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.
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…
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.
3. Consider a market for a good with the following demand function: Q = 120-2p where is quantity demanded and p is the price. Suppose the cost of producing Q units of the good be: C(Q) = Q² (a) If this market is perfectly competitive, what will be market price (pc) of the good and total output, (Qc).
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