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Exam 4: Market Efficiency and Market Failure

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Question 81

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Figure 4-4 -Refer to Figure 4-4.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $9

A) the marginal cost of pecans is greater than the marginal benefit;therefore,output is inefficiently low.
B) producers should lower the price to $3 in order to sell the quantity demanded of 4,000.
C) the marginal benefit of pecans is greater than the marginal cost;therefore,output is inefficiently high.
D) the marginal benefit of pecans is greater than the marginal cost;therefore,output is inefficiently low.

E) A) and D)
F) A) and C)

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Question 82

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Suppliers will be willing to supply a product only if

A) the price received is less than the additional cost of producing the product.
B) the price received is at least equal to the additional cost of producing the product.
C) the price is higher than the average cost of producing the product.
D) the price received is at least double the additional cost of producing the product.

E) None of the above
F) B) and D)

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Question 83

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Some policymakers have argue that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.If the government decided to impose a tax on soda,the government will cause

If you burn your trash in the back yard in spite of regulations against it,then you are

When a tax on output is imposed to internalize the external costs of pollution,the supply curve shifts down by the amount of the tax.

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

The cities of Francistown and Nalady are five miles apart.Francistown enacts a rent control law that puts a ceiling on rents well below their equilibrium market value.Predict the impact of this law on the competitive equilibrium rent in Nalady,which does not have a rent control law. a.Illustrate your answer with one demand and supply graph for the apartment market in Francistown and another demand and supply graph for the apartment marketing Nalady. b.Make sure that your graphs clearly show (1)the initial equilibrium before the rent control in both markets and (2)what happens after the imposition of rent control. c.Clearly show any shifts in the demand or supply curves,and the movement along the curves for each market. d.Label your graphs fully and provide written explanation for your graphs.

Which of the following activities create a negative externality?

David Card and Alan Kruger conducted a study of fast-food restaurants in New Jersey and Pennsylvania.The study found that

A market supply curve reflects the

Figure 4-11 Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 4-11 illustrates the situation in the toilet paper market. -Refer to Figure 4-11.An efficient way to get the firm to produce the socially optimal output level is

Economic efficiency in a competitive market is achieved when

Figure 4-11 Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 4-11 illustrates the situation in the toilet paper market. -Refer to Figure 4-11.The private profit-maximizing output level is

Some policymakers have argue that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Which of the following is an example of a positive externality?

An externality refers to economic events outside a market.

Figure 4-10 -Refer to Figure 4-10.In the absence of any government intervention,the private market

Figure 4-10 -Refer to Figure 4-10.The deadweight loss due to the externality is represented by the area

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Economist A.C.Pigou argued that to deal with a negative externality in production,the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?