Question

16. The price elasticity of demand coefficient measures the magnitude of the proportional (percent) change in the "quantity of demand" for every one-percent change in the price of the good under consideration.

True

False

17. With the passage of time, it is likely that the price elasticity of demand coefficient value will become greater (increase- in absolute value terms).

True

False

18. Helen receives a large raise at work and as a result, begins to buy fewer macaroni and cheese dinners. We can conclude that for Helen, macaroni and cheese is an inferior good and its income elasticity coefficient will be negative (less than zero).

True

False

19. Cross-price elasticity of demand is measured as: Ec = percentage change in the quantity demanded of one good / percentage change in the price of a related good.

True

False

20. "Normal goods" are goods that people choose to purchase more of as their income increases.

True

False

21. The Coase Theorem argued

All of these points are argued in the Coase Theorem

In situations where the Coase Conditions are met, it does not matter which party receives the property right, the socially optimal solution will emerge.

Private solutions to externality problems are not always possible, implying a role for government in solving complex issues.

If there are no or minimal barriers to negotiation and if property rights are fully specified, interested parties will bargain privately to correct externalities.

22. Income elasticity of demand coefficients are always positive in value.

True

False

23. If a firm 'decreases' the price of a good along the elastic range of their demand curve then total revenue will 'decrease'.

True

False

24. A firm should increase the price of goods along the inelastic range of their demand curve as this will increase total revenue.

True

False

25. If a firm identifies that it's product has an Elasticity of Demand value equal to -9.1 then it should increase the price of the good in the market to assure maximum revenue is earned.

True

False

26. The larger the number of "substitutes" for a good in the marketplace the greater the responsiveness to a price change and the elasticity of demand would be more "elastic."

True

False

27. The greater the degree of "necessity" in acquiring a good the greater the degree of inelasticity in demand.

True

False

28. When the change in the quantity of demand for a good is relatively small compared to the change in price (being relatively large) then the price elasticity of demand is relatively elastic.

True

False

29. Generally, demand becomes more elastic over time.

True

False

30. Changes in the degree of price elasticity of demand along the demand curve have no impact on the total revenue of the firm.

True

False

31. The "tragedy of the commons" suggests that "common ownership" instead of "private ownership" of property leads to overuse of the resource under consideration and resource depletion follows: (for example pasture land held in common instead of privately).

True

False

32. Private property rights give the owner the ability to exercise control over a resource.

True

False

33. A good that is both rival and exclusive is called a

an externality good

a public good

an open access good

a private good

a quasi-private good

34. The lighthouse may not have been built by private firms due to

All of these would result in the lighthouse not being built, ceteris paribus.

The "free rider problem."

Such a good (or service) would be more consistent with characteristics of "public goods" than "private goods."

Lack of exclusion.

35. An externality is BEST understood as

any cost or benefit of a transaction that is not accounted for in the market price, not internalized

a benefit of a transaction that is enjoyed by a third party

a cost or benefit that arises when market price changes

the external revenue generated by a firm

a cost of a transaction that is borne by a third party

36. Which of the following would not be considered a "negative externality?"

measles vaccinations

long rap music at 2 a.m. in the apartment next door to you and you have to be at work by 8:00 a.m.

air and water pollution

an Alaskan oil spill

traffic congestion

37. A. Pigou suggested that a way to correct for "negative externalities" was to

tax the supply side of the industry

deregulate the industry in terms of pollution standards

subsidize the supply side of the industry

clearly assign property rights

38. The Ronald Coase theorem argues that the assignment of property rights will generate an efficient solution to the problem of

any type of market failure

negative externalities as long as transaction costs are small and property rights are assigned

positive externalities as long as transaction costs are small and property rights are assigned

negative externalities as long as transaction cost are great and property rights are assigned

39. Give the Price Elasticity of Demand Equation: (Q2-Q1) / [(Q2 + Q 1) / 2] / (P2 - P 1) / [(P2 + P1) / 2]. If at a price of $11.00 the quantity of demand is for 10 units and at the price of $10.00 the quantity of demand is for 20 units, then the "Price Elasticity of Demand coefficient value is ( in absolute value terms):

7

4

2.5

11.5

1.5

40. It is generally believed that markets do a good job handling the problems of externalities.

True

False

Answer 1

16) The price elasticity of demand measures the percent change in quantity demanded of a product in response to a certain percent change in its price and not necessarily "one percent" change in its price level.

Therefore,the answer is false.

17) With passage of time,the price elasticity of demand will weaken or become increasingly less.In other words it would become increasingly inelastic with progress of time.

Thus,the answer here is false.

18) Since Helen's consumption of macaroni and cheese dinners decreases as her income rises,these products can be considered to be inferior goods.

Hence,the answer is true here.

19) Cross price elasticity of demand ideally measures the percentage change in quantity demanded of one product to the percentage change in price of another product which does not necessarily be related to the first product.

Therefore,the answer is false.

20) Normal goods are those which people consume more as their income increases.

Thus,the answer is true.

21) In situations where the Coase Conditions are met, it does not matter which party receives the property right, the socially optimal solution will emerge and If there are no or minimal barriers to negotiation and if property rights are fully specified, interested parties will bargain privately to correct externalities are the correct answers.

22) Income elasticity of demand can be negative in the case of inferior goods.

Hence,the answer is false.

23) The answer is false since the demand is elastic and decreasing price would actually increase the demand substantially which would result in higher revenue.

24) The answer is true.

25) Elasticity of demand of -9.1 implies that the demand in this case is highly elastic and increasing the price would actually decrease the demand substantially and consequently the total revenue as well.

Thus,the answer is false.

26) The answer is tur here.

27) The answer is true.

28) When the change in the quantity of demand for a good is relatively small compared to the change in price (being relatively large) then the price elasticity of demand is actually considered to be inelastic.

Therefore,the answer is false.

29) Over time the demand actually becomes more inelastic.

Thus,the answer is false.

30) The answer is false.

31) The answer is true.

32) The answer is true.

33) The third option or private good is the right answer.

34) All of these would result in the lighthouse not being built, ceteris paribus or the 1st option is the correct answer.

35) The 1st option or any cost or benefit of a transaction that is not accounted for in the market price, not internalized is the right answer.

36) measles vaccinations or the 1st option is the correct answer.

37) The 1st option or tax the supply side of the industry is the right answer.

40) The answer is false.