Exam 4: Market Efficiency and Market Failure

Which of the following is a result of government price controls?

The maximum price that a buyer is willing to pay for a good measures his

Lucinda buys a new GPS system for $250.She receives consumer surplus of $75 from the purchase.How much does Lucinda value her GPS system?

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?

Figure 4-8 Figure 4-8 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. -Refer to Figure 4-8.Suppose that instead of a rent ceiling,the government imposed a price floor of $2,000 per month for apartments.What is the value of consumer surplus after the imposition of the price floor?

Companies in the sharing economy have the potential to lower the equilibrium price in their market,and by doing so increase efficiency.This would have a tendency to

Figure 4-15 Figure 4-15 shows a market with an externality.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 4-15.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case,the diagram shows

When the government imposes a tax equal to the external cost of producing a product that causes pollution,the government is said to externalize the externality.

Suppose there are two cities that have rent controlled apartments.In one city (Albany)all apartments are subject to rent control; in the other city (Halftrack)one-half of the apartments are rent controlled.Which of the following is most likely to be true?

Figure 4-26 Figure 4-26 shows the market for aviation security.Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security. -Refer to Figure 4-26 to answer the following questions. a.In the absence of any government intervention what is the equilibrium level of security that airlines will supply? Denote this level,Q*.Briefly explain why this quantity is not the economically efficient level of aviation security. b.In the diagram,illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw. c.On your diagram identify the economically efficient level of aviation security.Denote this level Qe. d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy.

Figure 4-19 Figure 4-19 shows a market with an externality.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 4-19.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does D₁ represent?

Figure 4-11 Figure 4-11 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00. -Refer to Figure 4-11.What is the value of consumer surplus after the imposition of the price floor?

Which of the following describes a positive externality?

A positive externality causes

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.

If there are no externalities a competitive market achieves economic efficiency.If there is a negative externality,economic efficiency will not be achieved because

Figure 4-16 Figure 4-16 shows a market with a negative externality. -Refer to Figure 4-16.The size of marginal external costs can be determined by

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 $3.00,what is the consumer surplus on the second ice cream cone?

A supply curve shows

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 $2.50,what is the consumer surplus on the first ice cream cone?