Question

Explain why the following statements are either True/False/Uncertain and why.

B1. Suppose a country's production possibility boundary (PPB) is shown in the following diagram For any production point on the PPB, the slope of the PPB is -x. If the world price of good r is 5 units of good y, then the country should produce zero units of good r and 50 units of goo good y 50 10 goodr B2. A carbon tax will be more effective at decreasing gasoline consumption if the demand for gasoline is less elastic. B3. If total revenue decreased from a decrease in the price, then demand must be inelastic. B4. Consumer surplus increases when the price of a good is restricted by a (binding) price ceiling. B5. In the following payoff matrix, row's payoff is the first entry and column's payoff is the second entry. Column Left | Middle | Right Up 5,1 3,5 Down 3,2 2,3 2,2 3,4 The only Nash equilibrium is for the row player to choose up and the column player to choose middle. B6. If a monopoly can perfectly price discriminate, there is allocative efficiency.

Answer 1

B1.

False

It is one of the efficient output combination, since 1 unit of X is equal to 5 unit of Y. But best combination of the X & Y depends upon the indifference curve and its tangent upon the PPF curve.

B2.

Uncertain

Because, demand for the gasoline is less elastic, it means that higher price by applying carbon tax will not reduce the consumption of gasoline.

B3.

True

Here. inelastic demand does not increase with the decrease in the price. It makes revenue to decrease with decrease in the price.

B4.

Uncertain.

If the supply is elastic and supply only that volume of goods at a particular price, then consumer surplus will not increase. Though, with inelastic supply, consumer surplus will increase.

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