sang lee econ exam 3

The term market failure refers to

a market that fails to allocate resources efficiently.

The tax depicted on the graph

gives polluting firms an incentive to develop cleaner technologies

If an externality is present in a market, economic efficiency may be enhanced by

government intervention.

In the absence of externalities, the "invisible hand" leads a market to maximize

total benefit to society from that market

We can say that the allocation of resources is efficient if

total surplus is maximized.

A seller's opportunity cost measures the

value of everything she must give up to produce a good

Total surplus is equal to

value to buyers - cost to sellers.

Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is

$131,000.

George produces cupcakes. His production cost is $10 per dozen. He sells the cupcakes for $16 per dozen. His producer surplus per dozen cupcakes is

$6

A positive externality occurs when

Jack receives a benefit from John's consumption of a certain good.

If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to occur?

The allocation of kidneys would be fair.

When a buyer's willingness to pay for a good is equal to the price of the good, the

buyer is indifferent between buying the good and not buying it.

On a graph, the area below a demand curve and above the price measures

consumer surplus.

A negative externality will cause a private market to produce

more than is socially desirable.

All remedies for externalities share the goal of

moving the allocation of resources toward the socially optimal equilibrium

An externality is the impact of

one person's actions on the well-being of a bystander.

Technology spillover is one type of

positive externality

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

shift to the right.

Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer?

$2,300

Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On a certain day, they sell 40 cups. Their producer surplus for that day amounts to $19.20. Kristi & Rebecca sold each cup for

55 cents.

When a negative externality exists in a market, the cost to producers

will be less than the cost to society.

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

willingness to pay.

The maximum price that a buyer will pay for a good is called

willingness to pay.

What is the difference between command-and-control policies and market-based policies toward externalities?

Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior

is the amount a consumer is willing to pay minus the amount the consumer actually pays.

Consumer surplus

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases

give factory owners an economic incentive to reduce pollution.

Corrective taxes

Which of the Ten Principles of Economics does welfare economics explain more fully?

Markets are usually a good way to organize economic activity.

The line labeled "Corrective tax" could accurately be re-labeled as

Price of pollution

Which of the following would not be considered a negative externality?

You have an adverse reaction to a medication your doctor prescribed for you

The difference between a corrective tax and a tradable pollution permit is that

a corrective tax sets the price of pollution and a permit sets the quantity of pollution.

When the social cost curve is above a product's supply curve,

a negative externality exists in the market

A demand curve reflects each of the following except the

ability of buyers to obtain the quantity they desire. Hide Feedback

A negative externality arises when a person engages in an activity that has

an adverse effect on a bystander who is not compensated by the person who causes the effect

Total surplus is represented by the area

between the demand and supply curves up to the point of equilibrium

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,

both Janine and Henry experience an increase in consumer surplus

When one firm sells its pollution permit to another firm,

both firms benefit, and the total amount of pollution remains the same

Which of the following is an example of an externality?

cigarette smoke that permeates an entire restaurant, flu shot that prevents a student from transmitting the virus to her roommate, beautiful flower garden outside of the local post office

Emission controls on automobiles are an example of a

command-and-control policy to increase social efficiency.

The difference between social cost and private cost is a measure of the

cost of an externality.

The supply curve for a product reflects the

cost to sellers of producing the product.

if an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

emit a higher level of smoke than is socially efficient.

Market failure can be caused by

externalities.

A command-and-control policy is another term for a

government regulation.

The "invisible hand" refers to

he marketplace guiding the self-interests of market participants into promoting general economic well-being.

When an externality is present, the market equilibrium is

inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

internalize the negative externality

When externalities are present in a market, the well-being of market participants

is directly affected, and market bystanders are indirectly affected.

In some cases, selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

it is hard to estimate the market demand curve and thus charge the "right" corrective tax.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers.

Which of the following is the most effective way to internalize a technology spillover

patents

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

reflect the fact that restored historic buildings convey a positive externality.

Positive externalities

result in smaller than efficient equilibrium quantity

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

seller's cost of production.

Welfare economics is the study of how

the allocation of resources affects economic well-being

Producer surplus is

the amount a seller is paid minus the cost of production.

f education produces positive externalities, we would expect

the government to subsidize education

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

the market-based solution is less costly to society, he market-based solution can result in a greater reduction in pollution, the market-based solution raises revenue for the government.