Question: Economic efficiency in a competitive market is achieved when:

Answer: the marginal benefit equals the marginal cost from the last unit sold.

Question: The area ________ the market supply curve and ________ the market price is equal tothe total amount of producer surplus in a market

Answer: above; below

Question: Producer surplus is:

Answer: is the difference between the minimum prices producers are willing to accept for a product and the equilibrium price

Question: What two conditions must hold for a competitive market to produce efficient outcomes?

Answer: Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

Question: From society's perspective, in the presence of a negative externality, the last unit of agood produced typically:

Answer: costs more to produce than it provides in benefits.

Question: If, in a competitive market, marginal benefit is less than marginal cost,

Answer: the quantity sold is greater than the equilibrium quantity.

Question: In order for a price ceiling to "bind," it:

Answer: must be set below the equilibrium price.

Question: A binding price floor causes

Answer: will cause quantity supplied to exceed quantity demanded / Surplus

Question: A tax wedge:

Answer: the difference in the price the buyer pays and the price the seller receives.

Question: If the demand curve is less elastic than the supply curve, then:

Answer: the buyers will bear a greater tax incidence.

Question: Consumers may benefit more than sellers from a subsidy to sellers if:

Answer: the demand curve is relatively less elastic than the supply curve.

Question: In general, price controls have a:

Answer: larger effect in the long run because demand and supply become more elastic over time.

Question: The taxing agency in your state would like to impose a sales tax in a way thatminimizes deadweight loss. To achieve this goal it should tax:

Answer: goods whose supply and demand curves are relatively inelastic.

Question: If the government taxes a good that generates a negative externality, then thegovernment:

Answer: can increase total economic surplus and generate tax revenue.

Question: Assume Congress imposes a Pigovian tax on polluting firms. In which of the followingsituations would we expect the additional costs to be borne most heavily by consumers?

Answer: Demand is highly inelastic and supply is highly elastic

Question: pigovian tax

Answer: a tax meant to counterbalance a negative externality

Question: tax incidence

Answer: the relative tax burden borne by buyers and sellers

Question: Deadweight Loss (DWL)

Answer: a loss of total surplus that occurs because the quantity of a good that is bought and sold is below the market equilibrium quantity

Question: price ceiling causes:

Answer: shortage

Question: Price floor causes

Answer: surplus

Question: The existence of a negative externality will result in:

Answer: a greater than optimal level of production