Question

Question 1

Part A) If consumers' buying decisions are not very sensitive to changes in price, then their demand is:

• more elastic.

• less elastic.

• perfectly inelastic.

• unit elastic.

Part B) A binding price floor:

• will cause quantity demanded to exceed quantity supplied.

• will cause quantity supplied to exceed quantity demanded.

• will increase total well-being.

• will set a legal maximum price in a market.

Part C) In a market where a positive externality is present, the effect of a government subsidy would be to ensure:

• a more fair distribution of surplus.

• an efficient outcome.

• that those who enjoy the benefit receive the surplus.

• All of these statements are true.

Part D) When a good ends up undersupplied, we can assume it is a:

• common resource.

• private good.

• public good.

• transitory good.

Part E) Using a common resource:

• creates a positive externality for others.

• maximizes total surplus.

• is an irrational decision.

• imposes a negative externality on others.

Part F)

In the long run, when an increase in the quantity of output decreases average total cost, this is called:

Multiple Choice

• economies of scale.

• diseconomies of scale.

• constant economies to scale.

• minimum average total cost.

Answer 1

(1)

If consumers' buying decisions are not very sensitive to changes in price, then their demand is less elastic.

If it is very sensitive to change in price, then demand is more elastic.

Answer: Option (B)

(2)

A price floor is binding if it is set above the equilibrium price. A binding price floor causes quantity supplied to exceed quantity demanded.

Answer: Option (B)

(3)

The effect of a government subsidy in a market where a positive externality is present is to ensure a more fair distribution of surplus, an efficient outcome, and ensure that who enjoy the benefit recieve the surplus.

Answer: Option (D)

(4) When a good ends up undersupplied, we can assume it is a public good.

Answer: Option (C)

(5) Using a common resources imposes a negative externality on others. It is called collectively inefficient.

Answer: Option (D)

(6)

Decrease in average total cost as output increases is known as economies of scale.
Answer: Option (A)