9. Market erriciency and market failure Suppose that the following graph shows a free market equilibrium, with QE as the equilibrium quantity. PRICE * QUANTITY For an output level above Qg, the value of a unit to a buyer is Supply Demand ? the cost of a unit to a seller. Suppose a firm that produces for this market is able to dump toxic chemicals into a river next to its factory, which poisons wildlife and harms the health of nearby residents, who have no business with the company. This scenario is characterized by which is an example of 7

9. Market erriciency and market failure Suppose that the following graph shows a free market equilibrium, with QE as the equilibrium quantity. PRICE * QUANTITY For an output level above Qg, the value of a unit to a buyer is Supply Demand ? the cost of a unit to a seller. Suppose a firm that produces for this market is able to dump toxic chemicals into a river next to its factory, which poisons wildlife and harms the health of nearby residents, who have no business with the company. This scenario is characterized by which is an example of 7

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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14. Suppose a market is currently producing in an allocatively efficient manner. Using the concepts of marginal utility, marginal cost, and price, explain exactly what that market must be doing and why that makes the outcome allocatively efficient or not.
7. Notepads and pens can be considered to be complements. Woodchips are an input to notepads, and plastic is an input to pens. Assume markets for notepads, pens, woodchips and plastic, are all perfectly competitive. Suppose that the equilibrium price of notepads increases, and the equilibrium price of pens decrease. Which of the following could explain these changes? a) A decrease in the supply of plastic b) An increase in the demand for wood chips c) An increase in the demand for plastic d) An increase in the supply of plastic e) Either (b) or (d)
4) Suppose a market starts in equilibrium; then we observe a decrease in supply and a decrease in demand simultaneously. What can we say about the new equilibrium? Illustrate.
4) Suppose a market starts in equilibrium; then we observe a decrease in supply and a decrease in demand simultaneously. What can we say about the new equilibrium? Illustrate.
Suppose you discover a stream in northern Minnesota whose water has amazing powers for healing. You decide to sell bottles of the water. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this amazing water is $3 per bottle. a. In a competitive market, what price would this water sell for and how much would you sell? Show your calculations. P = _____, Q = ______ b. After taking this class, you realize that you have monopoly power in this market. To maximize your profits, what quantity would you sell and what would the price per bottle be? (Hint: what is marginal revenue for a monopolist?) Show your calculations. Pm = ____, Qm = ____ c. Now draw a graph to the right with price on the vertical axis and quantity on the horizontal axis and show the competitive market solution and the monopoly output and prices.
3. Demand and supply of cigarettes in California are: Supply: Qs = 2Ps + 20 Demand: QD = 200 – PD Calculate the market equilibrium price and quantity, assuming perfect competition. a. b. California decides to tax on cigarettes to fund preschool. It recognizes that a secondary benefit of the tax would be to reduce teen smoking. Suppose taxes of $15 per carton are placed on the consumption of cigarettes. By how much will the tax increase the price consumers pay? By how much will it decrease the price producers receive?
9. Market efficiency and market failure The following graph shows equilibrium in a free market, with equilibrium quantity of Q. PRICE X QUANTITY Supply Demand For any level of output above Q. a buyer values a unit of goods in this market more than the unit will cost a seller. Suppose now that an individual firm that produces goods in this market has the power to influence market price, leading to an outcome different from the free market equilibrium illustrated in the previous graph. This is an example of due to an externality Inefficiency
8. Consumer and Producer Surplus Suppose Charles is the only seller in the market for bottled water and Yakov is the only buyer. The following lists show the value Yakov places on a bottle of water and the cost Charles incurs to produce each bottle of water: Yakov's Value Value of first bottle: $7 Value of second bottle: $5 Value of third bottle: $3 Value of fourth bottle: $1 Charles's Costs Cost of first bottle: $1 Cost of second bottle: $3 Cost of third bottle: $5 Cost of fourth bottle: $7 The following table shows their respective supply and demand schedules: Price Quantity Demanded Quantity Supplied $1 or less 4 о $1 to $3 3 1 $3 to $5 2 2 $5 to $7 1 3 More than $7 0 4 Use Charles's supply schedule and Yakov's demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Enter these values in the following table. Price Quantity Demanded Quantity Supplied 2 4 A price of brings supply and demand into equilibrium. At the equilibrium price, consumer…
The graph shows the market for smartphones . On the graph, draw a point at the market equilibrium and label it 1. Now draw a curve to illustrate what happens in the market for smartphones if more firms produce smartphones while all other influences on the market remain the same. Label the curve S1 Draw a point at the new market equilibrium and label it 2. >>> Draw only the objects specified in the question.
Qustion 15: Suppose that we are considering the market for a good that is a Giffen Good. We are thinking about a world of Supply and Demand. Very importantly, the demand curve is more inelastic than the supply curve. Suppose that the price of capital increases, and production of the good gets more expensive. What would we expect to happen to the market price and quantity (p* and Q*)? [Hint: this is a supply and demand question, not a question about the cost curves. I would suggest drawing it out.] A. Price will increase. Quantity will increase. B. Price will increase. Quantity will decrease. C. Price will decrease. Quantity will increase. D. Price will decrease. Quantity will decrease. Price Quantity
1. Briefly describe 5 things that a firm could do that would reduce the price sensitivity of buyers 2. Briefly explain five reasons why firms may choose prices that are below their profit-maximizingprice 3. List 5 things that could increase demand and 5 things that could increase supply for a typical(normal) good (hint: be specific on the direction of change for each event) 4. Describe 5 consumer decision biases 5. Describe 5 costs from international trade 6. Briefly describe 2 or 3 things that could shift labor demand and 2 or 3 things that could shift laborsupply 7. Explain the implications from the short-run and long-run Phillips curve 8. Briefly describe 5 things that could cause the US dollar to appreciate in value 9. List 5 things that could decrease aggregate demand and 5 things that could decrease the short-runaggregate supply for an economy (hint: be specific on the direction of change for each event) 10. Describe the fiscal and monetary options that could be used to reduce…
s) In one graph, show what would happen to the market price and quantity for lemons, which can be produced from the same resources as bananas, as a result of the new findings above bananas.