chap 4/5 quiz

Market failures occurs when:

• goods are rival in consumption.

• the competitive market system under or overallocates resources to production of goods.

• the government sets price floors and ceilings.

• there are no externalities.

If many people in a community get flu shots, the whole community benefits, including those who did not get flu shots. Therefore, not enough people may decide to get the shots. This is one illustration of:

• monopoly power due to lack of competition.

• demand-side market failure.

• the market allocating resources efficiently.

• supply-side market failure.

Suppose the government imposed a carbon tax on firms that emit pollution, then

• the firm's marginal cost of production would decrease, and the supply curves within the market would shift to the left.

• the firm's marginal cost of production would increase, and the supply curves within the market would shift to the right.

• the firm's marginal cost of production would increase, and the supply curves within the market would shift to the left.

• the firm's marginal cost of production would decrease, and the supply curves within the market would shift to the right.

The optimal level of pollution in society occurs whenever:

• the total benefit of pollution control equals the total cost of pollution.

• there is no pollution.

• the marginal benefit of pollution control equals the marginal cost.

• the average cost of cleaning up the pollution is greater than the marginal cost of cleanup.

Consumer surplus 

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

• rises as equilibrium price rises.

• 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.

Producer surplus:

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

• rises as equilibrium price falls.

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

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences a:

• producer surplus of $9 and Nathan experiences a producer surplus of $12.

• consumer surplus of $9 and Nathan experiences a producer surplus of $3.

• producer surplus of $9 and Nathan experiences a consumer surplus of $3.

• consumer surplus of $12 and Nathan experiences a producer surplus of $3.

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:

• under the demand curve and below the actual price.

• under the demand curve and above the actual price.

• above the supply curve and below the actual price.

• above the supply curve and above the actual price.

Private goods are characterized by:

• nonrivalry and excludability.

• nonrivalry and nonexcludability.

• rivalry and excludability.

• rivalry and nonexcludability.

Graphically, producers surplus is measured as the area:

• above the demand curve and below the actual price.

• under the demand curve and above the actual price.

• above the supply curve and above the actual price.

• above the supply curve and below the actual price.