Question

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1. To enforce the optimum level of emissions a government could set an emissions standard at the quantity ______.
   1. where the MSB curve crosses the MCA curve.
   2. located at the vertical intercept of the MSB curve.
   3. located at the horizontal intercept of the MSB curve.
   4. located at the horizontal intercept of the MCA curve.
2. Suppose the market of sugar is competitive and currently at market equilibrium. What would happen to the equilibrium quantity and price if the government implements a price ceiling of sugar that is higher than the current market price?
   1. New market equilibrium quantity is higher.
   2. The new market equilibrium price is higher.
   3. The result is uncertain.
   4. The market equilibrium quantity and price are unchanged.
3. A free rider is a person who ______
   1. tries to consume more of a public good than others
   2. tries to convince others not to consume a public good
   3. pays no taxes by taking advantage of tax loopholes
   4. understate the value of a public good in order to secure the good at a lower cost
4. With the presence of positive externality, the social marginal benefit is ______ the private marginal benefit, which in in turn leads to ______ of the good.
   1. Larger than; overproduction
   2. Larger than; underproduction
   3. Smaller than; overproduction
   4. Smaller than; underproduction
5. Under third-degree price discrimination, the ______.
   1. ratio of price to marginal revenue is the same in both submarkets
   2. elasticity of demand is the same in both submarkets
   3. marginal revenue is the same in both submarkets
   4. consumer surplus is zero
6. The principal-agent problem of ownership vs. control of the corporation arises when owners and managers ______.
   1. pursue objectives that differ from those their customers wish them to pursue.
   2. pursue objectives that differ from those their workers wish them to pursue.
   3. pursue objectives that differ from those the government wishes them to pursue.
   4. pursue different objectives.
7. Suppose a monopolist is encountered with an increase in marginal cost due to rising price of production materials, the Lerner index of monopoly power will ___.
   1. Increase
   2. Decrease
   3. Stay constant

Answer 1

(1) (a)

Optimal emission is at the intersection of MSB and MCA curves.

(2) (d)

If price ceiling is imposed higher than equilibrium price, it is ineffective and does not impact the equilibrium.

(3) (c)

A free rider enjoys benefits without paying for them, including not paying any tax.

(4) (b)

With positive externality, SMB > PMB which means that market outcome leads to underproduction.

NOTE: As per Answering Policy, 1st 4 questions are answered.