Question 1

Market failure is said to occur whenever

Accepted Answer

Market failure occurs when the allocation of resources in a market is not optimal or efficient. This can happen due to various reasons such as externalities, public goods, imperfect competition, and incomplete information. This results in a situation where the market fails to maximize the total welfare of the society. Prices rising and consumers not affording a good are not necessarily market failures, as they can be a result of supply and demand factors within a functioning market. Government intervention can address market failures, but it is not the only cause of such failures.

Question 2

Refer to the provided table. What is the total producer surplus in the market for all producers A, B, C, D, and E?

Accepted Answer

The answer of  Refer to the provided table. What...

Question 3

Other things equal, a fall in the market price caused by a change in supply will

Accepted Answer

A fall in the market price caused by an increase in supply typically results in an increase in consumer surplus because consumers can now purchase the same quantity of goods for a lower price or more goods for the same price.

Question 4

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences a

Accepted Answer

Consumer surplus is the difference between the price Jennifer was willing to pay ($42) and the actual price she paid ($33), which is $9.

Producer surplus is the difference between the actual price Nathan received ($33) and the minimum acceptable price to him ($30), which is $3.

Therefore, Jennifer experiences a consumer surplus of $9 and Nathan experiences a producer surplus of $3. The correct choice is C.

Question 5

Consumer surplus

Accepted Answer

Consumer surplus is the difference between the maximum price consumers are willing to pay for a product and the actual lower equilibrium price they pay. This represents the benefit or surplus consumers receive by paying less than what they were prepared to pay.

Question 6

What two conditions must hold for a competitive market to produce efficient outcomes?

Accepted Answer

For a competitive market to produce efficient outcomes, supply curves must reflect all costs of production, ensuring that the price of goods includes the cost of resources used in their creation. Demand curves must reflect consumers' full willingness to pay, indicating the true value consumers place on goods. This alignment ensures resources are allocated efficiently, matching supply with consumer demand.

Question 7

Amanda buys a ruby for $240 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $190. Amanda experiences

Accepted Answer

Amanda's consumer surplus is the difference between what she was willing to pay ($340) and what she actually paid ($240), which is $100. Tony's producer surplus is the difference between the sale price ($240) and his minimum acceptable price ($190), which is $50.

Question 8

Refer to the diagram. Assuming equilibrium price P₁, consumer surplus is represented by areas

Accepted Answer

The answer of  Refer to the diagram. Assuming equilibrium...

Question 9

A producer's minimum acceptable price for a particular unit of a good

Accepted Answer

The minimum acceptable price for a particular unit of a good is equal to the marginal cost of producing that unit. This is because the marginal cost represents the additional cost of producing one more unit of the good, and a producer would not be willing to sell a unit for less than it costs to produce it.

Question 10

Graphically, producer surplus is measured as the area

Accepted Answer

Producer surplus is the area above the supply curve and below the actual price, representing the difference between what producers are willing to accept for a good or service versus what they actually receive.

Question 11

Market failures

Accepted Answer

Market failures occur when the market forces of supply and demand fail to allocate resources efficiently, resulting in overproduction or underproduction of a good. This can lead to negative externalities, such as pollution, or positive externalities, such as healthcare. Prices being too high is one possible outcome of a market failure, but it is not the only concern. Market failures can occur even when prices are too low. The government can also intervene in markets to correct market failures, but government interference is not the cause of market failures.

Question 12

The minimum acceptable price for a product that producer Sam is willing to receive is 10. The price he could get for the product in the market is 15. How much is Sam's producer surplus?

Accepted Answer

Producer surplus is the difference between the market price and the minimum price at which a producer is willing to sell. Here, it's 15 - 10 = 5.

Question 13

In the market for a particular pair of shoes, Geri is willing to pay $75 for a pair, while Jane is willing to pay $95 for a pair. The actual price that each has to pay for a pair of these shoes is $65. What is the total amount of the two women's combined consumer surplus?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. Geri's consumer surplus is $75 - $65 = $10, and Jane's consumer surplus is $95 - $65 = $30. Combined, their consumer surplus is $10 + $30 = $40.

Question 14

Producer surplus is the difference between

Accepted Answer

Producer surplus is the difference between the minimum price that producers are willing to accept for a product and the actual price they receive in the market, which is the equilibrium price. Therefore, choice C correctly identifies the definition of producer surplus. Choices A and D refer to consumer surplus and choice B refers to a situation where the market is not at equilibrium.

Question 15

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

Accepted Answer

Consumer surplus is the difference between the maximum price a buyer is willing to pay and the actual price paid, which is $340 - $330 = $10 in this case. Producer surplus is the difference between the actual price received and the minimum acceptable price, which is $330 - $140 = $190 in this case. Therefore, Amanda experiences a consumer surplus of $10, and Tony experiences a producer surplus of $190.

Question 16

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price they pay. Graphically, this is represented as the area under the demand curve and above the actual price. Therefore, the correct choice is B, which states that consumer surplus is measured as the triangle under the demand curve and above the actual price.

Question 17

Charlie is willing to pay $12 for a T-shirt that is priced at $10. If Charlie buys the T-shirt, then his consumer surplus is

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. Charlie is willing to pay $12 but pays $10, so his consumer surplus is $12 - $10 = $2.

Question 18

Refer to the provided table. The surplus for Producer A is

Accepted Answer

The answer of  Refer to the provided table. The...

Question 19

Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $2.50, $2.25, $2.00, and $1.75. If the actual price of lemonade is $1.50 per glass, then consumer surplus in this market will be

Accepted Answer

The answer of Assume that there are four consumers A,...

Question 20

If the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, then which of the following is true?

Accepted Answer

When the demand curve reflects consumers' full willingness to pay, and the supply curve reflects all costs of production, the market reaches an equilibrium where the benefit surpluses (consumer and producer surplus) are maximized. This is a fundamental result of welfare economics, indicating that resources are allocated in the most efficient way possible under perfect competition.

Quiz 4: Market Failures Caused by Externalities Asymmetric Information