Question

Use the following information to answer the next two questions.

The market for good x can be represented by:

Qd= 10 -P

(note that it might be easier to graph if you rearrange the terms as P=10-Qd)

Qs= -4 +P

(and this might be easier to graph if you rearrange terms as P=4+Qs)

Calculate consumer surplus in this market.

a	CS= 9
b	CS= 4.5
c	none of the answers provided here are correct
d	CS= 3

Use the following information to answer this question.

The market for good x can be represented by:

Qd= 10 -P

(note that it might be easier to graph if you rearrange the terms as P=10-Qd)

Qs= -4 +P

(and this might be easier to graph if you rearrange terms as P=4+Qs)

Calculate producer surplus in this market.

a	PS= 9
b	none of the answers here are correct
c	PS=3
d	PS=4.5

Coase Theorem says that if there are no bargaining/transaction costs:

a	markets will only result in a socially sub-optimal outcome when the size of the Pigovian tax is larger than the size of the negative externality
b	markets will always over prove a good/service in the presence of externalities.
c	private parties can solve the problem of externalities on their own regardless of how the property rights were initially distributed
d	private parties can only solve the problem of externalities through the use of Pigovian tax

Generally, the market is pretty good at providing _____ good, and pretty bad at providing _____goods.

a	private, public
b	natural monopoly, common resource
c	public, private
d	common resource, natural monopoly

Answer 1