Exam 3 Corrections

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West Virginia University *

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200

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Economics

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Feb 20, 2024

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Bella Giovengo Econ 200 5 November 2023 Exam 3 Corrections 2.) The following graph refers to a negative externality and production. which point refers to the socially optimal equilibrium? My Answer: Point A Correct Answer: Point B - The answer is correct because the intersection between the marginal cost and the demand cost is where the socially optimal equilibrium point is. My answer is wrong because the higher price and quantity doesn't create an equilibrium. - My thought process was that the highest price in quantity was equal to the optimal equilibrium. I did not consider the supply, demand, or social cost. 4.) A positive externality and consumption occurs when: My Answer: Social Marginal Cost is less than Private Marginal Cost Correct Answer: Social Marginal Benefit is more than Private Marginal Benefit - That answer is correct because the satisfaction of consumer surplus plus social benefits is what makes a positive externality. My answer is wrong because positive externalities for social benefits must be greater than private benefits (Not costs). - My thought process was the idea that social cost should be less than private cost. that would be positive in the marketplace. 7.) Under a monopoly, consumer surplus is: My Answer: maximized Correct Answer: reduced - That answer is correct because there are no alternative suppliers in monopolies. My answer is wrong because consumers must pay the price or go without the good/service. - My thought process was that there was an abundance of surplus. I realize now that there are no other suppliers. 8.) People becoming educated and benefiting the rest of society is an example of what type of externality? My Answer: tragedy of the commons Correct Answer: positive externality of consumption - This answer is correct because it provides personal and public benefits. My answer is wrong because gaining education doesn't deplete the resources. - My thought process was that the education was exceeding its capacity. The resource was not being depleted.

9.) A price floor setup P1. What letters show the deadweight loss in societal welfare because of the price floor? My Answer: F Correct Answer: CE - This answer is correct because neither the consumer or supplier benefit from the surplus of production. My answers are wrong because it just shows the benefit from producer surplus. - My thought process was that the producer Surplus was deadweight loss. I did not consider consumers and producers. 13.) When Anne gets vaccinated against measles, her vaccination helps protect others. this protection to others is an example of what? My Answer: positive externality and production Correct Answer: positive externality and consumption - This answer is correct because consumption has improved outcomes for everyone. my answer is wrong because the production doesn't refer to the protection, just the vaccine alone. - My thought process was that the vaccine itself was producing positive benefits. I did not consider the protection of everyone being a consumption. 16.) Which product is most likely to have a perfectly competitive market structure? My Answer: smartphones Correct Answer: toothpicks - This answer is correct because there are many Sellers and there are no barriers to exit or entry into the marketplace. My answer is wrong because smartphones are similar but they are not identical, making them monopolistic. - My thought process was that there are different types of phones. I didn't know anything about the toothpick industry. 18.) Externalities in production affect: My Answer: Both consumers and producers Correct Answer: A third party non-market participant - This answer is correct because all externalities on consumption and production have an impact on unrelated third parties. My answer is wrong because externalities do not affect both consumers and producers, they affect third parties who are unrelated. - My thought process was that there are externalities in both consumption and production. I assume that that also affected the consumers and producers. 21.) A positive externality in production occurs when: My Answer: Social Marginal Benefit is more than Private Marginal Benefit

Correct Answer: Social Marginal Cost is less than Private Marginal Cost - This answer is correct because the marginal social cost will be lower than the marginal private cost when positive externalities are made during production. My answer is wrong because it has nothing to do with benefit and more to do with cost. - My thought process was that the social benefit would be greater than the private benefit. I was not considering the cost in this situation. 22.) Limiting the number of firms in a market is known as: My Answer: Monopolistic Competition Correct Answer: A barrier to entry - My answer is wrong because a monopolistic competition is the actual type of Market where there are a limited number of firms. The act of limiting the number of firms is due to the barriers of entry into the market which makes that answer correct. - My thought process was more of what type of firm is this. I was not thinking of the act that makes a monopoly a monopoly. 23.) In a local town, one power company is given the ability to do business. This company provides power to all the people in that town. this is known as: My Answer: Natural Monopoly Correct Answer: man made monopoly - This answer is correct because the government has given one company the power to do business. My answer is incorrect because the Monopoly did not naturally fall into place only because there were no other businesses attempting to provide Power in the town. - My thought process was that there were no companies competing to provide power. I did not understand the difference between a natural monopoly and a man-made monopoly. 37.) A negative externality results in what kind of production in the market? My Answer: Underproduction Correct Answer: overproduction - This answer is correct because negative externalities result in inefficiency. They result in overproduction and over consumption of goods and services. My answer is wrong because there's an overwhelming amount of production when a negative externality is present rather than there being an under production and under consumption. - My thought process was that a negative externality would lead to less production and less consumption. I now understand that this is not always the case and instead it means that there is an over consumption and overproduction resulting in inefficiencies. 39.) A negative externality in production occurs when: My Answer: Social Marginal Cost is less than Private Marginal Cost Correct Answer: Social Marginal Cost is more than Private Marginal Cost

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- This answer is correct because social costs grow as production increases. a negative externality results in overproduction. My answer is wrong because there is an overproduction rather than an underproduction, which means that social costs are growing. - My thought process was that there are less social costs than there are private costs. This is in fact the opposite due to the overproduction and overconsumption.

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