Chapter 4 Flashcards
If the market supply increases and, simultaneously, market demand decreases, the new equilibrium will show:
market price will decrease, and market quantity exchanged could increase, decrease, or remain unchanged.
in order to avoid the free-rider problem, which of the following goods is best provided by the government and paid for with tax dollars? cars, lighthouses, bread, scripts, windows
lighthouses
Most economics believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:
price would be too high and quantity would be too low
Define Microeconomics
examines the individual parts and is interested in the behavior of economic agents, such as workers, firms, consumers, labor unions, and industries. Micro determines individual prices for things such as wheat, cars, pcs, scooters etc.
Define Macroeconomics
examines the whole (overall performance of the economy). The nations unemployment rate, inflation rate, and GDP. GDP is simply the total output produced domestically, here in the united sates. we are also interested in the business cycle since capitalist economies cannot escape booms and busts. the macro level is concerned about the average price level which is an average of the different prices in the economy
The yankee candle company in hatfield Massachusetts, makes thousands of scented candles each day. The factory emits the odor of the candles it produces some of which smell quite nice. On the days when they make strawberry candles the townspeople really enjoy the smell. On days when they make potpourri scented candles, people close their windows and don’t go outside. what can we infer about the scented candle market.
strawberry candles are more expensive than is socially optimum and potpourri candles are priced too low to be socially optimum
Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:
price would be too high and quantity would be too low
when the consumption of a good generates and external benefit:
the market demand curve will understate the total benefits derived from consumption of the good and as a result too little of it will be produced and consumed,
which of the following is a public good? An economics lecture, a tv, higher education, housing, or clean air
clean air
if the government imposes a price ceiling, then:
the price offered by producers must be at or below the ceiling price
if the equilibrium price of good X is $5 and a price ceiling is imposed at $4, the result will be an : accumulation of inventories of unsold gas, shortage, surplus, all of these
shortage
what causes and results from increases in equilibrium price in the causation chain (shifts in demand)
increase in equilibrium and increase in quantity supplied
what causes and results from decrease in equilibrium in a causation chain (shifts in demand)
decrease in demand and decrease in quantity supplied
causation chain for increase in supply
increase in supply causes decrease in equilibrium price causes increase in quantity demanded
causation chain for decrease in supply
decrease in supply causes increase in equilibrium price causes decrease in quantity demanded
define price ceiling
a legally established maximum price a seller can change (causation chain ceiling»_space;quantity demanded exceeds quantity supplied»_space;shortage)
define price floor
a legally established minimum price a seller can be paid (ex: minimum wage»unemployement(surplus))
what does a price ceiling or price floor prevent
market adjustment in which competition among buyers and sellers bids the price upward or downward to the equilibrium price
what is market failure
a situation in which market equilibrium results in too few or too many resources used in the production of a good or service. this inefficientcy may justify government intervention
what is an externality
a cost or benefit imposed on people other than the consumers and producers of a good or service
what happens when the supply curve fails to include external costs
the equilibrium price is artificially low, and the equilibrium quantity is artificially high
what is the external cost causation chain
external costs»regulation, pollution taxes»efficient equilibrium
what is the external benefits causation chain
external benefits» regulation special subsidies»efficient equilibrium
what causes under/zero production of goods
if public goods are available only in the marketplace, people wait for someone else to pay
