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Exam 7: Consumers, Producers and the Efficiency of Markets

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Question 61

True/False

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Public policy can improve market efficiency when there are instances of market failure.

A) True
B) False

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Question 62

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Pollution is a classic example of:

A) cost minimisation by firms
B) corporate greed
C) market failure
D) an efficient market outcome

E) None of the above
F) A) and D)

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Question 63

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Table 7-7 Antonio's Pizza -Refer to Table 7-7. Is the pizza market described in the above tables efficient? Explain. Is it equitable? Explain.

A group of people are bidding on an internet auction for a used car. Each bidder will not bid more than a maximum amount that is unique to them. This maximum is called:

Free markets allocate (1) the supply of goods to the buyers who value them most highly and (2) the demand for goods to the sellers who can produce them at least cost.

Graph 7-2 -Refer to Graph 7-2. When the price rises from P₁ to P₂, which of the following is NOT true?

Even though participants in the economy are motivated by self-interest, the 'invisible hand' of the marketplace guides this self-interest into promoting general economic wellbeing.

The appropriate measure for buyers' valuation of a good is how willing they are to pay.

Ticket scalping leads to a reduction in economic efficiency and therefore to a reduction in economic wellbeing.

Many economists believe that a market for human organs would lead to an:

If demand increases, the price of a product, as well as producer surplus:

The Health Ministry announces that eating chocolate increases tooth decay. As a result, the equilibrium market price _____ and producer surplus of chocolate _____.

Suppose the price of DVD rentals increases. Explain what will happen to: a. potential renters who are illegally downloading movies. b. renters who have not yet begun downloading movies. c. the consumer surplus in the DVD rental market. d. the number of downloads that will now occur.

What is the relationship between the demand curve and the willingness to pay?

Graph 7-7 -Refer to Graph 7-7. Explain why this graph verifies the fact that the market equilibrium (quantity) maximises the sum of producer and consumer surplus.

Graph 7-1 -Refer to Graph 7-1. What area represents consumer surplus when the price is P₁?

Economists generally believe that although there may be advantages to society from ticket scalping, the costs to society of this activity outweigh the benefits.

At the equilibrium of supply and demand in a market:

A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay.

Lucy often buys fish and is able to buy it for less than she is willing-to-pay. She later learns that fish has more health benefits than she realised. She now values fish even more than before. If the market price of fish does not change then: