Question

Question 3 Which of the following statements is necessarily true if the inverse market supply curve is vertical in a competitive market? (A) There exists no equilibrium in this market (B) The equilibrium in this market is not Pareto efficient (C) Supply is perfectly elastic (D) Consumers' surplus is negatively affected if the government taxes the good (E) Taxation of the good does not result in any deadweight loss Question 4 Which of the following statements about the technical rate of substitution is false? (A) It is positive for monotonic production technologies. (B) It measures the slope of an isoquant (C) It measures the degree to which inputs are substitutable for each other in the pro- duction process (D) It equals the negative of two inputs' marginal products (E) The phenomenon of diminishing technical rate of substitution reflects the idea that an input can be replaced more easily when it is abundant than when it is scarce. Question 5 Which of the following production functions does not exhibit constant returns to scale? (A) f(x1,x2) x1 + x2. (B) f(x1, x2)min{xı,x2} (C) f(x1, x2)x\x2 (D) f(x1, x2) x ^x". i/2,1/2 1/4 (E) f(x1,x2)x-x =

Answer 1

Answer 3. Taxation of a good does not result in any deadweight loss.

Reason- When supply curve is vertical, it is perfectly inelastic. After the tax is imposed, the whole burden of tax is borne by the supplier since supply is perfectly inelastic, the rise in price due to tax does not lead to any change in quantity. So there is no Deadweight loss.

Consumer surplus is not affect due to taxes as producers pay all the tax.

A pareto efficient equilibrium can exist in the market where demand and supply curves meet.