Econ chapter 12
in a perfect competition, the condition that ensures that the right things are produced is
P=MC
______ reflects household willingness to pay and _____ reflects the opportunity cost of the resources needed to produce a good
Price, marginal cost
if society will gain by producing more X, then it must be the case that currently
Px>MCx
which of the following questions is NOT answered by general equilibrium analysis
What outcome is most desirable for the whole society?
an example of a public good is
a joke
assume that an economy producing tow products, skateboards and in-line skates, is initially in equilibrium, and that skateboards and in-line skates are substitutes. if consumer preferences shift away from skateboards and toward in-line skates, which of the following will NOT occur
additional capital will begin to flow into skateboard production in the long run
a technological change in the production of cars will
affect input and output markets in the automobile industry and other related industries
scientists find that eating corn three times a day will prolong life. this leads to a shift in preferences away from wheat toward corn. as we move from one equilibrium to another, we can predict that
all input markets are affected
a gas tax holiday would
all of the above
to conduct a general equilibrium analysis of a change in consumer preferences away from beet and toward chicken, you must consider
all of the above
when all the conditions for perfect competition are met,
all of the above
which assumption(s) are necessary for an efficient allocation of resources among firms
all of the above
which of the following help to correct for the market failure of imperfect information
all of the above
which of the following would be an expected result of increased government subsidies for ethanol, a fuel produced from corn?
an increase in the price of land used to farm corn
the condition P=MC implies that
an individual who values the product at MORE than P will revive consumer surplus
all of the following are true about public goods except:
are only produced by government agencies
initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. if you are a cattle rancher, the best profit maximizing strategy is to
decrease output so as to minimize short run losses
it is essential to establish specific criteria to judge the performance of any economic system. Two such criteria are
efficiency and equity
a person who chooses not to be in the labor force reveals that
either leisure or the value of non paid labor is worth more to him that the value that society places on his potential product in the market
under perfect competition the person that ends up with the marginal unit is the person that values it
exactly at its price
sources of market failure include
externalities
a new technology is developed for producing microwave ovens that reduces production costs by 10%. which of the following is the most likely consequence of this technological change
firms must adopt this new technology to remain efficient
in order to have an efficient distribution of final products to households,
free and open markets are essential
you next door neighbor has a beautiful rose garden. but you are allergic to roses and cannot use your yard because of the rose pollen that drifts into your yard. in this case, the rose garden is an example of a
good that imposed an external cost
firms stop producing tapes and start producing compact disks because people prefer compact disks to tapes. this will
improve efficiency
ethanol, a fuel produced from corn, subsidies have increased the supply of corn. as a result, demand for farm land has ____. further, the supply of other grains has ______.
increased, decreased
suppose a policy change will generate $100000 of benefits for low income families and $120000 of costs for high-income families. this change best be described as
inefficient
bill sells Mary a worthless coin that bill deviously told Mary "belonged to an ancient Persian king an is of enormous value to coin collectors" economists would call this
inefficient exchange, as at least one party used false market information
assume that price underestimates the value that society placed on the flu vaccine. if firms produce where P=MC, firms will be producing
less than the socially efficient amount of flu vaccine
the opportunity cost of using resources to produce more of one good instead of more of another good is its
marginal cost
a household will buy a good as long as the
marginal utility from its consumption is greater than or equal to its market price
when resources are misallocated , or allocated inefficiently
market failure occurs
a freely functioning market
maximizes freedom of choice
one reason they require medical practitioners to be licensed is that
medical care consumers lack perfect information
which of the following is an example of an external benefit
more people start to ride the bus because they become more public-spirited and, as a result, air pollution is reduced
assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. by producing where P=MC, the firm will be producing
more than the efficient amount of steel
_____ is an example of a public good
national defense
pareto optimality is the condition in which
no change is possible that will make some members of society better off without making at least on e other member of society worse off
a ______ system is one in which all possible trades that make some societal members better off without making others wise off have been exhausted
pareto optimal
a condition in which no change is possible that will make some members of society better off without making some other members of society worse off is called
pareto optimality
in perfect competition, when firms are maximizing profits and households are maximizing utility
pareto optimality has been obtained
examining the equilibrium conditions of individual markets and for households and firms separately is referred to as
partial equilibrium analysis
if some gain and some lose as the result of a change, and it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be
potentially efficient
suppose a new government policy will generate $5000 of benefits and $3000 of costs. this policy can best be described as
potentially efficient
suppose a policy change will generate $180000 of benefits for low income families and $1550000 for high income and middle class families. this change can best be described as
potentially efficient
an economist has estimated that the maintenance of a public park costs $25000 a year and that the public park generates $30000 a year in revenue for merchants near the park. from society's point of view, the maintenance of this park is
potentially efficient because the value of gains exceed the value of the costs
society will produce the efficient mix of output if all firms equate
price and marginal cost
which of the following is NOT a source of market failure
price ceilings
preferences have just shifted away from beef into mutton. if you are a sheep rancher, the best profit-maximizing strategy is to
produce as much as possible to earn profits in the short run
if at the current output of X the Px<MCx, the society gains by
producing less of X
if at the current output of X the Px>Mcx, the society gains by
producing more X
if no one can be excluded from consuming its benefits and there is no rivalry in consumption, then the good is a ____ good
public
the whole class of goods that will be produced or not produced at all in a completely unregulated market economy are referred to as
public goods
imperfect information on the part of buyers and sellers
remains a barrier to achieving market efficiency, at least in some industries
market failure occurs when
resources are misallocated, air allocated inefficiently
suppose there is a permanent shift of consumer preferences way from pretzels and toward potato chips. the most likely result would be
short run profits in the potato chip market
some contend that the outcome of any free market is ultimately inequitable, because
some people become rich while others remain very poor
efficiency occurs when
the economy is producing what people want at least possible costs
public goods are generally produced by
the government
resources are allocated efficiently when
the market produces what the people want
in making labor supply decisions households weigh
the market wage against the value of leisure and time spent in unpaid household production
under perfect competition, the efficient level of output is produced because
the price equals marginal cost
suppose that a town has two major hospitals. one of these hospitals is unionized and the union has just negotiated a 10% wage increase each year for the next three years. which of the following will most likely occur
the price of labor will change in bout the unionized and non unionized hospitals. employment of labor and other inputs is also likely to change in both hospitals
because public goods are characterized by being collectively consumed,
the private sector may not provide them because they cannot exclude those who do not pay
if a restaurant runs a special and sells a lobster dinner for $4.50, amy buys one lobster a week. if lobster dinners are not on special and the price is $16.00, amy buys zero lobster dinners per week. which of the following is TRUE
the value of amy's marginal utility from a lobster dinner is at least $4.50 and less than $16.00
a voluntary exchange between Mike (the purchaser) and Wayne (the seller) occurs because
they both gain from the transaction
an activity that makes some people better off and nobody worse off is a
voluntary exchange
marginal cost is a good measure of
what society gives up by using resources to produce more of a good or service
you value your favorite shirt at $110. someone else values it as $150, and that person is willing to pay you $120 for your shirt. would selling your shift to this person for $120 be pareto efficient
yes because both of you are better off as a result of the trade
you value your economics textbook at $10. someone else values it at $25, and that person is willing to pay you $20 for your textbook. would selling your textbook to this person for $20 be pareto efficient
yes, because both of you are better off as a result of the trade
which of the following would be classified as an external cost
you are not able to study at night because there is so much noise coming from the dorm next to yours
