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Name a good with a negative externality associated with it, and explain the externality.

ii) Does this good have an elastic or inelastic demand? What about its supply? Explain.

iii) What two goals can be accomplished by taxing this good? How does the elasticity of the

good help to determine the effectiveness of the tax for accomplishing these goals?

iv) Which side of the market will be hurt more by a tax, the producers or the consumers? Why?

(If you think they will be hurt equally, say so and justify).

v) What is another policy option for achieving at least one of the goals listed in (iii)? Discuss its

pros and cons when compared to taxation.

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Retselisitsoe Pokothoane
Retselisitsoe PokothoaneLv10
28 Sep 2019

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Related questions

Considering the demand side of a market for a good, it is reasonable to expect that:
i. demand curves for a given good are identical between consumers
ii. demand curves for a given good differ between consumers
iii. an individual has identical demand curves for different goods
iv. an individual has different demand curves for different goods

i
ii
iii
iv
i and iii
ii and iv

Suppose the market demand curve for a good is represented by the linear equation Q = 60 - 0.75P. If the market price were to increase from P = $20 to P = $40, then holding all other factors constant:

the quantity demanded would decrease by 10 units and total expenditures on the good would decrease by $400
the quantity demanded would decrease by 15 units and total expenditures on the good would increase by $300
the quantity demanded would decrease by 30 units and total expenditures on the good would increase by $1200
the quantity demanded would increase by 20 units and total expenditures on the good would decrease by $800
the quantity demanded would increase by 10 units and total expenditures on the good would increase by $100
the quantity demanded would increase by 25 units and total expenditures on the good would increase by $1000

A perfectly competitive firms supply curve for a good identifies the:
i. minimum quantity supplied at each price, holding all other factors constant
ii. firms minimum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant
iii. maximum quantity supplied at each price, holding all other factors constant
iv. firms maximum willingness to accept for each incremental unit of the good (e.g., the first unit, second unit, etc.), holding all other factors constant

i and ii
i and iv
ii and iii
iii and iv

Considering the supply side of a market for a good, if a firms supply curve were vertical, then:

the law of supply holds, and quantity supplied is completely insensitive to changes in price
the law of supply holds, and quantity supplied is highly sensitive to changes in price
the law of supply fails to hold, and quantity supplied is completely insensitive to changes in price
the law of supply fails to hold, and quantity supplied is highly sensitive to changes in price
none of the above

The determinants of supply are:
i. factors other than price that will affect the quantity of a good or service a firm is willing and able to purchase
ii. factors that affect a producers maximum willingness-to-accept to produce various quantities of a good
iii. factors that affect a producers minimum willingness-to-accept to produce various quantities of a good

i
ii
iii
i and ii
i and iii

The market supply curve for a good is derived by:
i. horizontally summing the supply curves of the individual firms in the market
ii. vertically summing the supply curves of the individual firms in the market
iii. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices

i
ii
iii
i and ii
i and iii

If the level of technology used in the production of a good improves, and assuming the quality of the good does not change, then:
i. more output may be obtained with a given amount of inputs compared to before the technological improvement
ii. a given amount of output may be obtained with fewer inputs compared to before the technological improvement
iii. the firm will increase its use of other inputs, such as the number of workers it employs
iv. market demand for the good will increase

i
ii
iii
iv
i and ii
i, ii, and iii
i, ii, and iv
i, ii, iii, and iv

Considering the market for gasoline, which of the following would result in an increase in market supply?
i. a decrease in the price of gasoline
ii. an improvement in oil extraction and refining technologies
iii. an increase in the wage rates paid to gasoline refinery workers
iv. a decrease in the price of crude oil, a key input used to produce gasoline
v. the imposition of a federal gasoline tax aimed a decreasing the emission of greenhouse gases

i
ii
iii
iv
v
ii and iv
i, ii, and iv
i, ii, iii, and iv
i, ii, iii, iv and v

Suppose a market has two identical sellers. If each sellers supply function is given by P = 20 + Q, then the market supply function is:

P = 20 + 0.5Q
P = 20 + 2Q
P = 40 + Q
P = 40 + 2Q

From the market framework discussed in class and the readings, it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that:

buyer maximum willingness-to-pay is greater than seller minimum willingness-to-accept
buyer maximum willingness-to-pay is greater than or equal to seller minimum willingness-to-accept
buyer minimum willingness-to-pay is greater than or equal to seller maximum willingness-to-accept
buyer minimum willingness-to-pay is greater than seller maximum willingness-to-accept

If the market demand function is given by P = 80 - 0.3Q and the market supply is given by P = 20 + 0.1Q, then the equilibrium price and quantity are:

P = $35 and Q = 150
P = $65 and Q = 150
P = $26 and Q = 60
P = $28 and Q = 80

Of concern are the affects of sustained summer droughts on the domestic supply of wheat. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect:

the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to increase
the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to decrease
the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to decrease
the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase
the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to increase

the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to decrease

Suppose a perfectly competitive market is initially in equilibrium. If market demand and supply decrease simultaneously, then equilibrium:

price will rise, but the equilibrium quantity may either rise, fall, or remain unchanged
quantity will rise, but the equilibrium price may either rise, fall, or remain unchanged
price will fall, but the equilibrium quantity may either rise, fall, or remain unchanged
quantity will fall, but the equilibrium price may either rise, fall, or remain unchanged

Considering the demand side of a market for a good, the consumer surplus derived by an individual:
i. is the difference between the maximum amount the consumer is willing to pay on each unit and the minimum prices that producers are willing to accept
ii. is the difference between the minimum amount the consumer is willing to pay on each unit and the price he/she
actually pays
iii. is the difference between the maximum amount the consumer is willing to pay on each unit and the price he/she actually pays
iv. will decrease if price increases

i
ii
iii
i and iv
ii and iv
iii and iv

Suppose the market demand for a good is described by the equation P = 120 - 2Q. If a change in market supply results in price decreasing from P0 = $80 to P1 = $70, then the resulting change in consumer surplus is:

$225
$400
$575
$625
$750

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Question 2 If the price of Good X is $10 and price of Good Y is $15, the slope of the budget constraint is 1.5. True False 4 points

Question 3 If the demand and supply curves have equal slopes in absolute value, the burden of a commodity tax will be split equally regardless of on whom the tax is placed. True False 4 points

Question 4 Suppose that supply is fixed at 100 units and demand is Q = 500 P. A price ceiling of $100 creates a shortage of 400 units. True False 4 points

Question 5 Housing shortages caused by rent controls are larger in the long run because the supply of housing is more elastic in the long run. True False 4 points

Question 6 Firms should exit the industry if average costs are greater than marginal costs. True False 4 points

Question 7 If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price. True False 4 points

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