Question

1. Which statement is TRUE in a market with a price ceiling? a. Buyers and sellers experience unexploited gains from trade b. Resources are allocated to their most efficient uses. c. The supply of goods is sold by the sellers with the lowest costs. d. The supply of goods is bought by the buyers with the highest willingness to pay ANS 2. A number of cities and states have banned smoking in bars because of secondhand smoke. In cities without the ban, bar owners decide whether smoking is permitted or not. If smokers have a greater willingness to pay to smoke than nonsmokers have to avoid smoke, then bar owners will smoking, which is an market outcome a. ban; efficient b. bang inefficient c. permit: efficient d. permit: inefficient ANS 3. Which would be the MOST likely place that the government can intemalize a negative externality? a, a factory polluting the air surrounding a large suburb b. a wind farm slightly disturbing the mountain view of a nearby city c. a paper mill polluting a stream that flows only into a single farm d.roadwork operating on a major highway, but only operating at night ANS 4. After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive 54.30 per unit. What is the value of the per unit tax? a. 55.00 b. 9430 c. 50.70 d. SO.30 ANS 5. A reduction in the number of substitutes for a good means its demand curve: a. becomes less clastic b. becomes more elastic. c. maintains the same elasticity. d. changes elasticity in an indeterminate direction ANS 6. Which statement about the computer chip market is TRUE? a. An increase in productivity shifted the supply curve to the left, driving up the price. b. Computer chip demand is estimated to be unit clastic, which explains why the market has not expanded as production technology has improved. c. Productivity increases in computer chips caused revenues to increase over time because the demand for computer chips is elastic. d. There are limited uses for computer chips so demand is inelastic.

Answer 1

1. The right answer is c. because a price ceiling (fixed at a price below teh equilibrium price) means that the producers with higher costs will not be able to sell

2. bar owner will permit smoking which is an inefficient market outcome (right answer is d.)

3. internalizing an externality implies that no extra costs are passed on to anyone. Hence teh rigth answer is d.

4. Unit tax = what teh buyers pay - what the sellers receive = 5 - 4.3 = 0.7

the right answer is c

5. a reduction in teh number of substitutes for a good will make it harder for consumers to switch away from or towards teh good in question, in case its own price rises or falls. Hence its demand becomes less elsatic. The right anwer is a.

6. teh right answer is c. Demadn for computer chips is elastic as its price went down more and more uses were found for it