Question

1) What is the term that describes a situation in which one party to an economic transaction has less information than the other party?

Select one: A (inefficient market hypothesis), B (asymmetric information), C (unequal market structure), D(monopsony)

2) Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that beer and spirits are ________, and spirits and wine are ________.

Select one: A (complements; luxuries), B (normal goods; luxuries), C (complements; substitutes), D(substitutes; luxuries)

3) If there is pollution in producing a product, then the market equilibrium price

Select one: A (is too high and equilibrium quantity is too low), B (and equilibrium quantity are too low), C(and equilibrium quantity are too high), D (is too low and equilibrium quantity is too high)

4) Conceptually, the efficient level of carbon emissions is the level for which

Select one: A (the marginal benefit of reducing carbon emissions is maximized), B (the marginal cost of reducing carbon emissions is minimized), C (the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions), D (the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized)

Answer 1

1. Asymmetric information describes a situation in which one party to an economic transaction has less information than the other party.Hence, option(B) is correct.

2. These elasticities means that beer and spirits are complements because cross-elasticity is negative And spirits and wine are luxuries because income elasticity for both are positive and high. Hence, option(A) is correct.

3. If there is pollution in producing a product ,then the market equilibrium price is too low and the equilibrium quantity is too high. Hence, option(D) is correct.

4. Conceptually, the efficient level of carbon emissions is the level for which the marginal benefit of reducing car emissions is equal to the marginal cost of reducing carbon emissions. Hence, option(C) is correct.