Chapter 4 Review- Macro

Market failures

• are only a concern when they result in prices that are too high.

• apply exclusively to situations where markets do not produce any of an economically desirable good.

• result in overproduction or underproduction of a good.

• result from government interference in markets.

Producer surplus is the difference between

• the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

• the quantity supplied and quantity demanded at an above equilibrium price.

• the minimum prices producers are willing to accept for a product and the higher equilibrium price.

• the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

Other things equal, a fall in the market price caused by a change in supply will

• increase consumer surplus.

• decrease consumer surplus.

• increase producer surplus while leaving consumer surplus unchanged.

• decrease producer surplus while leaving consumer surplus unchanged.

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of

• diminishing marginal utility.

• conservation of matter and energy.

• demand.

• diminishing returns.

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the

• buyer and the government.

• seller and the government.

• taxpayer and the government.

• buyer and the seller.

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways that are costly to the other party.

• True.

• False.

eBay, Amazon, and other Internet shopping sites provide "seller ratings" done by previous buyers, in order to help deal with the problem of

• adverse selection.

• externalities.

• moral hazard.

• public goods.

Buyers will opt out of markets in which

• there are significant negative externalities.

• standardized products are being produced.

• there is inadequate information about sellers and their products.

• there are only foreign sellers.

Consumer surplus

• is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

• is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.

• is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

• rises as equilibrium price rises.

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

• $19.

• $0.90.

• $90.

• $1.