Government Intervention
A price ceiling is designed to help consumers and a price floor is designed to aid producers.
True
Answer the question based on the given supply and demand data for wheat. Equilibrium price will be:
$2
The demand curve shows the relationship between
price and quantity demanded.
A market
is an institution that brings together buyers and sellers.
The adverse selection problem is the tendency for insured drivers to drive recklessly.
False
In this market, economists would call a government-set minimum price of $50 a(n)
price floor.
Answer the question based on the given supply and demand data for wheat. If the price in this market was $4:
farmers would not be able to sell all their wheat.
Which of the following would not shift the supply curve for beef?
an effective advertising campaign by pork producers
Surpluses drive market prices up; shortages drive them down
False
Mr. Jones agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.
True
Which of the following antipollution policies is least likely to make use of marginal cost and marginal benefit analysis?
enacting legislation that bans pollution
Given the potato market, at what price per potato would the market be at equilibrium?
$4
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
an increase in supply
Market failures
result in overproduction or underproduction of a good.
As it applies to insurance, the moral hazard problem is the tendency for
those who buy insurance to take less precautions in avoiding the insured risk.
An emission tax levied against polluting firms will tend to shift the:
supply curve of the firms to the left.
Given the potato market, at a price of $3, there would be a shortage of how many potatoes?
1
When the demand curve shifts to the right and the supply curve shifts to the left, equilibrium price will:
increase
The graph below shows the market for tickets to a "Final Four" sports event. Assume that there is only one kind of ticket to the event. A scalpers' market will exist if the event organizers set the official ticket price at:
$20
Suppose an insurance company offers one standard health insurance plan at a fixed price.
Healthy people know they rarely need medical care, so they don’t think the insurance is worth the cost and choose not to buy it.
Less healthy people (who expect higher medical costs) see the insurance as a good deal and are much more likely to buy it.
As a result, the insurance pool ends up with mostly high-risk individuals. Since the company now has to pay out more in claims than expected, it may raise premiums, which drives out even more healthy people. This is an example of:
Adverse selection
Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. We can conclude that the government is correcting for
negative externalities in diagram ( a) and positive externalities in diagram ( b).
Given the potato market, at a price of $6, there would be a:
Surplus of 85 potatoes
Other things equal, a decrease in the market price caused by a change in supply will
increase consumer surplus.
Madison buys a lamp for $30, for which she was willing to pay $42. The minimum acceptable price to the seller, Maxwell, was $30. Madison experiences a
a consumer surplus of $12, and Maxwell experiences a producer surplus of $0.
Which of the following reflects moral hazard?
Both A and B.