### Homework 5 In Tutorial Library

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### TITLE: Homework 5

#### CLASS / COURSE: ECON 25100: Microeconomics

QUESTION DESCRIPTION:

Homework 5

1. Supply-side market failures occur when:

A. the demand and supply curves don't reflect consumers' full willingness to pay for a good or service.
B. the demand and supply curves don't reflect the full cost of producing a good or service.
C. government regulates production of a good or service.
D. a good or service is not supplied because no one wants it.

2. Amanda buys a ruby for \$330 for which she was willing to pay \$340. The minimum acceptable price to the seller, Tony, was \$140. Amanda experiences:

A. a consumer surplus of \$10 and Tony experiences a producer surplus of \$190.
B. a producer surplus of \$200 and Tony experiences a consumer surplus of \$10.
C. a consumer surplus of \$670 and Tony experiences a producer surplus of \$200.
D. a producer surplus of \$10 and Tony experiences a consumer surplus of \$190.

3. Graphically, producer surplus is measured as the area:

A. under the demand curve and below the actual price.
B. under the demand curve and above the actual price.
C. above the supply curve and above the actual price.
D. above the supply curve and below the actual price.

4. Refer to the above diagram. If actual production and consumption occur at Q2:

A. efficiency is achieved.
B. an efficiency loss (or deadweight loss) of a + b + c + d occurs.
C. an efficiency loss (or deadweight loss) of a + c occurs.
D. an efficiency loss (or deadweight loss) of e + f occurs.

5. Allocative efficiency occurs only at that output where:

A. marginal benefit exceeds marginal cost by the greatest amount.
B. consumer surplus exceeds producer surplus by the greatest amount.
C. the combined amounts of consumer surplus and producer surplus are maximized.
D. the areas of consumer and producer surplus are equal.

6. Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

A. Consumers' maximum willingness to pay equals producers' minimum acceptable price.
B. The sum of producer and consumer surplus is maximized.
C. The total revenue received by producers equals the total cost of production.
D. The marginal benefit of the last unit produced equals the marginal cost of producing that unit.

7. At the output where the combined amounts of consumer and producer surplus are largest:

A. the areas of consumer and producer surplus necessarily are equal.
B. the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
C. consumer surplus exceeds producer surplus by the greatest amount.
D. marginal benefit exceeds marginal cost by the greatest amount.

8. Nonrivalry and nonexcludability are the main characteristics of:

A. consumption goods.
B. capital goods.
C. private goods.
D. public goods.

9. A public good:

A. can be profitably produced by private firms.
B. is characterized by rivalry and excludability.
C. produces no positive or negative externalities.
D. is available to all and cannot be denied to anyone.

10. If one person's consumption of a good does not preclude another's consumption, the good is said to be:

A. nonrival in consumption.
B. rival in consumption.
C. nonexcludable.
D. excludable.

11. Answer the question on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society.

Refer to the above data. If this good were a private good instead of a public one, the total quantity demanded at a \$3 market price would be:

A. 2 units.
B. 3 units.
C. 6 units.
D. 4 units.

12. Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the 1st unit of this public good is:

A. \$18.
B. \$14.
C. \$10.
D. \$6.

13. Economists consider governments to be "wasteful:"

A. whenever they over- or underallocate resources to a project.
B. only when they overallocate resources to a project.
C. only when they underallocate resources to a project.
D. whenever they attempt to correct a market failure.

14. A positive externality or spillover benefit occurs when:

A. product differentiation increases the variety of products available to consumers.
B. the benefits associated with a product exceed those accruing to people who consume it.
C. a firm does not bear all of the costs of producing a good or service.
D. firms earn positive economic profits.

15. Refer to the above diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach:

A. an optimal allocation of society's resources.
B. an underallocation of resources to this product.
C. an overallocation of resources to this product.
D. a higher price than is consistent with an optimal allocation of resources.

16. Refer to the above diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). We can conclude that the government is correcting for:

A. negative externalities in diagram (a) and positive externalities in diagram (b).
B. positive externalities in diagram (a) and negative externalities in diagram (b).
C. negative externalities in both diagrams.
D. positive externalities in both diagrams.

17. Refer to the above diagram of the market for product X. Curve St embodies all costs (including externalities) and Dt embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the equilibrium output is Q2, we can conclude that the existence of external:

A. costs has resulted in an overallocation of resources to X.
B. benefits has resulted in an overallocation of resources to X.
C. costs has resulted in an underallocation of resources to X.
D. benefits has resulted in an underallocation of resources to X.

18. The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of:

A. diminishing marginal utility.
B. conservation of matter and energy.
C. demand.
D. diminishing returns.

19. (Consider This) According to the Coase theorem:

A. government should levy excise taxes on firms that generate spillover or external costs.
B. taxes should be levied such that they change private behavior as little as possible.
C. private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.
D. private firms should not provide public goods.

20. (Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for:

A. Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.
B. the Director of Housing to impose a fine on Darcy whenever she plays her music too loud.
C. the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume.
D. the college to ban the playing of music in dorms.

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