Exam 4: Market Efficiency and Market Failure

Deadweight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium.

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?

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.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₁ represent?

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 marginal private cost of production and S₂ represents the supply curve that reflects the marginal 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.What area represents consumer surplus at the equilibrium price of P₁?

Marginal benefit is equal to the ________ benefit a consumer receives from consuming one more unit of a good or service.

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.What area represents consumer surplus at P₂?

Consumer surplus in a market for a product would be equal to ________ if the market price was zero.

There will be no deadweight loss if the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

What is an externality?

According to the online real estate database company Zillow, homes located near a Whole Foods or Trader Joe's location have appreciated in value at double the rate of homes in other areas. From 1997 to 2014, the median U.S. home had appreciated 71 percent, while a median home near a Whole Foods or Trader Joe's appreciated 140 percent and 148 percent, respectively. Although some analysts believe this is due to these retailers often opening stores in high-income neighborhoods, Zillow researchers found that before a Whole Foods or Trader Joe's opened, homes near where the stores would eventually be appreciated at the same pace of comparable homes across the city, but after the stores opened the appreciation rate of homes in close proximity increased at a faster rate. Source: Marian McPherson, "Living near these 2 stores boosts a home's value," inman.com, June 19, 2017. -Refer to the Article Summary.Assuming the findings are correct and all else equal,people who do not shop at Whole Foods or Trader Joe's can still benefit from living near the stores,as is shown by the higher home values.As a result,the marginal social benefit from living near a Whole Foods or Trader Joe's is ________ the marginal private benefit to those who shop at these stores.

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

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 second ice cream cone?

Which of the following statements is true?

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 Kendra's consumer surplus?

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

In order to be binding,a price ceiling

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

Table 4-5 Consumer Willingness to Pay Violet \ 48 Walter 40 Xavier 30 Yolanda 24 Zachary 14 -Refer to Table 4-5.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one ticket is $50

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