Exam 6: Market Efficiency and Market Failure

Lance's demand schedule for pizza is indicated below:TABLE 6-2 -Refer to Table 6-2. If the current price of pizza is $1.00 per slice, what is Lance's consumer surplus?

Which of the following activities represents an external cost?

Phil and Lasca have always wanted to take a cruise. Although willing to pay $5000 for a Caribbean cruise for two, they were able to purchase a cruise vacation for two for $3500. What was their total consumer surplus?

What are external costs?

Which of the following does NOT provide an example of an externality?

An externality is present whenever an activity has a physical impact (costs or benefits) on individuals not directly involved in the activity.

Which of the following will most likely generate positive externalities?

Ruth loves to get up early and get busy in the morning. Her roommate, Elizabeth, likes to sleep in every morning. When Ruth gets up she likes to hum, sing, and clean up the kitchen, rattling pots and pans. Which of the following statements best describes Ruth?

What results from the imposition of a tax on a product?

TABLE 6-6 -Refer to Table 6-6. The table gives Lola's total utility from purchasing pairs of shoes. As Lola purchases more pairs of shoes, what happens to her utility?

FIGURE 6-3 -Refer to Figure 6-3. Suppose that education provides spillover benefits to the community as illustrated in the above diagram. Based on this information, which of the following statements is the most accurate?

What is the term for the benefit that your neighbour receives when you landscape your front yard?

Total welfare gains from trade to the economy can be measured by the sum of consumer and producer surplus.

When does an externality occur?

Someone who does not contribute toward covering the cost of a good he desires, and yet cannot be excluded from receiving the good, is called a free rider.

A consumer must allocate their income so that their total utility is the same for every good consumed in order to reach consumer equilibrium.

If Ming is willing to pay $75 to attend the Broadway production of The Lion King but actually pays $40, she receives a consumer surplus of $35.

A consumer will reach consumer equilibrium if they allocate their income such that the marginal utility per dollar spent on Good A is equal to the marginal utility per dollar spent on Good B.

What effect would a tax equal to the external cost on firms that emit pollutants have?

Which of the following is an example of a public good?