Question

6) Governments often implement programs designed to encourage research and development. Such programs may change the comparative advantage of that country because A) they will raise the costs of production of the trading partners. B) increases in research and development always lead to an increase in imports. C) the opportunity costs of exported products cannot change D) they are expected to change the endowments of each country E) they are expected to lead to improvements in technology 7) Which of the following best describes the reason for over fishing in Canadian offshore fisheries? A) The private marginal cost incurred by current fishermen is less than the social marginal cost. B) Fishing has depleted fish stocks leading to smaller catches C) The private marginal cost incurred by future generations of fishermen is greater than the private marginal cost incurred by current fishermen. D) The Canadian government encourages foreign fishing within the Canadian offshore boundary E) None of the above can explain overfishing. The diagram below shows the demand and supply curves in a perfectly competitive market Supply MC Compettive Markat Price 2 DancsM Q2 Q Quantity FIGURE 12-5 8) Refer to Figure 12-5. If output in this market were Q3, total economic surplus would be the area A) P1P3E-3-4 B) P1P3E - 1-2 C) 1+2-3-4 D) 1+2 3+4 E) 3 +4 9) Refer to Figure 12-5. In the free-market equilibrium, producer plus consumer surplus is illustrated by the area C) P3P2E. B)1 2+3+4 D) P1P3E. E) P1P2E

Answer 1

(6) (E)

In general, R&D causes technological improvement, which makes the industry where R&D took place more competitive in global market.

(7) (A)

When private marginal cost is lower than social marginal cost, market output is higher than socially optimal output, causing overproduction of the good.

(8) (A)

Total surplus in equilibrium = Area P1P3E

Welfare loss caused by overproduction when Q3 output is produced = Area 3 + Area 4

Total surplus when Q3 output is produced = Area P1P3E - Area 3 - Area 4

(9) (D)

Producer surplus (PS) = Area between market price and supply curve

Consumer surplus (CS) = Area between demand curve and market price

PS + CS = Area between demand curve and supply curve = Area P1P3E