Micro Test 1 Study Guide
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