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Macroeconomics Study Set 43

Business

Quiz 4 :

A: - Market Failures: Public Goods and Externalities

Quiz 4 :

A: - Market Failures: Public Goods and Externalities

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Supply in a market is represented by the equation, P = 5 + .1QS.Suppose the market price is $30.(a) How many units do sellers wish to provide in this market? (b) What is the minimum amount that sellers are willing to accept for this quantity of output? (c) What is the actual amount that sellers receive for providing for this quantity of output? (d) What is the producer surplus that sellers obtain for providing this quantity of output?
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(a) 250 units; (b) $4375 [.5($30 - $5) 250 + $5 250]; (c) $7500 ($30 250); (d) $3125.

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Demand is represented by the equation, P = 200 - 2QD and supply by the equation P = 25 + 3QS.(a) Suppose this market produces 30 units of output.What price would this output be sold at if consumers we going to buy all goods? What is the marginal benefit to society of the 30th unit? What is the marginal cost of the 30th unit? (b) What is consumer surplus if the market produces 30 units of output? What is producer surplus? What is the sum of consumer and producer surplus? (c) What are the equilibrium price and quantity? (d) What is consumer surplus at equilibrium? What is producer surplus? What is the sum of consumer and producer surplus? (e) Is allocative efficiency achieved when the market produces 30 units of output? Explain in three different ways.
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(a) The price is $140 [200 - 2(30)].The marginal benefit is $140.The marginal cost is $115 [25 + 3(30)].
(b) Consumer surplus is $900 [0.5($200 - $140) 30].Producer surplus is $2100 [0.5($115 - $25) 30 + ($140 - $115) 30].The sum of consumer and producer surplus is $3000.
(c) The equilibrium price and quantity are $130 and 35 units.
(d) Consumer surplus is $1225 [0.5($200 - $130) 35].Producer surplus is $1837.50 [0.5($130 - $25) 35].The sum of consumer and producer surplus is $3062.50.
(e) Allocative efficiency is achieved when P = MC, when MB = MC, and when the sum of consumer and producer surplus is maximized.When 30 units of output are produced, P, which is $140, exceeds MC, which is $115.Also, MB, which is $140, exceeds MC, which is $115.Finally, the sum of consumer and producer surplus is $3000.However, this sum is not maximized.The sum can be as large as $3062.50.Therefore, on all three bases, allocative efficiency is not achieved at 30 units of output.There is an under allocation of resources to this industry.By shifting resources to this industry and increasing output to 35 units, allocative efficiency is achieved.

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What is producer surplus?
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Producer surplus is the difference between what sellers receive for their product and the marginal cost of producing the product.

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Demand is represented by the equation, P = 20 - 0.2QD and supply by the equation P = 5 + 0.1QS.(a) Suppose this market produces 40 units of output.What price would this output be sold at? What is the marginal benefit to society of the 40th unit? What is the marginal cost of the 40th unit? (b) What is consumer surplus if the market produces 40 units of output? What is producer surplus? What is the sum of consumer and producer surplus? (c) What are the equilibrium price and quantity? (d) What is consumer surplus at equilibrium? What is producer surplus? What is the sum of consumer and producer surplus? (e) Is allocative efficiency achieved when the market produces 40 units of output? Explain in three different ways.
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In your own words, describe what free-riding means.
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How is consumer surplus derived from a demand curve?
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The next three questions refer to the below supply and demand graph for a public good. img (a) What does point c represent? (b) What does the line segment ef at output Q3 represent? (c) At what output level is there an underallocation of resources to the production of this public good?
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Demand in a market is represented by the equation, P = 50 - QD.Suppose the market price is $30.(a) How many units do buyers wish to purchase in this market? (b) What is the maximum amount that the buyers are willing to pay for this quantity of output? (c) What is the actual amount that buyers have to pay for this quantity of output? (d) What is the consumer surplus that buyers obtain from purchasing this quantity of output?
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Demand in a market is represented by the equation, P = 30 - .5QD.Suppose the market price is $18.(a) How many units do buyers wish to purchase in this market? (b) What is the maximum amount that the buyers are willing to pay for this quantity of output? (c) What is the actual amount that buyers have to pay for this quantity of output? (d) What is the consumer surplus that buyers obtain from purchasing this quantity of output?
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How is producer surplus derived from a supply curve?
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Draw a market supply curve and indicate the following: (a) The market price; (b) The quantity supplied; (c) The minimum amount that sellers are willing to accept for the quantity supplied; (d) The actual amount that sellers receive for providing the quantity supplied; (e) The producer surplus from providing the quantity supplied. img
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What is the meaning of Market Failures and how do the Demand and Supply curves cause such failures?
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Explain the difference between a public and private good.Describe the rationale behind supply and demand analysis for public goods.
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What is consumer surplus?
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Supply in a market is represented by the equation, P = 20 + .1QS.Suppose the market price is $30.(a) How many units do sellers wish to provide in this market? (b) What is the minimum amount that sellers are willing to accept for this quantity of output? (c) What is the actual amount that sellers receive for providing for this quantity of output? (d) What is the producer surplus that sellers obtain for providing this quantity of output?
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Imagine that a provincial government is considering the construction of a new office building to consolidate its operations.Its estimate of the total costs and the total benefits of building a 4- 6-, 8-, or 10-story building is shown in the table below.(All figures are in millions of dollars.) img (a) Compute the marginal cost and the marginal benefit of the 4-, 6-, 8-, and 10-story buildings.(b) Should the state build a new office building? If so, what size building and what will be the total benefit, total cost, and net benefit to society? img
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How are producer surplus and economic profit related?
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Draw a market demand curve and indicate the following: (a) The market price; (b) The quantity demanded; (c) The maximum amount that buyers are willing to pay for the quantity demanded; (d) The actual amount that buyers must pay for the quantity demanded; (e) The consumer surplus from obtaining the quantity demanded.
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How does the market demand curve for a public good differ from the market demand curve for a private good?
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What are the basic differences between a public good and a private good?
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