Question

____ 1.. Which of the following statements about basic economic inputs is false?

1. a. Natural resources are basic economic inputs.

2. b. Physical capital and human capital are both basic economic inputs.

3. c. Physical capital increases if we build more oil drilling rigs.

4. d. Human capital can never increase unless our population grows.

____ 2. Researchers have investigated citizen’s demand for local hiking trails. Assume the area currently has an average quantity of hiking trails. Which of the following statements is correct? As the quantity of lo-cal hiking trails increases, citizens demand for additional hiking trails

1. a. shows that people’s marginal cost increases.

2. b. shows that people’s marginal cost decreases.

3. c. shows that people’s marginal willingness to pay increases.

4. d. shows that people’s marginal willingness to pay decreases.

____ 3. Consider the market for paper. The production of paper uses a lot of water. If producing paper causes pollution downstream, the market outcome (vs. the efficient outcome) leads to

1. a. the market price will be too low and the market quantity produced will be too low.

2. b. the market price will be too low and the market quantity produced will be too high.

3. c. the market price will be too low and the market quantity produced will be correct.

4. d. the market price will be too high and the market quantity produced will be correct.

____ 4. In which of the following situations is there a “market failure”?

1. a. In the market for coal, mountain top removal of coal in West Virginia causes increased pollution in local streams.

2. b. A government’s unsuccessful advertising campaign for electric cars has reduced the demand for them.

3. c. The government fails to provide leases to oil producers thus decreasing the expected supply of oil.

4. d. Due to the price of oil decreasing, many new companies providing support to oil producers in the U.S. are going bankrupt.

Figure 2

The diagram below pertains to the supply of copper. SSBAxyquantityprice

____ 5. Refer to Figure 2. All else equal, a technological advance in producing copper would cause

1. a. a move from x to y.

2. b. a move from y to x.

3. c. a move from SA to SB.

4. a move From SB to SA.

Answer 1

1. The correct option is D.

Human capital can also increase through education and training. So, the statement that han capital can increase only through population growth is false and hence, D is correct option.

2. The correct option is D.

Marginal willingness to pay is same as the Average revenue/ demand curve. Marginal willingness to pay means the amount that consumers in market would pay for the extra unit of good. As we know that the marginal willingness to pay curve/ demand curve is download sloping (law of demand), this means that as quantity rises, the willingness to pay falls. Consumers pay less and less for extra units of a good. So, D is the correct option.

3. In this case, there are negative externalities attached to the Production of paper. The producers do not consider the costs of pollution they generate and their costs are lesser than the social cost curve (because society as a whole has to suffer from pollution). In case of negative externalities, the market outcome produces quantity which is too much and prices are too low

Thus, the correct option is B.

4. The correct option is A.

In this case, there would be market failure due to the presence of externalities.

Remember that there are mainly three sources of market failure- externalities, market power/monopoly and public goods.

Diagram for 5th question not visible. Please post the question again.