Question

1)

Which of the following combinations of changes in supply and demand (listed in the same order) is likely to cause an indeterminate change in quantity?

Multiple Choice

• Decrease/Decrease

• Increase/Decrease

• Increase/Increase

• Static/Decrease

2)

A government set minimum wage:

Multiple Choice

• imposes a legal ceiling above the wage of the least skilled worker.

• is one of the reasons why price level falls during recessions.

• imposes a legal floor under the wage of the most skilled worker.

• imposes a legal floor under the wage of the least skilled worker.

3)

International specialization and trade:

Multiple Choice

• allow a nation to get more of a desired good at less sacrifice of some other good.

• can allow an economy to circumvent the output limits imposed by its domestic production possibilities curve.

• Has the same effect as having more and better resources.

• All of the above.

4)

Ed, Mike, and Scott are the only three people in a community and Ed is willing to pay $20 for the 5^th unit of a public good; Mike, $15; Scott, $25. The government should produce the 5^th unit of the public good if the marginal cost is:

Multiple Choice

• less than $150.

• less than $100.

• less than $60.

• less than $300.

5)

Answer the question based on the following information. Way-Below Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime control. This table shows the expected annual costs and benefits of these alternatives. If Way-Below Normal undertakes Level Three:

	Total costs per year	Total benefits per year (reduction in the costs of crime)
Level One – 1 security officer	$20,000	$80,000
Level Two – 1 security officer with guard dog	30,000	120,000
Level Three – 1 security officer with guard dog and patrol car	40,000	140,000
Level Four – 2 security officers with guard dog	50,000	155,000
Level Five – 2 security officers with guard dog and patrol car	60,000	160,000

Multiple Choice

• total benefits will be less than total costs.

• marginal costs will exceed marginal benefits.

• there would be an under-allocation of resources to crime control.

• there would be an over-allocation of resources to crime control.

6)

If a good that generates negative externalities was priced to take into account these negative externalities, then its:

Multiple Choice

• price would decrease and its output would increase.

• output would increase but its price would remain constant.

• price would increase and its output would decrease.

• price would increase but its output would remain constant.

Answer 1

1)Which of the following combinations of changes in supply and demand (listed in the same order) is likely to cause an indeterminate change in quantity?

Ans. Increase/Decrease

Explanation: When supply increases and demand decreases, it is indeterminate if equilibrium quantity would increase or decrease.

2)A government set minimum wage:

Ans. imposes a legal floor under the wage of the least skilled worker.

Explanation: Minimum wage is to ensure a standard of living to least skilled workers.

3)International specialization and trade:

Ans. All of the above.

International specialization and trade increase standard of living for all countries involved in trade.

4)Ed, Mike, and Scott are the only three people in a community and Ed is willing to pay $20 for the 5th unit of a public good; Mike, $15; Scott, $25. The government should produce the 5th unit of the public good if the marginal cost is:

Ans.less than $60.

Explanation: Total MB from the 5th unit is 20 + 15 + 25 = 60