Exam 4: Market Efficiency and Market Failure

Figure 4-23 Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain.Acid rain damages trees and crops and kills fish.Because the utilities do not bear the cost of the acid rain they overproduce the quantity of electricity.This is illustrated in Figure 4-23. -Refer to Figure 4-23.S₁ represents the supply curve that reflects the private cost of production and S₂ represents the supply curve that reflects the social cost of production.One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalize the cost of the externality?

Figure 4-6 Figure 4-6 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P₂. -Refer to Figure 4-6.At the equilibrium price of P₁,consumers are willing to buy the Q₁ pounds of granola.Is this an economically efficient quantity?

Black markets only exist in developing nations.

Figure 4-20 Figure 4-20 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 4-20.What is the economically efficient output level?

In cities with rent controls,the actual rents paid can be higher than the legal maximum.One explanation for this is

A free market fails when

Table 4-3 The Waco Kid's Cowboy Hats Marginal Cost (dollars) 1 st hat \ 24 2nd hat 30 3rd hat 38 4th hat 46 -Refer to Table 4-3.The table above lists the marginal cost of cowboy hats by The Waco Kid,a firm that specializes in producing western wear.If the market price of The Waco Kid's cowboy hats is $40

To affect the market outcome,a price ceiling

Figure 4-5 -Refer to Figure 4-5.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9

What is marginal benefit? Which curve is also referred to as a marginal benefit curve?

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

In a city with rent-controlled apartments,all of the following are true except

Assume the market price for lemon grass is $4.00 per pound,but most buyers are willing to pay more than the market price.At the market price of $4.00,the quantity of lemon grass demanded is 1,500 pounds per month,and quantity demanded does not reach zero until the price reaches $30.00 per pound.Construct a graph showing this data,calculate the total consumer surplus in the market for lemon grass,and show the consumer surplus on the graph.

Arthur buys a new cell phone for $150.He receives consumer surplus of $150 from the purchase.How much does Arthur value his cell phone?

The marginal cost for Java Joe's to produce its first cup of coffee is $0.75.Its marginal cost to produce its second cup of coffee is $1.25.Its marginal cost increases by $0.50 for each additional cup of coffee it produces.Suppose the market price for coffee is $2.25.Construct a graph showing the producer surplus for each cup of coffee Java Joe's will sell.How many cups of coffee will Java Joe's sell? What is the value of the producer surplus Java Joe's receives for each cup of coffee it sells?

When the marginal benefit equals the marginal cost of the last unit sold in a competitive market

The willingness of consumers to buy a product at different prices is shown on a

The graph below represents the market for lychee nuts.The equilibrium price is $7.00 per bushel,but the market price is $5.00 per bushel.Identify the areas representing consumer surplus,producer surplus,and deadweight loss at the equilibrium price of $7.00 and at the market price of $5.00.

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 $1

Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange.Several environmental groups have raised money to buy allowances (which they subsequently destroy).As part of their fund-raising,these groups have urged contributors to buy the allowances as gifts.As one newspaper story put it,"For the environmentalist in your life,here's a gift that is sold by the ton,fits in an envelope and will last forever." Source for quote: Randall Edwards,"Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch,December 19,1999. What would be the impact on the price of the emission allowances in the market?