Exam 4: Market Efficiency and Market Failure

An externality refers to economic events outside a market.

What is consumer surplus? Why would policy makers be interested in consumer surplus?

Article Summary In an attempt to discourage smoking, New York City Mayor Michael Bloomberg proposed a bill which would set a $10.50 minimum price for a pack of cigarettes.The bill would also prohibit retailers from offering any discounts such as 2-for-1 offers or accepting discount coupons.New York City already has the highest cigarette tax in the country, at $5.85 per pack, and the state of New York is one of many which already require cigarettes be marked up by a specified percentage.This bill is a companion to one which would require stores to keep tobacco products hidden from sight.Although the bills are expected to be challenged in court, a precedent has been set in Rhode Island, where a court upheld a ruling allowing the city of Providence to forbid retailers from accepting coupons and offering discounts on cigarettes. Source: Vivian Yee, "Bloomberg Seeks End to Cheap Cigarettes," New York Times, March 26, 2013. -Refer to the Article Summary.The minimum price of $10.50 per pack of cigarettes being proposed by mayor Bloomberg would have which of the following effects on the market for cigarettes?

In a competitive market the ________ curve shows the marginal benefit received by consumers and the ________ curve shows the marginal cost to producers.

Figure 4-5 -Refer to Figure 4-5.The figure above represents the market for pecans.Assume that this is a competitive market.If 8,000 pounds of pecans are sold

Figure 4-24 College education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry.Thus, the social benefits of college education exceed the private benefits for any level of college education.This is illustrated in Figure 4-24. -Refer to Figure 4-24.One way to obtain the economically efficient amount of college education is for governments to subsidize college education.What is the size of the per-student Pigovian subsidy that the government must provide to internalize the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example,through low-interest student loans.)

The private cost of a good or service is the cost borne by the producer.

Table 4-8 Hourly Wage (dollars) Quantity of Labor Supplied Quantity of Labor Demanded \ 8.00 350,000 390,000 8.50 360,000 380,000 9.00 370,000 370,000 9.50 380,000 360,000 10.00 390,000 350,000 10.50 400,000 340,000 Table 4-8 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. -Refer to Table 4-8.Suppose that the quantity of labor demanded increases by 40,000 at each wage level.What are the new free market equilibrium hourly wage and the new equilibrium quantity of labor?

Figure 4-7 -Refer to Figure 4-7.The figure above represents the market for iced tea.Assume that this is a competitive market.If the price of iced tea is $3

Table 4-8 Hourly Wage (dollars) Quantity of Labor Supplied Quantity of Labor Demanded \ 8.00 350,000 390,000 8.50 360,000 380,000 9.00 370,000 370,000 9.50 380,000 360,000 10.00 390,000 350,000 10.50 400,000 340,000 Table 4-8 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. -Refer to Table 4-8.If a minimum wage of $9.50 an hour is mandated,what is the quantity of labor demanded?

Figure 4-1 Figure 4-1 shows Arnold's demand curve for burritos. -Refer to Figure 4-1.If the market price is $2.00,what is the consumer surplus on the second burrito?

Figure 4-3 Figure 4-3 shows Kendra's demand curve for ice-cream cones. -Refer to Figure 4-3.If the market price is $3.50,what is the consumer surplus on the first ice cream cone?

Figure 4-4 Figure 4-4 shows the market for tiger shrimp.The market is initially in equilibrium at a price of $15 and a quantity of 80.Now suppose producers decide to cut output to 40 in order to raise the price to $18. -Refer to Figure 4-4.What is the value of the deadweight loss at the equilibrium price of $15?

Figure 4-1 Figure 4-1 shows Arnold's demand curve for burritos. -Refer to Figure 4-1.If the market price is $1.00,what is the consumer surplus on the fourth burrito?

Figure 4-1 Figure 4-1 shows Arnold's demand curve for burritos. -Refer to Figure 4-1.What is the total amount that Arnold is willing to pay for 2 burritos?

The total amount of consumer surplus in a market is equal to the below above the market demand curve and above the market price.

Increases in the minimum wage are intended to raise the incomes of low-income workers.Many economists favor a different policy to achieve this goal,a policy that avoids the deadweight losses that result from the minimum wage.What is this policy?

Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays.

Producer surplus is the difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product.

Because minimum wage is a price floor