competitive market would be identical with its optimal output
True
If demand and supply relfected all the benefits and costs of producing a product, there would be economic efficiency in the production of the product
True
If society has marginal costs of $10 for pollution abatement and the marginal benefit of pollution abatement is $8 to achieve an optimal amount of the pollution the society should increase the amount of pollution abtement
True
The degree of price elasticity of supply depends on how easily and quickly producers can shift resources between alternative uses
True
The degree to which consumers respond to a change in their incomes by buying more or less of a particular product is measured by the income elasticity of demand
True
The demand for most agricultural products is price inelastic. Consequently, an increase in supply will reduce the total income of producers of argriculture products
False
The higher the actual price, the less he amount of producer surplus
True
The market period is a time so short that producers cannot respond to a change in demand and price
True
the flatness or steepness of a demand curve is based on absolute changes in price and quantity, while elasticity is based on relative or percentage canges in price and quantity
False
A product with a price elasticity of demand equal to 1.5 is described as price inelastic
False
A state government seeking to increase its excisetax revenues is more likely to increase the tax rate on restaurant meals than on gasoline
True
Changes in technology or changes in society's attitudes toward pollution can affect the optimal amount of pollution abatement
False
Consumer surplus and price are directly or positively related
False
Consumer surplus is a utility surplus that reflects a gain in total utility or satisifaction
False
Consumer surplus is the difference between the minimum and maximum price a consumer is willing to pay for a good
False
Cross elasticity of demand is measured by the percentage change in quantity demanded over the percentage change in income
False
Demand tends to be inelastic at higher prices and elastic at lower prices along a down-sloping linear demand curve
True
Demand-side market failures arise when demand curves do not reflect consumers' full willingness to pay for a product
False
If the percentage change in price is greater than the percentage change in quantity demanded, the price elasticity coefficient is greater than 1
False
If the price of a product increases from $5 to $6 and the quantity demanded decreases from 45 to 25, then according to the total-revenue test, the product is price inelastic in this price range
True
If the quantity demanded for a product increases from 100 to 150 units when the price decreases from $14 to $10, using the midpoint formula, the price elasticity of demand for this product in this price range is 1.2.
True
In a competitive product market and in the absence of negative externalities, the supply curve relfects the costs of producing the product
False
In general, the larger the number of substitute goods that are available, the less the price elasticity of demand
False
Inferior goods have a positive income elasticity of demand
False
One solution to the negative externalities caused by pollution is to create a market for pollution rights in which the negative externalities from pollution are turned into private costs
False
One way for government to correct for a negative externality from the production of a product is to increase the demand for the product
True
Other things equal, the higher the price of a good relative to consumers' incomes, the greater the price elasticity of demand
True
Other things equal, the higher the price of a good relative to the longer the time period the purchase is considered, the greater the price elasticity of demand
True
Private goods are characterized by rivalry and excludability and public goods are caharacterized by nonrivalry and nonexludability
True
Producer surplus is the difference between the actual price a producer receives for a product and the minimum price the producer would have been willing to accept for the product
True
Subsidizing the firms producing goods that provide positive externalities will usually result in a better allocation of resources
True
Taxes that are imposed on businesses that create an externality wil lower the marginal cost of production and increase supply
False
The coase theorem suggests that government intervention is required whenever there are negative or positive externalities
True
The price elasticity of supply will tend to be more elastic in the long run
True
There is an underallocation of resources to the production of a commodity when negative externalities are present
True
Total revenue will not change when price changes if the price elasticity of demand is unitary
True
Two products are considered to be independent or unrelated when the cross elasticity of demand is zero
True
When determining the collective demand for a public good, you add the prices people are willing to pay for the last unit of the public good at each poosible quantity
True
When negative externalities are involved in the production of a product, more resources are allocated to the production of that product and more of the product is produced than is optimal or most efficient
True
When the absolute value of the price elasticity coefficient is greater than 1 and the price of the product decreases, then the total revenue will increase
True
When the marginal benefit of a public good exceeds the marginal cost, there will be an overallocation of resources to that public good use
False
there is a total revenue test for the elasticity of supply
