Question

31. Firms in oligopoly can achieve an economic profit

a. always in the long run.

b. if they cooperate.

c. only if the demand for their products is inelastic.

d. only if the demand for their products is elastic.

32. Which of the following statements is correct?

a.    The distribution of wealth is not the best measure of true inequality.

b.    Inequality using annual income overstates actual lifetime inequality.

c.    The inequality of annual incomes is less than the inequality of income.

d.    All of the above statements are correct.

33. If tuition at a college is $30,000 and the external benefit of graduating from this college is $10,000, then

a.    in the absence of any government intervention, the number of students graduating is less than the efficient number.

b.    the government could increase the number of graduates by giving the college a $10,000 subsidy per student.

c.    the government could increase the number of graduates by giving the students $10,000 vouchers.

d.    All of the above answers are correct.

34. Tax incidence is the

a.    dollar amount of a tax, expressed as a percentage of the purchase price.

b.    dollar amount of a tax per unit sold.

c.    division of a tax burden between the buyer and seller.

        d.    amount of revenue collected by government on a specific good

Answer 1

31. Firms operating in an oligopoly market maximize profits by coordinated actions rather than being competitive. This is because actions of one firm is dependent upon the reaction of the other firm leading to price war. Thus, forming cartels maximizes profits for firms working in oligopoly.

Thus, the correct answer is option b. if they cooperate.

32. All the three statements a, b and c mentioned are correct.

Thus, the answer is option d. All the statements are correct.

33. Since the fee exceeds the benefit received after graduating from college, then with no intervention the efficient number of students graduating will be less. This benefit can be increased if the government intervenes and provides a subsidy or vouchers to the students.

Thus, the correct answer is option d. All of the above answers are correct.

34. Tax incidence is defined as the portion of tax burden that falls on the buyers and sellers.

Thus, the correct answer is option c. division of a tax burden between the buyer and seller.