Exam 4: Market Efficiency and Market Failure

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.

Figure 4-9 Figure 4-9 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. -Refer to Figure 4-9.What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?

State and local governments subsidize college students with grants and low-interest loans.The loans and subsidies are examples of

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

If,in a competitive market,marginal benefit is greater than marginal cost

Figure 4-1 Figure 4-1 shows Arnold's demand curve for burritos. -Refer to Figure 4-1.If the market price is $3.00,what is the maximum number of burritos that Arnold will buy?

Figure 4-10 Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R₀. -Refer to Figure 4-10.Suppose that instead of a price ceiling,the government imposed a price floor of R₁.What is the area representing producer surplus after the imposition of the price floor?

Figure 4-2 -Refer to Figure 4-2.What area represents producer surplus at a price of P₂?

Table 4-10 Price Per Bushel (dollars) Quantity Demanded (bushels) Quantity Supplied (bushels) \ 3 36,000 0 6 30,000 2,000 9 25,000 5,000 12 20,000 10,000 15 16,000 16,000 18 13,000 23,000 21 8,000 30,000 24 3,000 36,000 Table 4-10 above contains information about the wheat market. Answer the following questions based on this table. -Refer to Table 4-10.An agricultural price floor is a price that the government guarantees farmers will receive for a particular crop.Suppose the federal government sets a price floor for wheat at $21 per bushel. a.What is the amount of shortage or surplus in the wheat market as result of the price floor? b.If the government agrees to purchase any surplus output at $21,how much will it cost the government? c.If the government buys all of the farmers' output at the floor price,how many bushels of wheat will it have to purchase and how much will it cost the government? d.Suppose the government buys up all of the farmers' output at the floor price and then sells the output to consumers at whatever price it can get.Under this scheme,what is the price at which the government will be able to sell off all of the output it had purchased from farmers? What is the revenue received from the government's sale? e.In this problem we have considered two government schemes: (1)a price floor is established and the government purchases any excess output and (2)the government buys all the farmers' output at the floor price and resells at whatever price it can get.Which scheme will taxpayers prefer? f.Consider again the two schemes.Which scheme will the farmers prefer? g.Consider again the two schemes.Which scheme will wheat buyers prefer?

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 D₂ represent?

A market demand curve reflects the

Figure 4-18 Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source. Figure 4-18 shows the paper market. Use this Figure to answer the following question(s). -Refer to Figure 4-18.What does S₁ represent?

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 Arnold's consumer surplus?

Figure 4-16 Figure 4-16 shows a market with a negative externality. -Refer to Figure 4-16.The marginal benefit of the last unit produced is represented by the price

Which of the following is not a result of binding government price controls?

When there is an externality in a market

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 3 burritos?

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

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 $3

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 maximum number of ice cream cones that Kendra will buy?