Week 5

Question 1

Demand Curve

Answer 1

shows the value of ___ to consumers

Question 2

Height of demand curve:

Answer 2

Shows willingness to pay from the marginal buyer

Question 3

Supply Curve

Answer 3

Reflects the cost of __

Question 4

Height of supply curve

Answer 4

Shows cost to the marginal seller

Question 5

Negative Externalities

Answer 5

Because of an externality the social cost is larger than the cost to producers

Question 6

How to maximise total surplus

Answer 6

Value to consumers - Cost of producing

Question 7

Below level demand curve crosses social cost

Answer 7

Value of ___ to consumers exceed social cost of producing it

Question 8

Above level demand curve crosses social cost

Answer 8

Social cost of producing additional ___ exceed value to consumers

Question 9

Internalising an externality

Answer 9

Add tax to shift supply curve upwards

Question 10

Positive externalities

Answer 10

Social value is greater than private value = social curve lies beyond demand curve

Question 11

Subsidy

Answer 11

Government pays for education to move market equilibrium closer to social optimum