Question

Price (dollars per firework)	Quantity demanded (fireworks per week)	Quantity supplied (fireworks per week)
4	220	40
5	200	80
6	180	120
7	160	160
8	140	200
9	120	240
10	100	280
11	80	320
12	60	360
13	40	400
14	20	440

1. The table gives the demand and supply schedules for fireworks on the Island of Big Bang. In the past, because many deaths have resulted from accidents involving fireworks, the government has banned fireworks and is enforcing the ban. A $5 a firework penalty on buyers of fireworks and a $4 a firework penalty on sellers will reduce the number of fireworks bought to ________________ a week and the price paid by buyers will be _______________ a firework.

a) 0; an unknown amount

b) 160; $11

c) 80; $7

d)40; $13

2. Currently Belize, a country in Central America, has a small coffee industry but does not export any coffee. Suppose the government of Belize, in order to protect the new coffee industry to enable it to grow into a mature industry that can compete in world markets, places a tariff on the importation of coffee. What is the argument that has been used to support the tariff on coffee?

a) the dumping argument

b) to prevent rich countries from exploiting developing countries

c) the infant-industry argument

d) protection of Belize coffee workers

3. When the competitive market is using its resources efficiently, the

a) sum of the total amount of consumer surplus plus the total amount of producer surplus equals zero

b) total amount of consumer surplus is maximized

c) sum of total amount of consumer surplus plus the total amount of producer surplus is maximized

d) total amount of producer surplus is maximized

4. The annual Great Sofa Round-up is a collaborative event between Colorado State University and the City of Fort Collins aims to help students and neighbors get rid of unwanted furniture, while giving people in need access to inexpensive sofas. Suppose on the day of the Round-up, your friends take their couches to the main parking lot on campus where the Round-up is held. Raj will not sell his couch for less than $30, Emily will not sell her couch for less than $50, Nara will not sell her couch for less than $20, Sergio just wants to get rid of his couch and he is willing to give it away for free. At the Round-up, potential buyers think that all the couches available are basically the same and they are willing to buy a couch for $50. Who will sell their couch?

a) Raj, Nara, and Sergio

b) Emily

c) Raj, Emily, Nara, and Sergio

d) Emily, Nara, and Sergio

5. The gains from trade that are possible when two countries have different opportunity costs for wheat and coffee are realized when

a) the demand curves in both countries shift inward

b) trade occurs and resources are reallocated within the two countries

c) each country has an absolute advantage in one of the two commodities

d) the two countries continue to produce the same quantities of wheat and coffee

6. As a method of resource allocation, market price

a) works best inside firms and government departments

b) means those who are willing and able to pay get a particular good or service

c) works well when self-interest must be suppressed

d) is efficient when there is no effective way to distinguish among potential users of a scarce resource

Answer 1

Solving first four as per policy:

A tax on both buyers and sellers would reduce the quantity but the effect on the price of the good cannot be determined, as it will be the result of the net effect of the two taxes. Also, the effect of two taxes negates each other. Hence, we can conclude that the price would increase to around $11> Please see below image. The closest Option is (a).

2. The infant-industry argument- This is used here to support and help the new coffee industry to grow and protect it from the competition, so that it can grow and enhance its capabilities, before it can take on global competition.

3. When the competitive market is using its resources efficiently, the-  sum of total amount of consumer surplus plus the total amount of producer surplus is maximized (as there is no deadweights loss)

4. Raj, Emily, Nara, and Sergio . All of them will sell their couch as the price offered is higher than or equal to what they were seeking.