ER 3 - Chapter 4, 5

Question 1

What is a competitive market able to do?

Answer 1

Places a competitive market price and quantity. Best for society. Maximized total surplus and resource allocation efficiency

Question 2

Market Efficiency Meaning?

Answer 2

Market Efficiency means to produce goods and services at the lowest possible cost to society through an efficient allocation of resources.

Question 3

Deadweight Loss Definition?

Answer 3

Deadweight loss is the lost total surplus to society (producers and consumers) due to overproduction or underproduction

Question 4

Market Failure Definition

Answer 4

Occurs when resources are not allocated efficiently - total surplus is not being maximized

Question 5

Market power factors causing imperfect markets, Example and Factor for Public Housing

Answer 5

-Barriers to entry are used to restrict competition, government licensing, regulation for public housing etc.

Question 6

Imperfect market Producer Surplus

Answer 6

Producer Surplus is increased due to increased price because of them restricting output

Question 7

Negative Production Externalities

Answer 7

Negative externalities are negative costs of private consumption or production on a 3rd party, whose costs are not accurately reflected in the market price. The product of public housing exerts a negative production externality. This negative production externality is that the government subsidizes the construction (production) of public housing using the tax money of other citizens of Australia.

Question 8

Negative Consumption Externalities, Example for Public Housing

Answer 8

Negative Consumption Externality is unintended negative costs to 3rd parties not included in the market equilibrium price which arises from the consumption of a good or service. Example for public housing is lower of surrounding property values due to stigmatization of public housing in society.

Question 9

Positive Production Externalities, Example for Public Housing

Answer 9

Positive Production Externality is unintended positive benefits to 3rd parties not included in the market equilibrium price which arises from the production of a good or service. An example of public housing is better community health outcomes, reduced homelessness, and better social stability and operation in communities

Question 10

Positive Consumption Externalities, Example for Public Housing

Answer 10

Positive Production Externality is unintended positive benefits to 3rd parties not included in the market equilibrium price which arises from the consumption of a good or service. An example for public housing is better standards of living, such as increased education of children, and reduced homelessness, which leads to increased labor productivity in the future.

Question 11

Public Goods? Subject To Market Failure?

Answer 11

Public goods are nonrival in consumption (Doesn’t take away from another’s consumption) and non-excludable for non-payers. Are Subject to Market Failure.

Question 12

Common Goods? Tragedy of the Commons

Answer 12

Common Goods are rival in consumption and non-excludable for non-payers. Subject to the tragedy of the commons market failure where in which without consumer rights a free, shared resource become depleted through self-interest of consumers

Question 13

Does a positive externality cause an overproduction or underproduction and how is this internalised

Answer 13

Underproduction. internalized with a subsidy

Question 14

Does a negative externality cause an overproduction or underproduction and how is this internalized

Answer 14

Overproduction. Internalized with a tax