Economics Ch.4 Market Equilibrium
Which of the following describe the effects of equilibrium price and equilibrium quantity as a result of simultaneous and proportional increase in supply and decrease in demand?
Price falls and the change in equilibrium quantity is indeterminate
Which of the following describe the effects of equilibrium price and equilibrium quantity as a result of a decrease in supply and a simultaneous and proportional increase in demand?
Price rises and the change in equilibrium quantity is indeterminate.
Which of the following shows the effects on equilibrium price and quantity due to a simultaneous and proportional decrease in supply and increase in demand?
The equilibrium price of gasoline increases but the change in quantity is indeterminate.
_____ provides goods to correct a positive externality where positive externalities are extremely large.
The government
Which of the following goods would be considered a rivalrous private good? - An air force fighter plane - Police car - Tickets to a movie - Street lights
Tickets to a movie
True or false: Equilibrium price is the price where the intentions of buyers and sellers match.
True
A decrease in demand while holding supply constant results in _____ in both equilibrium price and quantity.
a decline
A decrease in demand while holding supply constant results in:
a decrease in both equilibrium price and quantity
When markets fail to incorporate all benefits and/or all costs into the market supply and demand curves, then the competitive market system is experiencing
a market failure
A cost-_____ analysis involves an assessment of marginal changes
benefit
In performing its allocation function, government not only produces public goods:
but also corrects for market failures called externalities or spillovers
When the government gives money to students in the form of grants or low-interest loans in order to correct for an underallocation of resources, this is called a:
consumer subsidy
A decrease in supply and a simultaneous and proportional decrease in demand will result in a(n) _____ in equilibrium quantity, with no effect on equilibrium price.
decrease
An increase in supply and simultaneous and proportional decrease in demand will result in a(n) _____ in equilibrium price, with no effect on equilibrium quantity.
decrease
If an increase in supply is smaller than a decrease in demand, the equilibrium quantity will
decrease
An increase in _____ while holding supply constant results in an increase in both equilibrium price and quantity.
demand
A shortage results from an excess of quantity _____.
demanded
Government intervention may be needed to achieve:
economic efficiency when externalities affect large numbers of people or when community interests are at stake
In free markets, though prices may rise and fall _____ and _____ will always be achieved.
equilibrium price, equilibrium quantity
A private good is _____ when a seller can prevent people who did not pay for a product from obtaining its benefits.
excludable
A(n) _____________ causes some of the benefits or costs of a market transaction to be passed on to a third party.
externality
If a decline in demand is greater than an increase in supply, the equilibrium quantity will _____.
fall
If a decrease in demand is greater than a decrease in supply, the equilibrium price will
fall
The result of positive externalities is that the market produces too _____ units of a product that could benefit society, resulting in producers _____ -allocating resources to that product.
few, underallocating
In most conditions, a(n) _____ market ensures that the right amount of a particular product gets produced.
free
The situation when people can receive the benefits from a good without having to pay for it is called the _______-rider problem.
free-rider
In certain markets, the _____ sometimes concludes that supply and demand will produce prices that are unfairly high for buyers or unfairly low for sellers.
government
A decrease in supply and proportional and simultaneous increase in demand will result in a(n) _____ in equilibrium price, with no effect on equilibrium quantity.
increase
A simultaneous and proportional increase in supply and demand will result in a(n) _____ equilibrium quantity, with no effect on equilibrium price.
increase
A decrease in supply while holding demand constant results in a(n) _____ in equilibrium price, but a(n) _____ in equilibrium quantity.
increase, decrease
The demand by a consumer for a good or service essentially reflects the _____ benefit of the good or service, based on the utility received.
marginal benefit
Examples of public goods include:
national defense, street lighting
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, spillover
When there is no effective way of keeping individuals from the benefit of the good once it comes into existence, the characteristic of good becomes distinguished by _____.
nonexcludability
Public goods are distinguished by:
nonrivalry, nonexcludability
Direct controls _________ the marginal cost of production because the firms must operate and maintain pollution control equipment.
raise
If the increase in demand is greater than the decrease in supply, the equilibrium quantity will _____.
rise
If the increase in demand is greater than the increase in supply, the equilibrium price will _____
rise
Characteristics of a private good include _____ and excludability.
rivalry
When the purchase and consumption of a good makes the purchase and consumption of that good unavailable to another person, it is known as ______.
rivalry
Because the economy's resources are _________, decisions to use more resources in the public sector will mean fewer resources for the __________ sector.
scarce, private
At equilibrium price, there is neither a _____ nor excess _____ because the quantity demanded by consumers at a specific price is identical to the quantity supplied at that same price
shortage, surplus
A positive externality is an uncompensated:
spillover benefit
The three options available to government in order to correct spillover benefits or the underallocation of resources are:
subsidies to producers, subsidies to buyers, government provision of public goods
A ____________ to a producer is a payment from the government to decrease the producers' cost in order to encourage more output of a product deemed beneficial to society.
subsidy
When government gives money to public colleges and universities in order to correct for an underallocation of resources, this is known as a producer _____.
subsidy
At the equilibrium price, quantity _____ equals quantity _____.
supplied, demanded
A surplus is also known as an excess of _____.
supply
The marginal cost or_____ curve measures society's marginal cost of each unit produced.
supply
All of the following would cause an increase in equilibrium prices and quantity, except an increase in: - the number of consumers that purchase the product - tastes and preferences for the product - supply while holding the demand constant - demand - both demand and supply, in which demand increases significantly more than supply
supply while holding demand (An increase in supply would increase quantity, but DECREASE price)
An increase in _____ while holding _____ constant results in a decrease in equilibrium price, but an increase in equilibrium quantity.
supply, demand
Equilibrium price and equilibrium quantity occur where:
the supply curve intersects the demand curve
When negative externalities are _____ and negotiation between parties is unrealistic, then government can play a role.
widespread
Many externalities involve _____ numbers of affected parties, high bargaining _____ and _____ property, and therefore private bargaining cannot be used as a remedy.
large, costs, community
Low-interest student loans and government funding of school budgets are examples of correcting for a(n) _____ externality.
positive
If a good is nonrival and nonexcludable, then it is known as a:
public good
The supply curve for any good, private or public, is its marginal _____ curve.
cost (or supply)
How can the government deal with the underallocation of resources resulting from positive externalities?
- By providing goods via government - By subsidizing suppliers - By subsidizing consumers
The _____________ curve for positive externalities reflects only the direct private benefit to the individuals who consume the product.
market demand
Surveys and public voting enable the government to:
estimate the demand for public goods
The interaction of buyers and sellers determines equilibrium price and equilibrium _____.
quantity
True or false: At equilibrium quantity there is either a shortage or a surplus.
False
Which of the following results in a decrease in equilibrium quantity and in indeterminate change in price?
Government taxes home builders, and a proportional decrease in consumer incomes.
Which of the following explain why economists "sound the alarm" when politicians advocate government-controlled price?
Government-controlled prices: - distort resource allocation - cause shortages or surpluses - cause negative side effects - may cause potential environmental damage
Which of the following must rise as more of a good is produced beyond the point at which diminishing returns sets in? - Marginal costs - Total profit - Marginal profit - Fixed costs - Marginal revenue
Marginal costs
_____ in consumption means that one person's consumption of a good does not preclude consumption of the good by others.
Nonrivalry
Which of the following demonstrate the appropriate affect on equilibrium price and quantity as a result of changes in supply and demand?
- Demand increases and supply stays constant; therefore equilibrium price increases and quantity increases. - Demand increases and supply increases; therefore equilibrium quantity increases and the change in price is indeterminate. - Supply increases and demand stays constant; therefore equilibrium price decreases and quantity increases. - Supply decreases and demand stays constant; therefore equilibrium price increases and quantity decreases.
Which of the following consistently illustrate the effects on equilibrium price and quantity as a result of different changes in supply and demand?
- If the supply of DVD players decreases, with demand held constant, the equilibrium price will increase and quantity will decrease. - If the demand for health care increases, with supply held constant, the equilibrium price and quantity of health care will increase.
Which of the following highlight the free-rider problem associated with a public good? - There is no potential for revenue or profits. - The presence of excludability of a good or service. - The presence of rivalry for a good or service. - Non-payers can obtain benefit from the use of a good or service.
- There is no potential for revenue or profits. - Non-payers can obtain benefit from the use of a good or service.
Which of the following does the figure help to explain?
- When the marginal cost exceeds marginal benefit, additional abatement reduces economic efficiency - When marginal benefit exceeds marginal cost, additional abatement moves society toward economic efficiency
Government-controlled prices cause:
- distortions in resource allocation - surpluses or shortages - negative side effects
Clearly defined property rights and government liability laws established by the government help remedy some externality problems by:
- forcing the perpetrator or the harmful externality to pay damages to those injured - indirectly discouraging firms and individuals from generating negative externalities for fear of being sued
Resources should be shifted from the private to the public sector:
- if the benefit from the extra public goods exceeds the cost that results from having fewer private goods - if the cost of the foregone private goods is less than the benefit associated with the extra public goods
Suppose the technology for pollution-control equipment improves noticeably. One would expect:
- society's marginal cost curve (MC) to shift rightward - the optimal quantity level of abatement to rise - the cost of pollution abatement to fall
Identify policies for coping with the over-allocation of resources caused by negative externalities.
- specific taxes - liability rules and lawsuits - direct controls - private bargaining - markets for externality rights
Match each change in supply and demand with the appropriate effect on equilibrium price and quantity.
- supply increases and demand stays constant/equilibrium price falls and equilibrium quantity rises - supply increases and demand increase/the change in equilibrium price is indeterminate and equilibrium quantity rises - demand decreases and supply stays constant/equilibrium price falls and equilibrium quantity falls - demand decrease and supply increases/equilibrium price falls and the change in quantity is indeterminate
When government subsidizes producers of a product, the expected change that occurs in that particular market is that:
- supply increases causing a shift rightward of the supply curve
Suppose that the technology for pollution-control equipment improves noticeably. One would expect:
- the cost of pollution abatement to fall - society's marginal cost curve (MC) to shift rightward - the optimal quantity level of abatement to rise
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Which of the following scenarios describe the appropriate effects on equilibrium price and quantity due to a decrease in supply while holding everything else constant?
-A n oil spill causes several fisherman to leave the shrimp business and the quilibrium price of shrimp increases while quantity decreases. - A fishing tax is placed on all shrimp and the equilibrium price of shrimp increases while quantity decreases.
Which of the following correctly states the effects on equilibrium price and quantity due to an increase in demand , while holding everything else constant?
3-D televisions become popular and the equilibrium price and quantity of 3-D televisions increase
_____ in supply while holding demand constant _____ equilibrium price and _____ equilibrium quantity.
A decrease; raises; reduces
_____ in demand while holding supply constant _____ equilibrium price and _____ equilibrium quantity.
A decrease; reduces; reduces
An increase in equilibrium quantity and indeterminate change in equilibrium price is a result of which of the following?
A simultaneous and proportional increase in supply and demand
A decrease in equilibrium quantity and indeterminate change in equilibrium price is a result of which of the following?
A simultaneous decrease in supply and demand
Which of the following best describes why a surplus would not persist for very long?
A surplus prompts sellers to lower the price to encourage buyers by increasing the incentive to buy.
Adam's willingness-to-pay $3 for the second unit of the public good can best be explained by which of the following?
Adam expects to receive $3 of extra benefit or utility from that unit
_____ in supply while holding demand constant _____ equilibrium price and _____ equilibrium quantity.
An increase, lowers, raises
_____ in demand while holding supply constant _____ equilibrium price and _____ equilibrium quantity.
An increase; raises; raises
Which of the following best describes the allocation of society's resources efficiently to a particular product?
Competition among producers forces them to use the best technology and right mix of productive resources.
Which of the following examples are markets that are more likely to experience positive externalities? - Gas & electric generation - Education - Airline travel - Immunizations - Health care
Education, Immunizations, Health care
Which of the following shows the effects on equilibrium price and quantity due to an increase in supply and a simultaneous decrease in demand?
Equilibrium price falls and the change in quantity is indeterminate.
Which of the following describe the effects of equilibrium price and equilibrium quantity as a result of simultaneous and proportional decrease in supply and demand?
The change in price is indeterminate and quantity falls
Which of the following describe the effects of equilibrium price and equilibrium quantity as a result of simultaneous and proportional increase in supply and demand?
The change in price is indeterminate and quantity rises
If the government controls the market with a price ceiling, the free market price would be _____ the ceiling and a _____ will result. If the government controls the market with a binding price floor the free market price would be _____ the floor and a _____ will result.
above, shortage; below, surplus
A cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction is known as:
an externality
The effects on equilibrium price and quantity due to an increase in supply and a proportional and simultaneous increase in demand are shown by:
an increase in the equilibrium quantity and an indeterminate change in price
Which of the following would be considered private goods? - national defense - automobiles - street lighting - clothing
automobiles, clothing