Question

Question 2 [1 marks each/20 marks]
True or false

5) In an unregulated competitive market, the presence of marginal external cost of a good or
service results in overproduction.
6) A marginal external cost is the cost of producing an additional unit of a good that falls on the
producer.
7) Young drivers often buy used cars. An increase in the legal driving age to twenty-one shifts
the demand curve for used cars leftward, whereas lowering the age to fifteen shifts the demand
curve rightward.
8) An inferior good is a good whose income elasticity of demand is less than 0.
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9) Market failure is the situation in which a market delivers an inefficient outcome.
10) A minimum wage set above the equilibrium wage rate has no effect.
11) In the long run, a perfectly competitive firm leaves the market if the market price is less than
the firm's average total cost.
12) When the market demand increases in a perfect competition, the long-run result is a larger
number of firms, a higher price, and a permanent economic profit for the firms.
13) A free rider problem is created by private goods.
14) If the consumption of a good decreases the quantity available for another person, the good is
rival.
15) One way of overcoming the problem of the commons is to make it private property.
16) When external costs are present and government imposes a tax equal to the external marginal
cost, then efficiency can be achieved.
17) An increase in price results in increase in supply but not an increase in the quantity supplied.
18) Fantastic growing conditions that produce a bumper crop of oranges on each tree this year
will definitely make the short run supply of oranges more price elastic.
19) If the hot dog vendors at Yankee Stadium are earning a producer surplus on each hot dog
they sell, then baseball fans cannot be gaining any consumer surplus on the hot dogs they buy.
20) If the demand is perfectly elastic, buyers pay the entire tax.

Answer 1

Q5) True

In private market, the negative externalities result in overproduction of the good, bcoz MEC- marginal external cost , results in Social marginal cost higher than private marginal cost,

Q6) False

Marginal external cost is the additional cost of one unit of production on the third party , which is not related to production or Consumption directly.

Q7) false

As driving age limit rises, demand for used cars increase & hence demand curve shifts to right.

If age limit falls , then demand falls & so demand curve shifts to left

Q8) True

For inferior good, as income increase, then quantity demanded falls.

So income elasticity for inferior good is negative.

Q9) true

Market failure is when private market is unable to allocate the good efficiently, like cases of public goods, externalities

Q10) false

Minimum wage laws are effective only when minimum wage set is above the equilibrium level.

It's mandatory to answer only first four MCQ