Deck 1: Market Failure, Market Efficiency and Welfare

Question 1

Currently Q₀ of electrical power is being produced. The demand curve is represented by D, and the current market supply is represented by S₀. It is discovered that the Rocky Mountain Electrical Co-op and Power Company is discharging waste into the area water supply. As a result, S₁ represents ____ and a price of ____ would represent the true internalized cost of production at that level of output.

A)the supply curve with external costs included; P₂
B)the supply curve with external costs included; P₁
C)the supply curve with external costs included; P₀
D)There is insufficient information available to provide an accurate answer.

Answer 1

the supply curve with external costs included; P₂

Question 2

?Exhibit


-Refer to Exhibit. Suppose that education provides spillover benefits to the community as illustrated in the diagram. Based on this information, we can say that:

A)the market would exceed short of the desirable level of education, Q₀.
B)education is overproduced by Q₁ minus Q₀ units.
C)the socially optimal quantity of education is Q₁ units.
D)the socially optimal quantity of education is Q₀ units.

Answer 2

the socially optimal quantity of education is Q₁ units.

Question 3

Factory A can reduce emissions at a cost of $400 per ton. Factory B can reduce emissions at a cost of $100 per ton. In a system in which the government issues transferable pollution right at a price of $200 per ton:

A)Factory A can profit from selling its pollution rights to Factory B.
B)Neither firm can profit from selling its pollution rights to the other.
C)Factory B can profit from selling its pollution rights to Factory A.
D)Both firms have an incentive to sell pollution rights.

Answer 3

Factory B can profit from selling its pollution rights to Factory A.

Question 4

Exhibit
$\begin{array}{lrr} \text {Cost of Reducing} & & & \\ \text {Emissions from }& \text { Firm A} & \text { Firm B} & \text {Firm C }\\\hline \text { 5 to 4 tons} & \$ 500 & \$ 100 & \$ 200 \\ \text {4 to 3 tons }& \$ 600 & \$ 200 & \$ 250 \\ \text {3 to 2 tons }& \$ 700 & \$ 300 &\$ 350 \\ \text {2 to 1 ton} & \$ 800 &\$ 400 &\$ 500 \\ \text {1 ton to zero }& \$ 900 & \$ 500 &\$ 700 \end{array}$

-Refer to Exhibit . What would be the total cost if each firm was initially emitting 5 tons of pollution, then the government established a standard of 3 tons maximum pollution per firm in order to decrease pollution by a total of 6 tons?

A)$800
B)$1,050
C)$1,850
D)$2,100

Question 5

Exhibit
$\begin{array}{lrr} \text {Cost of Reducing} & & & \\ \text {Emissions from }& \text { Firm A} & \text { Firm B} & \text {Firm C }\\\hline \text { 5 to 4 tons} & \$ 500 & \$ 100 & \$ 200 \\ \text {4 to 3 tons }& \$ 600 & \$ 200 & \$ 250 \\ \text {3 to 2 tons }& \$ 700 & \$ 300 &\$ 350 \\ \text {2 to 1 ton} & \$ 800 &\$ 400 &\$ 500 \\ \text {1 ton to zero }& \$ 900 & \$ 500 &\$ 700 \end{array}$

-Refer to Exhibit. What would be the total cost if each firm was initially emitting 5 tons of pollution, then the government issued transferable pollution rights allowing a total of 9 tons of pollution in the industry in order to decrease pollution by a total of 6 tons?

A)$1,400
B)$1,700
C)$1,840
D)$3,600

Question 6

?Exhibit
Miles demands jazz CDs according to the following demand schedule:

$\begin{array}{cc} \text {Price of Jazz CDs }& \text {Quantity of Jazz CDs} \\\hline \$ 30 & 1 \\\$ 25& 2 \\\$ 20 & 3 \\ \$ 15 & 4 \\\$ 10& 5\end{array}$

-Refer to Exhibit. If the price of the jazz CDs equals $15, the total consumer surplus Miles receives from purchasing jazz CDs is:

A)$15.
B)$25.
C)$30.
D)$55.

Question 7

?Exhibit
Miles demands jazz CDs according to the following demand schedule:

$\begin{array}{cc} \text {Price of Jazz CDs }& \text {Quantity of Jazz CDs} \\\hline \$ 30 & 1 \\\$ 25& 2 \\\$ 20 & 3 \\ \$ 15 & 4 \\\$ 10& 5\end{array}$

-Refer to Exhibit. If in the schedule, total consumer surplus equals $5, the market price of a jazz CD is:

A)$10.
B)$15.
C)$20.
D)$25.

Question 8

?Exhibit
The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp:
$\begin{array}{cc} &\text {Number of Pounds }\\\text {Price Per Pound }& \text {Consumed Each Year}\\\hline\$ 20 & 1 \\ \$ 16 & 2 \\ \$ 12 & 3 \\\$ 10 & 4 \\\$ 6 & 5 \\\$ 2 & 6\end{array}$

-Refer to Exhibit. If the price of shrimp is $12 per pound, according to the schedule total consumer surplus equals:?

A)$8.
B)$12.
C)$14.
D)$36.

Question 9

?Exhibit
The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10,000 identical consumers in the community.
$\begin{array}{cc}\text {Price Per} &\text {Bottle of Wine}\\\text {Bottles of Wine} &\text {Consumed Per Year}\\\hline\$ 50& 1 \\ \$ 40 & 2 \\\$ 30 & 3 \\\$ 20 & 4 \\\$ 10 & 5\end{array}$

-Refer to Exhibit. If the market price of wine is $20, the total consumer surplus for the community equals:

A)$20,000.
B)$30,000.
C)$50,000.
D)$60,000.

Question 10

?Exhibit
The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10,000 identical consumers in the community.
$\begin{array}{cc}\text {Price Per} &\text {Bottle of Wine}\\\text {Bottles of Wine} &\text {Consumed Per Year}\\\hline\$ 50& 1 \\ \$ 40 & 2 \\\$ 30 & 3 \\\$ 20 & 4 \\\$ 10 & 5\end{array}$

-Refer to Exhibit. If the market price of wine is $30, the total consumer surplus for the community equals:?

A)$20,000.
B)$30,000.
C)$50,000.
D)$60,000.