TAMU ECON 202 EXAM 2
combined producer surplus $62 Alice and Amber
Alice, Amber and Andi make and sell pottery. Alice is willing to sell a 5 inch pot for $20, Amber is willing to sell a 5 inch pot for $22 and Andi is willing to sell a 5 inch post for $46 combined producer surplus is if the price of a 5 inch pot $30, which of the ladies will sell their pots
$6 ($10-$4)
Amanda goes to a local cafe and orders a sandwich. her willingness to pay for that sandwich is $10. the price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does Amanda receive when she purchases the sandwich?
$300 for one unit
Assume there are two people in a society. Person A is willing to pay $140 to have one unit of a public good produced and person B is willing to pay $160 to have one unit of a public good produced and $140 to have two units produced. as a result, society would be willing to pay a price of ______ of this public good.
Will not; only Apple
Juan is willing to pay $600 for a new Ipad. Apple is selling a new ipad for $700 and it costs apple $400 to produce this ipad. A voluntary economic transaction between juan and apple _________ occur because ______________ would be better pff due to the transaction
free rider; enjoys, pay for
a ________ is a person who _____ a public good that others _______
shortage of the good
a binding price ceiling results in
people to incentivize the external costs and benefits of their actions
a corrective or Pigouvian tax leads to
incentivizes an increase in the output when positive externalities exist
a corrective or pigouvian subsidy
positive
a decrease in the supply of coconut will increase the price of German chocolate cake, a good which requires coconut shavings as a key ingredient
the bargaining costs of identifying and establishing communications between all affected parties would be high.
a familiar example of negative externality is loud music in a busy park on a weekend. in principle it should be possible to solve this externality by permitting park visitors to negotiate rights to play music in particular locations or at specific times. the most likely reason these negotiations do not occur is that
a progressive tax
a family that earns $20,000 a year pays $200 a year in city wage tax. a family that earns $40,000 a year pays $1,600 a year in city wage tax. the city wage tax is a
a progressive tax
a family that earns $20,000 a year pays $200 a year in city wage taxes. a family that earns $40,000 a year pays $1600 a year in city wage taxes. the city wage tax is
private bargaining
a farmer agrees to give a company access to a private road on his property if the company reduced pollution of the farm's water source. this is an example of reducing an externality through
nonrival
a good is characterized________ when one persons use of the good does not reduce another's ability to use the same unit of that good
a subsidy to consumers of the good that provides external benefits
a government action that can help correct positive externalities is
efficient if either the farming operation or the trout farmer own the river
a large farming operation which uses a potent fertilizer is located up river from a trout farmer. if property rights of the river exist and transactions costs are low, the amount of pollution will be
inefficient
a market dominated by a few powerful businesses
overproduce and sell at a lower price
a market with negative externalities will tend to ______ compared to a market producing the socially optimal output
social costs; private costs
a negative externality exists when ________ exceed ________
proportional tax
a new tax policy has been passed in a country, a constitutional monarchy located high up in the mountains. the new policy states that 6% of the wages of every worker must go to taxes, regardless of how much they earn this is an example of what
proportional tax
a new tax policy has been passed in a country, a constitutional monarchy located high up in the stap mountain range. this new policy states that 6% of the wages of every workers most go to taxes, regardless of how much they earn this is an example of a(n)
it is difficult to prevent someone from using or having access to the good
a nonexcludable good is a good in which
rivalrous and excludable
a sports team tshirt
increases, increases
a tariff ____ the price received by domestic producers and ______ the price paid by domestic consumers
increases; increases
a tariff _______ the price received by domestic producers and _______ the price paid by domestic consumers
tax on imported goods
a tariff is
tax on imported products
a tariff is
cannot be determined without more information
a tax levied on consumers. the incidence of the tax
average tax rate: 20000/75000x 100= 26.67% the tax will be $20,000 regardless of income level, so another dollar of income requires no additional taxes. marginal tax rate =0
a taxpayers makes $75,000 a year. what are her average and marginal tax rates if shes required to pay a lump-sum tax of $20,000
nonrivalrous and excludable
a toll road in normal traffic
rational ignorance is higher in the situation of concentrated benefits and diffuse costs
according to public choice theory, the main reason for politicians' ability to build support for policies that generate more costs than benefits is that
your neighbors dog routinely gets out of his yard and does his business in yours
according to the Coase theorem, what is an example that will end in private bargaining and yield an efficient market
after measles vaccinations increase by 20%, the number of cases of measles falls by 35%
an example of a positive externalities
a price change
an externality is NOT
a side- effect of an activity that affects bystanders whose interested are not taken into account
an externality is defined as
the costs were highly diffused, while the benefits were very concentrated
as part of the american recovery and reinvestment act, $7 million was earmarked to build a bridge over a railroad crossing so that 168 nebraska town wouldn't have to wait for the trains to pass. which of the following best explains why this proposal was passed?
normative
at 8%, unemployment in the United States is too high
rivalrous and nonexcludable
atlantic bluefin tuna in the mediterranean sea
the free rider problem
aurora township is asking its people to chip in and donate money to build a new library. tommy thinks he already pays enough money in taxes, so he chooses not to donate. he knows that even if he doesn't contribute he will still be able to use the library when it is done
tariff
canada is considering imposing a tax on imports of Chinese solar panels. this action would be best described as
tariff
cananda is considering imposing a tax on imports of chinese solar panels. this action would be best described as a
rivalrous and excludable
chipotle burrito
success requires strong compliance
command and control may be the best approach to handling externalities if
if bargaining is costless, and property rights are clearly established and enforced, then externality problems can be solved through private bargaining
described the Coase theorem
true
economists believe that marginal tax rates have a greater influence on behavior than average tax rates
viewers know they will be able to watch public tv, even if they don't contribute
every few months, public tv asks viewers to contribute to their local public tv station. although they raise money during this time, it often falls short of the amount they wish to raise because
when fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors
example of a negative externality
the government charges Ku's company a tax equal to the difference between the marginal social cost and the marginal private cost of emissions
example of corrective tax or subsidy used to address externality problem
the government covers part of the costs of a particular immunization
example of corrective tax or subsidy used to address externality problem
the government discourages the production of paper products in a suburban community by imposing a unit tax on the production of such products, limiting paper companies emissions of carcinogenic toxins
example of corrective tax or subsidy used to address externality problem
a family in a distant state gives bottled water to its dog, but a family in a hurricane area cannot find bottled water to drink
example of misallocation of resources under a price ceiling on bottled water following a hurricane
lobbying the government to impose taxes on certain imported products
example of rent- seeking behavior
competition for subsidies
example of rent-seeking behavior
competition for the exclusive right to import a product
example of rent-seeking behavior
tuna in the ocean are being overharvested because it is difficult to prevent anyone from fishing for tuna
example of tragedy of the commons
their own costs and benefits; the effect of their actions on others
externalities tend to occur because decision makers consider __________ and do NOT consider _________
consumers will bear most of the burden of tax
for a medical procedure which has highly inelastic demand and an upward-sloping supply curve
the losses are spread over millions of consumers so the cost per consumer is small
government sometimes supports protectionist tariffs because
the losses are spread over millions of consumers so the cost per consumer is small
government sometimes supports protectionists tariffs because
demand or supply, or both, are relatively inelastic
governments that are interested in minimizing the efficiency costs of taxation should only tax goods where
ownership rights can be assigned
how can the tragedy of the commons be averted
special interests are able to get projects with higher costs than benefits passed because voters fail to acquire sufficient understanding of complex issues
how does rational ignorance reduce social welfare
borne mostly by consumers
if the demand curve is downward-sloping and supply is relatively elastic then the burden of the tax
the gains in consumer surplus would outweigh the losses in producer surplus
if the government eliminated tariffs
the gains in consumers surplus would outweigh the losses in producer surplus
if the government eliminated tariffs:
a positive externality exists
if the social benefit of consuming a good or a service exceeds the private benefit
consumers in canada will face higher prices for solar panels
in general, which of the statements is most likely to occur as a result of the proposed tax imported solar panels
consumers in Canada will face higher prices for solar panels
in general, which of the statements is most likely to occur as a result of the proposed tax on imported solar panels
property rights provide incentives to supply the optimal amount property rights help avoid the tragedy of commons with property rights, the marginal social cost curve becomes the marginal private cost curve
in what ways might property rights achieve more efficient outcomes in markets containing externalities
positive
international trade makes some people better off and some people worse off
the tragedy of the commons
many people who own dogs do not pick up after them in public places. this is an example of
it would not work to subsidize montgomery for three-eyed fish found in the pond would work: 1. have government give montgomery a permit to allow a limited amount of pollution but no more 2. charge montgomery $1000 for every barrel of toxic waste his nuclear reactors produce 3. define property righst clearly to identify the town as the owner of the pond with the right to compensation from montgomery for damages from the pollution
montgomery owns a nuclear power plant in town. his power plant dumps substantial quantities of radioactive waste into local pond, which has given rise to a mutant guppy fish population with three eyes the town decides to have montgomery do something about ut externality. which methods would and would not result in montgomery accounting for the social costs of running the power plant
some students will sabotage their peers' study efforts
most law schools are incredibly competitive, with relative class position (determined by grades) having a major impact on a students ability to get a well-paying job. which of the following is the most likely unintended consequence of this system?
nonrival; nonexcludable; underprovided
most neighborhood streets have traffic lights to help control the flow of traffic. traffic lights are ______ and ______. therefore, they will be ______ by the competitive market
carolina will free-ride on Nicks labor
nick and carolina are working on a group project for a class. They will get the same grade. they have done a great job, but they have of kept track of their sources very well, although they both have all of the information. Carolina knows nick will eventually do the bibliography, since Nick does not like to turn in incomplete work. As a result;
marlos customers have been bothered by the noisy, midday deliveries at the business next door. she arranges to cover part of the delivery costs in order to have the neighbors deliveries arrive early in the morning rathe than midday
not example of corrective tax or subsidy used to address externality problem
bargaining costs are generally not low (or zero)
one of the main problems with the coase theorem is that
increase; more
over time, housing shortages caused by rent control ________ because the supply of housing is __________ elastic in the long run
nonrivalrous and excludable
playing world of witchcraft, a massive multiplayer online computer game
the maximum price that a seller can charge in a market
price ceiling
misallocate resources because consumers who buy the product may not be the ones who value it the most
price ceilings
shortages ; below
price ceilings create ______ if they are set ______ the equilibrium price
bring down price in a competitive market
price ceilings tend to create shortages when used to
higher quality
price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers
allocative efficiency
production represents consumer preferences
elected officials are more concerned about reelection than efficiency regulators act in the interest of the industries they regulate government leaders are focused on enriching themselves
reasons for government failure
landlords to neglect their buildings. allowing them to deteriorate over time
some economists compare the destructiveness of rent control to that of aerial bombardment because it causes
fish tend to be nonexcludable resources, whereas chicken and beef are excludable
some researchers estimate that all saltwater fish will be extinct by 2048, in large part due to overfishing. but surveys also show that more households eat chicken and beef than fish; however, neither chicken nor cattle are in danger of extinction. which of the following best explains these obeservations
nonrivalrous and nonexcludable
street lighting in a public park
that the cost associated with becoming informed is greater than the benefit
suppose a classmate claims that the reason he knows nothing about politics is rational ignorance. what does he mean
marginal- 20%, average -12%
suppose tax rate on the first $10000 is 0%, 10% on the next $20,000; 20% in the next $20,000, 30% on the next $30,000 and 40% on any income over $80,000. family A has income of $50,000. what is the marginal and average. tax rate for family A
$500
suppose that the world price of TV is $400, and the government imposes a $100 tariff. the new price domestic consumers pay for a TV is
$500
suppose that the world price of TVs is $400, and the government imposes a $100 tariff. the new price domestic consumers pay for a TV is
marginal- 20%, average- 12%
suppose the tax rate on the first t$10,000 income is 0 percent, 10% on the next $20,000; 20% on the next $20,000 and 30% on the next $30,000 and 40% on any income over $80,000, family A has an income of $50,000 what is the marginal and average tax rate for family A
positive; third parties; little
technological advancements are considered a _______ externality because ______ receive the majority of the benefits. too ______ of this type of externality is usually provided
it is inflexible, and some problems require an inflexible approach
the advantage of using command and control to solve externality problem is that
nonrivalrous and nonexcludable
the air we breathe
$5,500
the average tax on a professor's income of $100,000 is 18% and the marginal tax rate above $100,000 is 45% if the professor teaches during the summer and earns an additional $10,000 (bringing her total earnings for the year to $110,000_ how much of the summer income does she keep after paying her taxes
$5500 because 10,000x0.45= 4500 10,00-4500= 5500
the average tax on a professors income of $100,000 is 18% and the marginal tax rate above $100,000 is 45%. if the professor teaches during the summer and earns an additional $10,000, how much of the summer income does she keep after paying taxes?
total taxes due divided by total taxable income
the average tax rate can be calculated by which of the following formulas
given low bargaining costs, private individuals can achieve a socially optimal solution without the involvement of the government
the coase theorem implies that
will fall on consumers more than producers
the demand for frozen burritos is very inelastic compared to the supply of frozen burritos, so if a tax is imposed on consumers of frozen burritos, the tax incidence:
nonexcludable, and private goods are excludable
the difference between private goods and common resources is that comon resources are
the inability to prevent individuals who do not pay for a good from consuming it
the free-rider problems results from
either choice will have the same effect o both buyers and sellers
the government can choose between taxing buyers of grapes at $1 per pound or taxing the sellers of grapes at $1 per pound. what is true?
the benefits of maintenance are external, not private benefits
the incentive to dedicate private resources to maintaining a common is low because
reduced demand
the list of problems that can be triggered by price ceilings does not include
reduced incentive for efficient production less incentive for maintaining product quality shortages
the list of problems that can be triggered by price ceilings includes
$900
the marginal social benefit from the production of the last unit of a good $4800. of the willingness to pay for that unit is $3900, what is the external benefit from its production?
proportional income tax system
the marginal tax rate and the average tax rate are the same under a
the extra tax due on an extra dollar of income
the marginal tax rate shows
the extra tax due on extra dollar of income
the marginal tax rate shows
whether we sum vertically or horizontally depends only on whether the good is rival in consumption
the market demand curve of a good that is rival in consumption and excludable is the horizontal sum of the individual demand curves. However, the marginal social surplus curve of a public good is the vertical sum of the individual marginal benefit curves. what aspect of a public good causes the demand curves to be summed vertically instead of horizontally?
adding up how much each consumer is willing to pay for each unit of the public good
the market demand for a public good can be determined by
$10
the price elasticity of demand for a particular life-saving drug is zero, and the price elasticity of supply is 0.50. if a $10 tax is levied on producers, how much of this tax will eventually be paid by consumers
tendency to overconsume common resources
the tragedy of the common is the
deadweight loss
total inefficiency caused by a tax is also known as
the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties
traffic congestion is a common example fo negative externality, in principle it should be possible for drivers to negotiate the right to drive at particular times. thereby compensating those who would prefer not to drive at peak times and solving the externality, the most likely reason these negotiations do not occur is
economists believe that marginal tax rates have a greater influence in behavior than average tax rates
true
inefficient because waiting wastes time
using a first come, first served system to allocate products with long lines is
a domestic market price above world market price deadweight loss decreased imports
what are effects of a tariff
price controls on prescription drugs rent control
what are examples of price ceilings
a domestic market price above world market price deadweight loss decreased imports
what are the effects of tariffs
one cause is when the incentives of government officials do not align with public interest
what best illustrates a cause of government failure as it relates to economics and markets
a siren tornado warning system
what can be both nonrival andnonexcludable
when people who neither paid for developing the technology nor the good produced by the new technology are better off from the advancement
what described the occurrence of a positive externality resulting from the production of a good by a new technology
an online course
what is example of goods that wouldbe nonrival
whether the welfare of bystanders rises or falls
what is the difference between a positive externality and negative externality
it decreases both producer and consumer surpluses
what is the net effect of negative externality?
private goods
what type of good if rival and excludable
do not necessarily flow to their highest- valued use
when a price ceiling is in effect, goods and services
amount of the tax per unit
when a tax is imposed on consumers, the demand curve shifts downward, so that the vertical distance between the original demand curve and the new demand curve that incorporates the tax equals the
resources get wasted on projects with low benefits and high costs
when benefits are concentrated and costs are diffused
marginal social; marginal social
when externalities are present, the socially optimal outcome occurs where the _______ benefit equals the ______ cost
acting in self-interest; at the lowest possible marginal cost
when market forces lead to efficient production, each producer is _________, and the product is produced ___________.
produce more
when negative externalities occur as a result of a product market's activity, the market will _____ than is desirable
resources are wasted because goods are produced at a higher cost than consumers are willing to pay
when producers produce more than the equilibrium quantity
is subject to the free-rider problem
when someone can enjoy the benefits of a good without bearing the cost, the good is
deadweight loss
when the economic surplus in a market is less than it would be if the market were efficient, the market is experiencing
too few lawn care services are produced
when the lawn care services market is characterized by positive externalities
increased demand
which is not an effect of a tariff
the marginal external cost
which is the amount of corrective/ Pigouvian tax that would resolve a negative externality problem
engaging in aggressive advertising that slams a competitor's product
which of the following is not an example of rent- seeking behavior
ireland taxes the import of potatoes in order to keep domestic farmers in business
which scenario described the operation of a tariff
ireland taxes the import of potatoes in order to keep domestic farmers in business
which scenario describes the operation of a tariff
users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough
which scenario is the best example of the tragedy of the commons? example
because they lead to suboptimal outcomes
why are externalities considered a cause of market failure
a price change redistributes costs and benefits bit does not generate new costs or benefits
why are price changed not externalities
firms will seek low cost options that will maximize profit and responding to price signals is more likely to lead to an efficient outcome
why do economists believe that market- based strategies are more likely to achieve efficient pollution abatement than regulatory agencies
social norms can lead to people to consider the impact on others, even without bargaining and payments
why might an efficient outcome be reached even without coasian bargaining
rivalrous and nonexcludable
wild tuna in the pacific ocean for which no fishing permit is required
the coase theorem
your college roommate had the right to practice her tuba during the day. You, however, find that studying during the day is most conductive to good grades, and her tuba playing makes it difficult for you to concentrate. you make a deal with your roommate; you will clean the dorm once a week if she will practice her tuba at other times or elsewhere, this is an example of
the maximum price a buyer is willing to pay and the market price
Consumer surplus is equal to the difference between
under the demand curve and above the market price
Consumer surplus is shown graphically as the area
below; above
Consumer surplus us represented by the area _____________ the demand curve and _______________ the price that the consumer pays.
produces gains from trade for both buyers and sellers
Elijah decides that his family should eat more healthy meals, but they are very pressed for time. He decides to subscribe to a service that sends healthy pre-planned meals to his home three times a week
$4 ($6-$2)
Kevin goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte os $6. the price of the latte is $2. The cost to the coffee shop to produce the latte is $1. how much economic surplus does Kevin gain when he purchases the latte?
the market price will fall
a binding price floor in a market is removed. which of the following is likely to occur as a result
efficient
a market in which economic surplus is maximized
inefficient
a market in which government regulation creates distortions
inefficient
a market transaction in which buyers or seller behave irrationally
inefficient
a market transaction in which one party has information not available to the other party
a price floor or a price ceiling is an example of
a price control
opportunity cost; specialization
after working your way through college as a CNA, you now have completed your nursing degree and are an RN- you are now a functioning RN at the hospital. Some of the tasks between a CNA and an RN overlap, but you should delegate some tasks to CNAs because they have lower ___________ of completing tasks. Your ___________ allows you to take on more complex nursing tasks
consumer surplus
amount consumers are willing to pay for a good MINUS what they actually pay for it
the high-skilled worker
an employer has work that can be done in the same time by one high-skilled worker paid $50.00 an hour or by eight low-skilled workers paid $5.00 an hour each, and minimum wage is $7.25 an hour. in this scenario who benefits from the minimum wage, the high skilled or low skilled?
positive
as minimum wage increases, the prices of all good and services also tends to increase
Aaron could have a comparative advantage in producing both milk and cheese
assume aaron and Jose each own a small ranch, and each produces milk and cheese. one of them is better than the other at producing both milk and cheese (but we dont know who) what cannot be true regarding absolute or comparative advantage
equal to ; less; more
at the equilibrium quantity, marginal benefit is ___________ marginal cost. Consuming ___________ means that some mutually beneficial exchanges do not take place, and producing _______ means that some goods go unsold.
rusia because she has a lower opportunity cost
barlow and rusia own a nail salon. a manicure takes barlow 60 minutes to complete and takes rusia 45 minutes to complete. completing a pedicure takes barlow 45 minutes and takes rusia 30 minutes. who has the comparative advantage in pedicures
fails to produce gains from trade for both buyers and sellers
callie turns down an extra shift at work to take care for household chores
produces gains from trade for both buyers and sellers
charlene's job requires her to work on an oil rig, and she must alternate two weeks on the rig and two weeks off, when she is on the rig, she rents out her apartment through Airbnb
a given level of output is produced at the lowest possible cost
efficient production occurs when
it costs suppliers more to produce the good than its value to buyers
for suppliers to sell more than the equilibrium quantity, it would mean that
bought by the buyers who have the highest willingness to pay
gains from trade will be maximized at the free market equilibrium price and quantity because the supply of goods is
productive efficiency
goods and serviced are produced at their lowest opportunity cost
the sum of the consumer and producer surplus to increase
harrison is willing to buy the last ticket to the Billy play for $15 while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. he then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, harrison cause
positive
higher tariffs on imported automobiles would decrease the demand for foreign made cars
lost gains from trade
if an american teenager will work for $5 an hour and an employers is willing to pay that wage, but the minimum wage is $7.25 an hour and the employer is not willing to pay that much, the teenager goes unemployed and the market experiences
do for herself the things for which she has low opportunity cost and trade with others for things she had high opportunity cost
if ilona wants to live her life based on comparative advantage, then she should
mary has a comparative advantage in baking cakes
if mary can bake a cake at a lower opportunity cost than sarah can, then
a surplus of sugar will occur, increasing efficiency
if the government guarentees sugar farmers a price of $1 when the market equilibrium price is actually $.50 per pound, what will happen
the sum of consumer surplus and producer surplus is maximized resources are being used efficiently the marginal benefit is equal to the marginal cost
if the market for alpine skis is in competitive equilibrium, and there are no external costs or government interventions, then :
economic surplus is not maximized
if the market output is not efficient, what must be true
those who want to work will outnumber the jobs available
if the minimum wage is a binding price floor
inputs, like workers and raw materials, will not go to the companies that can use them to produce the most value consumers will not receive the amount of any given product that they want consumers will not receive the products they want, and new products are unlikely to appear
in a market without prices, where goods are allocated by a central planner which is likely to happen
both the buyer and the seller
in a voluntary economic transaction between a buyer and a seller, ________ can earn economic surplus from the transaction
nomative
international trade should be limited because it can cause some workers to lose their jobs
Consumer surplus
is the gains from trade on the part of the consumer that result from the market transaction
of a potential lack of incentives amount citizens who are asked to provide the central planner with accurate information
it is difficult for a central planner to determine optimal allocations of resources because
an inefficient outcome
market failure occurs when market forces lead to
market fails to meet efficient outcome
market failure refers to
minimizes
markets describes production across companies in a way that
produces gains from trade for both buyers and sellers
neighbors jordan and chelsea are both working parents. they can hire a single babysitter to care for both of their toddlers for 75% of what they would collectively have to pay two separate babysitters
left of the quantity and between and supply curves
one a market graph, economic surplus can be identified as the area that is the...
small higher; lower
one question that economics students often ask is, "in a market with a lot of buyers and sellers, who sets the price of the good?". everyone sets the price because everyone has _________ influence in the market no one sets the price because all suppliers want a _________ price and all consumers want a ______ price
are least bad at doing, relative to other tasks
people are capable of completing many different tasks, each persons comparative advantages is in the particular tasks that they ...
above the supply curve and below the market price
producer surplus is shown graphically as the area
The market price and the minimum price a seller is willing to accept
producer surplus is the difference between
create higher unemployment
raising the minimum wage is not an effective way to eliminate poverty because increases in minimum wage
normative
social welfare spending in sweden occupies too large a portion of the national budget
market power externalities irrationality
sources of market failure
positive
statements say something that described how the world currently is
normative
statements that say something about how the world ought to be
in order to continue producing their product, sellers may overstate the importance of that product
suppose resources are directed by means of a central planner who receives information on all the different uses of these resources. Why might sellers have an incentive to not provide truthful information to the central planner?
michelle's consumer surplus: $3.50 Pauls cafe and bakery producer surplus: $3.50
suppose that michelle buys a cappuccino from pauls cafe and bakery for $4.25. Michelle was willing to pay up to $7.75 for the drink, and pauls cafe and bakery was willing to accept $0.75 for the cappuccino. what is michells CS and the cafe PS
increase the price received by farmers
suppose that the government wants to support local organic farms with a price support system. if so, we would expect the market price support policy that establishes a binding price floor to
result in gasoline shortages, even in oil-rich country
suppose the government of oil-ricj country Saudi Arabia sets price at 0.25 a gallon when the market price is $1.50. this action will
that macadamia nuts are in plentiful supply, so consumers should buy more that the price change will be understood in every language and helps coordinate the macadamia market that demand for macadamia nuts is low, so producers should produce less
that price of macadamia nuts fall, this conveys the following signals
competitive markets send resources to their highest valued uses
the "invisible hand" refers to the notion that
normative
the US should impose import quotas in the market for consumer electronics to help domestic workers
is far below the equilibrium level and rental units are not being maintained
the city of mumbai in india imposed rent controls on apartments in 1947. despite inflation and changes in land value, allowable rents have hardly increases since that time. use what you know about rent controls to speculate about the quality of rent-controlled buildings in Mumbia
labor-saving devices and management prices are slowly adopted
the long run effect of laws that raise the minimum wage is that
consumers will pay for the good only if its value of use is greater than the price
the market solves the incentive problem when allocating resources because the
productive efficiency
the maximum output is obtained with given resources
a price floor
the minimum price that seller can charge in a market
true
the minimum wage causes unemployment mainly among poor, unskilled workers
price floor
the minimum wage is an example of
allocative efficiency
the price consumers pay is equal to the marginal cost of producing the good
it is a signal that celery is more valuable to consumers than it was before
the price of celery rises, but nothing has changed on the supply side of the market- what does this mean to celery farms?
normative
the richest 1% of Americans should pay more taxes than the rest of the 99%
positive
the richest 1% of the population earn 24% of the total income
normative
the richest 1% should be paying more in taxes
positive
the sugar quota in the US costs consumers $6.08 billion a year
normative
the sugar quota in the US is a good public policy and should be made stronger
positive
the unemployment rate is 8.2%
marginal benefits exceed marginal costs
to maximize economic surplus. keep increasing output as long as
marginal benefit minus marginal cost; consumer surplus plus producer surplus
two ways to calculate economic surplus are _____________ and ______________
self- interest motivates people prices are flexible the invisible hand guides decision making
typical of market economics
the planners interests dominate prices are fixed the value system of the decision makers is imposed on society
typical of nonmarket economics
allocative efficiency is achieved goods are produced by the firms that can do so at the lowest marginal cost goods go to the consumers who will gain the highest marginal benefit from the good
what are results of an efficient market
side effects of externalities government regulations that impede market forces irrational decisions
what are sources of market failure
firms having the capacity to raise the market price transactions that have side effects on the welfare of others lack of information about the quality of a second-hand car
what are the factors that are possible reasons for market failure
prices create incentives prices are signals prices aggregate information
what are the three key roles that prices play in markets
Actions intended or make economic outcomes fairer cause efficiency to decrease
what described the fairness-efficiency trade off
excessive information
what is not a reason for market failure
economic surplus is minimized to reduce waste
what is not a result of an efficient market
lack of market power
what is not a source of market failure
government failure occurs
when government policies lead to outcomes that are worse than those that would occur in unregulated markets
economic surplus
1. consumer surplus plus producer surplus 2. the area between the the supply curve and the demand curve to the left of the quantity sold 3. equals the marginal benefit minus marginal cost