Quiz Submissions - Practice Final S20
Thao Nguyen (username: tnguyen136)
Attempt 1
Written: Aug 11, 2020 1:20 AM - Aug 11, 2020 2:25 AM
Submission View
Your quiz has been submitted successfully.
l_W18
0 / 1 point
Which good best meets the definition of scarcity?
air
water in the ocean
electricity in a city
wood in a forest
1 / 1 point
Question 2
Henry decides to spend two hours playing golf rather than working at his job, which pays $8 per hour.
What is Henry’s tradeoff?
the $16 he could have earned working for two hours
nothing, because he enjoys playing golf more than working
the increase in skill he obtains from playing golf for those two hours
nothing, because he spent $16 for green fees to play golf
1 / 1 point
Question 3
Which concept best defines efficiency?
absolute fairness
equal distribution
minimum waste
consumer satisfaction
1 / 1 point
Question 4
Robert spends an hour studying instead of going hiking. What is the opportunity cost to him of
studying?
the improvement in his grades from studying for the hour
the difference between the improvement in his grades from studying minus the
enjoyment of hiking
the enjoyment and exercise he would have received had he gone hiking
nothing, because Russell chose to study rather than to go hiking the value of studying
must have been greater than the value of hiking
0 / 1 point
Question 5
Which of the following is NOT a positive statement?
Lower oil prices will result in higher unemployment.
Equity is more important than efficiency.
Trade restrictions lower our standard of living.
If a nation wants to avoid inflation, it should not print too much money.
1 / 1 point
Question 6
Figure 2-10
Refer to Figure 2-10. What is the slope of the curve between point A and point B?
5/2
2/5
–2/5
–5/2
1 / 1 point
Question 7
A rancher can produce only beef, while a farmer can produce only potatoes. If the rancher and the
farmer like both foods, which of the following is most likely?
They cannot gain from trade.
They could gain from trade under certain circumstances, but not always.
They could gain from trade because each would enjoy a greater variety of food.
They could gain from trade only if each were indifferent between beef and potatoes.
Question 8
1 / 1 point
Figure 3-2
Refer to Figure 3-2. If Paul divides his time equally between corn and wheat, what will he be able to
produce?
4 bushels of wheat and 1 bushel of corn
4 bushels of wheat and 5 bushels of corn
5 bushels of wheat and 4 bushels of corn
5 bushels of wheat and 5 bushels of corn
Question 9
Figure 3-2
1 / 1 point
Refer to Figure 3-2. Assume that Cliff and Paul were both producing wheat and corn, and both were
dividing their time equally between the two. Then they decide to specialize in the product for which
they have a comparative advantage. What would happen to the production of corn?
It would increase by 1 bushel.
It would increase by 2 bushels.
It would increase by 3 bushels.
It would increase by 4 bushels.
Question 10
1 / 1 point
Figure 4-1
Refer to the Figure 4-1. What is the movement from S to S1 called?
a decrease in supply
a decrease in quantity supplied
an increase in supply
an increase in quantity supplied
Question 11
0 / 1 point
What is another term for equilibrium price?
balancing price
market-clearing price
cooperative price
reservation price
Question 12
0 / 1 point
Figure 4-2
Refer to the Figure 4-2. What would happen at a price of $35?
A shortage would exist and the price would tend to fall.
A shortage would exist and the price would tend to rise.
A surplus would exist and the price would tend to rise.
A surplus would exist and the price would tend to fall.
Question 13
1 / 1 point
If the supply of a product increases, what would we expect?
equilibrium price to increase and equilibrium quantity to decrease
equilibrium price to decrease and equilibrium quantity to increase
equilibrium price and equilibrium quantity to both increase
equilibrium price and equilibrium quantity to both decrease
Question 14
1 / 1 point
Suppose that the number of buyers in a market increases and a technological advancement occurs.
What would we expect to happen in the market?
The equilibrium price would increase, but the impact on the amount sold in the market
would be ambiguous.
The equilibrium price would decrease, but the impact on the amount sold in the market
would be ambiguous.
Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
Question 15
In general terms, what does elasticity measure?
how price is determined between buyers and sellers in a market
1 / 1 point
how much government intervention is prevalent in a market
how competitive a market is
how much buyers and sellers respond to changes in market conditions
Question 16
1 / 1 point
What does inelastic demand mean?
consumers hardly respond to a change in price.
consumers respond substantially to a change in price.
consumers respond directly to a change in income.
change in quantity demanded is equal to the change in price.
Question 17
0 / 1 point
Which of the following types of goods would have a large income elasticity?
luxuries
necessities
substitutes
complements
Question 18
1 / 1 point
Suppose the price elasticity of demand for basketballs is 1.2. What will result from a 20 percent
increase in price?
a 24 percent decrease in the quantity of basketballs demanded
a 20 percent decrease in the quantity of basketballs demanded
an 8 percent reduction in the number of basketballs demanded
a 12.5 percent reduction in the number of basketballs demanded
Question 19
Figure 5-3
Refer to Figure 5-3. What does the section of the demand curve labelled A represent?
the elastic section of the demand curve
the inelastic section of the demand curve
0 / 1 point
the unit elastic section of the demand curve
the perfectly elastic section of the demand curve
Question 20
1 / 1 point
If the cross-price elasticity of demand of two goods is negative, what are those two goods called?
substitutes
complements
normal goods
inferior goods
Question 21
0 / 1 point
Figure 6-2
Refer to Figure 6-2. If the government imposes a binding price floor of $14.00 in this market, what is
the result?
a surplus of 30 units
a shortage of 30 units
a surplus of 40 units
a shortage of 40 units
Question 22
Figure 6-8
0 / 1 point
Refer to Figure 6-8. What is the amount of the tax imposed in this market?
$1.00 per unit
$1.50 per unit
$2.50 per unit
$3.00 per unit
Question 23
Figure 6-8
Refer to Figure 6-8. What is the price buyers will pay after the tax is imposed?
$5.00
$6.00
0 / 1 point
$7.00
$8.00
Question 24
1 / 1 point
Figure 8-1
Refer to Figure 8-1. If the market is in equilibrium, what area represents consumer surplus?
A
B
C
D
Question 25
0 / 1 point
Figure 8-5
Refer to Figure 8-5. What would happen to consumer surplus if the tax were imposed on the buyer?
It would fall by $900.
It would fall by $1800.
It would fall by $2700.
It would fall by $3600.
Question 26
Figure 8-6
Refer to Figure 8-6. What was producer surplus before the tax?
$45
1 / 1 point
$75
$125
$150
1 / 1 point
Question 27
What happens when a tax is levied on the labour force and the labour supply curve is relatively
elastic?
The supply of labour will fall a small amount.
The supply of labour will fall a large amount when.
The supply of labour will rise a small amount when.
The supply of labour will rise a large amount when.
1 / 1 point
Question 28
When the size of a tax is doubled, what happens to the deadweight loss from the tax?
It increases by the size of the tax.
It doubles.
It remains constant.
It increases by a factor of four.
1 / 1 point
Question 29
When Canadian goods are sold to the United Kingdom, how are the goods described?
exported by Canada and imported by the United Kingdom
imported by Canada and exported by the United Kingdom
exported by Canada and exported by the United Kingdom
imported by Canada and imported by the United Kingdom
View Feedback
1 / 1 point
Figure 9-2
Figure 9-2 shows the domestic demand and supply for pencil sharpeners in China. Supposing China
engages in trade with us, what will China do?
import 100 pencil sharpeners
import 250 pencil sharpeners
export 250 pencil sharpeners
export 300 pencil sharpeners
View Feedback
1 / 1 point
Refer to Figure 9-2. With free trade, what would consumer surplus in China be?
$400
$800
$900
$1600
View Feedback
1 / 1 point
Dog owners do not bear the full cost of the noise their barking dogs create and, therefore, tend to take
too few precautions to prevent their dogs from barking. How do local governments address this
problem?
by making it illegal to “disturb the peace”
by having a well-funded animal control department
by subsidizing local animal shelters
by asking owners to bargain with their neighbours to resolve the externality
Question 33
0 / 1 point
With pollution permits, what is the nature of the supply curve for pollution rights?
elastic
perfectly elastic
inelastic
perfectly inelastic
Question 34
0 / 1 point
When does the Coase theorem suggest that private markets may NOT be able to solve the problem of
externalities?
when the number of interested parties is large and bargaining costs are high
when government does not actively become involved in the process
when the firm in the market is a monopoly
when some people benefit from the externality
Question 35
1 / 1 point
Assume that your roommate, Vanessa, is very messy and that she has the right to be messy. Suppose
she gets a $100 benefit from being messy but imposes a $200 cost on you. What would the Coase
theorem suggest would be an efficient solution for you?
to pay your roommate $99.99 to clean up after herself
to pay your roommate at least $100 but no more than $200 to clean up after herself
to pay your roommate at least $201 to clean up after herself
to charge your roommate at least $100 to have you clean up after her
Question 36
1 / 1 point
What is a good that is rival in consumption but not excludable?
a public good
a private good
a club good
a common resource
Question 37
1 / 1 point
If the local government in Parksville, British Columbia, decided to put on a public Canada Day
parade, how would the parade be classified?
excludable
rival in consumption
a public good
a common resource
Question 38
Which term refers to the amount of money that a firm receives from the sale of its output?
total gross profit
1 / 1 point
total net profit
total revenue
net revenue
Question 39
1 / 1 point
XYZ Corporation produced 300 units of output but sold only 250 of the units it produced. The average
cost of production for each unit of output produced was $100. Each of the 250 units sold was sold for
a price of $95. What would total revenue for XYZ Corporation be?
–$3875
$3875
$23,750
$25,500
Question 40
1 / 1 point
Blake is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the
popularity of his local country western band, Blake has more students requesting lessons than he has
time for if he is to also maintain his farming business. Blake charges $50 an hour for his guitar
lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He
expects that the seeds he planted will yield $600 worth of wheat.
Refer to Scenario 13-1. What is Blake’s accounting profit?
–$80
$130
$470
$600
Question 41
1 / 1 point
Suppose a certain firm is able to produce 160 units of output per day when 15 workers are hired. The
firm is able to produce 178 units of output per day when 16 workers are hired (holding other inputs
fixed). What is the marginal product of the 16th worker?
10 units of output
11 units of output
18 units of output
176 units of output
Question 42
0 / 1 point
Figure 13-4
The curves in this figure reflect information about the average total cost, average fixed cost, average
variable cost, and marginal cost for a firm.
Refer to Figure 13-4. Why is curve A U-shaped?
because of diminishing marginal product
because of increasing marginal product
because of the fact that increasing marginal product follows decreasing marginal
product
because of the fact that decreasing marginal product follows increasing marginal
product
Question 43
1 / 1 point
Scenario 13-5
A stationery firm produces and sells staplers. Last year, it produced 5000 staplers and sold each
stapler for $10. In producing the 5000 staplers, it incurred variable costs of $25,000 and a total cost of
$45,000.
Refer to Scenario 13-5. What were the firm’s fixed costs?
$20,000
$30,000
$40,000
$50,000
Question 44
1 / 1 point
Scenario 13-5
A stationery firm produces and sells staplers. Last year, it produced 5000 staplers and sold each
stapler for $10. In producing the 5000 staplers, it incurred variable costs of $25,000 and a total cost of
$45,000.
Refer to Scenario 13-5. In producing the 5000 staplers, what was the firm’s average fixed cost?
$3
$4
$5
$6
1 / 1 point
Question 45
Scenario 13-5
A stationery firm produces and sells staplers. Last year, it produced 5000 staplers and sold each
stapler for $10. In producing the 5000 staplers, it incurred variable costs of $25,000 and a total cost of
$45,000.
Refer to Scenario 13-5. In producing the 5000 staplers, what was the firm’s average total cost?
$6
$7
$8
$9
1 / 1 point
Question 46
Scenario 13-5
A stationery firm produces and sells staplers. Last year, it produced 5000 staplers and sold each
stapler for $10. In producing the 5000 staplers, it incurred variable costs of $25,000 and a total cost of
$45,000.
Refer to Scenario 13-5. What was the firm’s economic profit for the year?
–$35,000
–$5000
$5000
$10,000
0 / 1 point
Question 47
Table 13-4
At Beth’s Bakery, Beth pays all her workers the same wage and labour is her only variable cost.
Consider the following information about bread production at Beth’s Bakery:
Worker
1
Marginal
Product
5
2
3
4
5
6
7
9
12
14
10
8
6
From the information in Table 13-4, what can we conclude about Beth’s marginal cost?
It increases as output increases from 0 to 14, but declines after that.
It declines as output increases from 0 to 14, but increases after that.
It declines as output increases from 0 to 40, but increases after that.
It continually increases as output rises.
Question 48
1 / 1 point
Table 14-1
Quantity
1
2
3
4
5
6
7
8
9
Price per Item
$15
$15
$15
$15
$15
$15
$15
$15
$15
Refer to Table 14-1. Over what range of output is average revenue equal to price?
1 to 5
3 to 7
5 to 9
1 to 9
Question 49
Table 14-1
Quantity
1
2
3
4
5
6
7
8
Price per Item
$15
$15
$15
$15
$15
$15
$15
$15
1 / 1 point
9
$15
Refer to Table 14-1. What is the marginal revenue?
$0
$9
$15
$126
Question 50
1 / 1 point
Table 14-1
Quantity
1
2
3
4
5
6
7
8
9
Price per Item
$15
$15
$15
$15
$15
$15
$15
$15
$15
Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, what will happen to total revenue?
It will increase by less than $45.
It will increase by exactly $45.
It will decrease by exactly $45.
It will decrease by less than $45.
Question 51
Figure 14-1
0 / 1 point
Refer to Figure 14-1. When price is equal to P 3, at what level of output will the profit-maximizing
firm produce?
Q1
Q2
Q3
Q4
Question 52
1 / 1 point
Figure 14-1
Refer to Figure 14-1. When market price is at P 2, what would a firm producing output level
Q1 experience?
losses, because P2 < ATC at output level Q1
losses equal to (P2 – P1) × Q1
zero profits
profits equal to (P2 – P1) × Q1
Question 53
Figure 14-9
1 / 1 point
Refer to Figure 14-9. When the market is in long-run equilibrium at point A in panel (b), what will
happen to the firm represented in panel (a)?
It will have a zero economic profit.
It will have a negative accounting profit.
It will exit the market.
It will increase its output.
Question 54
1 / 1 point
Figure 14-9
Refer to Figure 14-9. Assume that the market starts in equilibrium at point A in panel (b). What will
result from an increase in demand from Demand0 to Demand1?
a new market equilibrium at point D
an eventual increase in the number of firms in the market and a new long-run
equilibrium at point C
rising prices and falling profits for existing firms in the market
falling prices and falling profits for existing firms in the market
Question 55
0 / 1 point
Why do additional firms often NOT try to compete with a natural monopoly?
They fear retaliation in the form of pricing wars from the natural monopolist.
They are unsure of the size of the market in general.
They know they cannot achieve the same low costs that the monopolist enjoys.
They see that the natural monopoly doesn’t make a huge profit.
Question 56
Table 15-1
0 / 1 point
Quantity
Price
Total Revenue
1
2
3
4
5
6
7
8
9
$35
$35
$64
Average
Revenue
Marginal
Revenue
$32
$29
$29
$17
$11
$23
$120
$17
$99
$11
–$1
–$7
–$13
Refer to Table 15-1. If the monopolist sells eight units of its product, how much total revenue will it
receive from the sale?
$40
$108
$112
$164
1 / 1 point
Question 57
Table 15-1
Quantity
Price
Total Revenue
1
2
3
4
5
6
7
8
9
$35
$35
$64
Average
Revenue
Marginal
Revenue
$32
$29
$29
$17
$11
$23
$120
$17
$99
$11
–$1
–$7
–$13
Refer to Table 15-1. What is the marginal revenue for the monopolist for the sixth unit sold?
$3
$5
$8
$11
Question 58
1 / 1 point
Figure 15-5
The figure depicts the demand, marginal-revenue, and marginal-cost curves of a profit-maximizing
monopolist.
Refer to Figure 15-5. What is total surplus lost due to monopoly pricing?
triangle bde
triangle bge
rectangle acdb
rectangle cfgd
Question 59
0 / 1 point
A monopolistically competitive firm's choice of output level is virtually identical to the choice made
by what other type of firm?
a perfectly competitive firm
a duopolist
a monopolist
an oligopolist
Question 60
1 / 1 point
When a new firm enters a monopolistically competitive market, what will happen to the individual
demand curves faced by all existing firms in that market?
They will shift to the left.
They will shift to the right.
They will remain unchanged, but the quantity demanded will increase.
They will remain unchanged, but the quantity demanded will decrease.
Question 61
Figure 16-1
Lines in the figures below reflect the potential effect of entry and exit in a monopolistically
1 / 1 point
competitive market on the demand and/or marginal-cost curves of incumbent firms.
Refer to Figure 16-1. Which of the diagrams depicts the effect on incumbent firms of some existing
firms leaving the market?
panel (a)
panel (b)
panel (c)
panel (d)
Question 62
0 / 1 point
Which statement defines business-stealing externality?
It is the positive externality associated with the gains of consumer surplus in a
monopolistically competitive market.
It occurs when one firm attempts to exactly duplicate exactly the product of another
firm.
It is considered to be an explicit cost of business in monopolistically competitive
markets.
It is the negative externality associated with entry of new firms in a monopolistically
competitive market.
Question 63
1 / 1 point
Table 17-3
Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from provinces trying to
recover the health-care related expenses associated with cigarette smoking. Both cigarette firms have
evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). Provincial
prosecutors do not have access to the same data used by cigarette manufacturers and thus will have
difficulty recovering full costs without obtaining at least one cigarette firm study. Each firm has been
presented with an opportunity to lower their liability in the suit if they cooperate with attorneys
representing the provinces.
Firm B
Concede that
cigarette smoke
causes lung cancer
Argue that there
is no evidence that
smoke causes cancer
Firm A
Concede that
cigarette smoke
causes lung cancer
Argue that there is no
evidence that smoke causes
cancer
Firm A loss = –$20
Firm B loss = –$15
Firm A loss = –$50
Firm B loss = –$5
Firm A loss = –$5
Firm B loss = –$50
Firm A loss = –$10
Firm B loss = –$10
Refer to Table 17-3. Pursuing its own best interests, when will Firm A concede that cigarette smoke
causes lung cancer?
only if Firm B concedes that cigarette smoke causes lung cancer
only if Firm B denies that cigarette smoke causes lung cancer
regardless of whether Firm B concedes that cigarette smoke causes lung cancer
under no circumstances
Question 64
1 / 1 point
Scenario 17-3
Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two
companies split the market. If they both advertise, they again split the market, but profits are lower,
since each company must bear the cost of advertising. Yet if one company advertises while the other
does not, the one that advertises attracts customers from the other.
Refer to Scenario 17-3. What is PM Inc.'s dominant strategy?
to refrain from advertising, regardless of whether Brown Inc. advertises
to advertise only if Brown Inc. advertises
to advertise only if Brown Inc. does not advertise
to advertise, regardless of whether Brown Inc. advertises
Question 65
In what direction will an increase in income cause a shift in the budget constraint?
outward
toward the good most consumed
toward the good least consumed
1 / 1 point
inward
Question 66
1 / 1 point
Figure 21-3
Refer to Figure 21-3. In graph (a), if income is equal to $210, what is the price of good Y?
$1
$2.50
$3.50
$4
Question 67
0 / 1 point
Figure 21-3
Refer to Figure 21-3. In graph (a), what is the price of good Y relative to good X (i.e., PY/PX)?
1/4
1/3
3/4
3/1
Question 68
0 / 1 point
Figure 21-4
This figure shows a consumer’s choice between popcorn and juice.
Refer to Figure 21-4. Which statement best describes a consumer who moves from point A to point D?
The consumer has a stronger preference for popcorn.
The consumer is indifferent between point A and point D.
The consumer is definitely worse off.
The consumer is likely to place a higher relative value on juice at point A than at
point D.
Question 69
1 / 1 point
Which relationship represents the consumer’s optimum choice?
MUX/MUY = PY/PX
MUX/PY = MUY/PX
MRSXY = PY/PX
MUX/PX = MUY/PY
Question 70
0 / 1 point
Figure 21-7
Refer to Figure 21-7. If the consumer is currently at point A, what effect is represented by a
movement to point B as a result of a decrease in the price of potato chips?
the substitution effect
the income effect
the budget effect
the price effect
48 / 70 - C+
48 / 70 - C+
Done
Assignment 1
What pattern of specialization and trade would benefit both Arthur and April? Why?
They would have a comparative advantage which would minimize opportunity costs
for both Arthur and April. Arthur should produce croissants while April should produce pies.
Lowest opportunity cost, means that they have a comparative advantage and should
specialize. Absolute advantage does not matter for trade.
Assignment 2
1. Suppose that the equilibrium price in a market is $10, but the existing market price is
$8. What will happen in the market? What if the existing market price is $15?
 There will be excess demand, therefore existing price will adjust by rising to
equilibrium price.
 If the existing market price is $15, it’s above equilibrium price which causes excess
supply. Existing price will fall until equilibrium is reached.
2. For each of the following situations in the wheat market, determine whether the quantity
demanded changes, or the demand curve shifts, and show the direction of the change
in each diagram
a) Consumer income increases: Demand shifts right (whole thing right)
b) The price of wheat increases: Movement up and to the left along the Demand Curve
(point D1 to point D2), but supply changes
c) Science determines eating wheat causes high blood pressure: Demand shifts left
d) The price of oats increase: Demand shifts right
e) In July, insects destroy part of the wheat crop in Saskatchewan: Demand shifts right
3. Which would likely have less elastic supply, commercial property in downtown Toronto,
or hot dogs in downtown Toronto? Why?
Commercial property in downtown Toronto would have less elastic supply because it
would be difficult to change quantity supplied. Hot dogs are more flexible which makes it
elastic as quantity supply responds a lot, and readily change in response to price
change. There will always be a supply of properties as it is a city, and people live there.
Difficult to change Q supplied in response to a P change.
4. Suppose you are the manager of a theatre. You currently charge the same admission
price to all customers, regardless of age. You hire an economist to determine the price
elasticity of demand for admission by age, and he tells you that at the current admission
price, demand by adults is inelastic and demand by children is elastic. If you want to
increase your total revenue by adjusting admission prices, how should they be
adjusted?
-adults, are inelastic Demand, therefore increase Price. Although quantity will
decrease, it will be by a smaller %. TR will increase.
-Children have elastic demand, therefore decrease price. Quantities will increase,
but by a larger %. Therefore TR will increase.
5. How does the legal tax liability affect the incidence of taxation?
-
Legal tax liability is irrelevant for incidence
Incidence depends only on elasticities of demand and supply
Largest burden falls on more inelastic side of the market
Assignment 3:
1.
Explain what happens to the efficiency of free markets if:
a. There is market power exercised by buyers or sellers.
b. There are externalities (4 marks)
a) Market power causes markets to be inefficient because it keeps the price and
quantity away from the equilibrium of demand and supply, therefore it reduces total
surplus. Perfect competition would not be achieved creating deadweight loss.
b) Externalities causes market equilibrium to be inefficient from standpoint of society.
Demand and Supply represents private benefits and costs for buyers and sellers.
Externalities do not take into account external benefits and costs for others from the
production and consumption of the good
2.
What is the relationship between a change in the size of a tax, and the change in the
deadweight loss of the tax? (2 marks)
a) Deadweight loss increases proportionately to the square of the increase in the
tax. For example, if tax doubles, deadweight loss quadruples. The more tax, the
more deadweight loss, the more inefficient.
3.
What is the best predictor of whether reducing a tax in a market will increase or
decrease tax revenue? Explain. (3 marks)
a) The best predictor is the elasticity of supply and demand in the market.
b) The more elastic the supply and demand, the more sensitive consumers are to
price change, therefore increasing prices would drop quantity sold. The more
taxes in that market will distort behaviour (change Q substantially). More likely
that tax cut will result in an increase of tax revenue.
Assignment 4:
SHORT ANSWER
1.
Since trade allows a nation to use its resources more efficiently, does trade also lead
to greater equity? (2 marks)
-
Free trade – resources are used more efficiently, that is there is a net gain to the members of
-
However, within each country there are those who gain (consumers or producers) and there
are those who lose (producers or consumers)
society in each country that trades
Probably losers are not compensated by gainers
2.
-
3.
Opponents of free trade argue that trade must be restricted in order to save
domestic jobs. As a free-trade, how would you counter this argument? (2 marks)
- Free trade:
Jobs gained in export (comparative advantage) industries which will expand
jobs lost in
import industries
Some retraining of workers is required
To produce honey, beekeepers place hives of bees in the fields of farmers. As bees
gather nectar, they pollinate the crops in the fields increasing the yields of these
fields at no additional cost to the farmer. What might be a reasonable private
solution to this externality and how might the solution be reached? (3 marks)
-
Beekeepers – external benefit received from proximity of farmer’s fields
-
Farmers – external benefit from pollination of crops by bees
Single ownership - either beekeeper or farmer could buy out the other – would allow full
recognition of all benefits and costs and more efficient decision making
-
OR Contract between them making payment for the external benefits received
This would lead to full accounting for all benefits and costs and more efficient
decisions about production quantities
-
Continued on the next page…
4.
Primary school education is often used as an example of an activity which generates
positive externalities. Let’s assume than in a particular country, all primary
education is provided by the private sector and private demand is perfectly elastic at
a price of $1,000 per student. Further assume that the marginal external benefit is
constant at $100 per student. Use the additional information below to answer the
following questions.
Number of Students
Marginal Private Cost
1
100
2
220
3
370
4
560
5
780
6
1080
7
1500
8
1990
9
2600
10
3420
a) Graphically depict the number of students that will be educated if external benefits
are not accounted for. (1 mark)
5 STUDENTS
b) Graphically depict the number of students that should be educated to maximize
social welfare. (1 mark)
6 STUDENTS
Q
Continued on the next page…
Devise a government subsidy that will induce private education providers to educate the
socially optimal number of students. (1 mark)
Students pay
Government subsidy
Total
$1000
80
$1080
$1080 will induce educators to educate 6 students (optimal)
$100 subsidy (size of externality) is okay too
c)
Does it ever make sense to not educate some students? If the example were
couched in terms of a college education, would it ever make sense not to educate
some students? Explain your answer (2 marks)
To achieve a higher level of output (GDP) and income level, citizens should have proper
education. Would make sense not to educate some people if their private marginal benefit
cost is higher than social marginal benefit.
Assignment 5:
5.
The environmental degradation of natural resources is much more prevalent in
countries with a long history of communist rule. Using
your understanding of
Student Number: 190941300
Student Name: NGUYEN THAO
common resources explain this phenomenon. (3 marks)
ASSIGNMENT 5
Question 1
Marks
Resources collectively owned
1 mark
½
Tend of be overused like ‘Tragedy of the Commons’
1 mark
1
Private ownership provides an incentive to preserve the resource for
continued gain in future
1 mark
0
Subtotal
3 marks
1½
Missing values column 2 and 3
1 mark
1
Missing values column 4
1 mark
1
Missing values column 5
1 mark
1
Missing values column 6
1 mark
1
Missing values column 7
1 mark
1
Missing values column 8
1 mark
1
Subtotal
6 marks
6
b) MPL is the mirror image of MC (Extra cost for more output comes
from hiring more labour)
1 mark
1
MC is increasing over the whole range of output from the beginning
1 mark
1
MPL is decreasing continuously as more output is produced
1 mark
1
Subtotal
3 marks
3
Total Marks
12 marks
10
½
Common resource property – non-excludable but rival
Question 2
a) (see table below for missing values)
If just talk about law of diminishing returns = 1 mark
Extra Mark
1
Total Score
11
½
Output
Fixed
Cost
Variable
Cost
Total
Cost
Average
Fixed
Cost
0
1850
0
1850
-
1
1850
400
2250
1850
Average
Variable
Cost
-
Average
Total
Cost
-
400
2250
Marginal
Cost
400
2
1850
850
2700
925
425
1350
450
3
1850
1350
3200
617
450
1067
500
4
1850
1900
3750
463
475
938
550
5
1850
2500
4350
370
500
870
600
6
1850
3200
5050
308
533
842
700
7
1850
4100
5950
264
586
850
900
8
1850
5400
7250
231
675
906
1300
9
1850
7300
9150
206
811
1017
1900
10
1850
9800
11650
185
980
1165
2500
Output (Hundreds
of documents
delivered per
month)
0
Fixed
Cost
1
1850
2
1850
3
1850
Variable
Cost
Total
Cost
400
2250
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
1850
400
1350
1350
4
1900
5
2500
6
4100
8
5400
9
7300
450
3200
475
370
5050
7
10
Average
Fixed
Cost
700
231
11650
980
6. A courier service in Calgary, called Hills and Deliverables, has recently started to deliver
mail between downtown office buildings by bicycle. Deliverables is a small company that
has several contracts with large oil and gas firms, law firms and brokerage houses. The
owner rents a small room in an office building downtown for $1600 a month and leases
three bicycles from a local bicycle store for $250 a month (this includes all bicycle
maintenance). The cost structure for the firm is reflected in the table above.
a) Fill in all the missing blanks in the table. (6 marks)
b) Assuming that Hills and Deliverables pays all of its workers the same wage, is marginal
product of labour decreasing over any range of output? Why or why not? (3 marks)
Common goods are excludable but rival in consumption
Assignment 6:
If firms that remain in a perfectly competitive market over the long-term must make
zero profit, why do firms choose to remain in the market? (4 marks)



Economic profit is equal to Total Cost subtracted from Total Revenue.
o Economic Profit= Total Revenues-Total costs
Where total cost is the sum of direct costs and indirect costs
o Total Cost= Direct Costs+ Indirect Costs
o Total cost includes all opportunity costs
Where total revenue is the product of price and quantity
o Total Revenue= Price x Quantity
Direct costs are costs that are used to make the goods or providing the services. For
example, direct labour, direct materials, and manufacturing supplies.
Indirect costs are general business expenses to keep the business in operation. For
example, it would include rent, utilities, or general office expenses.

Accounting profit is Total Cost subtracted from Total Revenue; however the only
difference is that the total costs only use direct costs rather than both direct and
indirect costs like in Economic Profit
o Accounting Profit= Total Revenue-Direct Costs
The reason why firms choose to remain in the market despite making zero profit in the long
run is although economic profit remains zero, accounting profit will be positive. The
existence of positive accounting profit is why firms choose to remain in the market.
For a perfect competitive market, you must have free entry and exit. In the long run, this
will cause firms to have profits eventually getting to zero, and firms will produce at an
efficient scale. Although the firm is earning zero economic profit, the firm’s revenues can
compensate for the time and money to keep the business going. The total revenue covers
explicit costs but not opportunity costs. Generally, economic profit is lower than accounting
profit anyways. Therefore, even if economic profit becomes 0 or negative, as long as total
revenues is able to cover explicit/direct costs, accounting profit will be positive. As long as
accounting profits are positive, firms will choose to remain in the market despite making
zero profit in the long run.
Assignment 7:
SHORT ANSWER
7. Why does monopoly pricing prevent some mutually beneficial trades from taking place?
(5 marks)
Monopolist restricts output to QM (where MR = MC)
And charges price PM.
At PM, price > MC
There are buyers who would pay more than MC for units of output between QM and QP
But they will not buy at PM
These are mutually beneficial trades that are not taking place
Assignment 8:
SHORT ANSWER
1.
Explain the practice of resale price maintenance and discuss why it is controversial?
(3 marks)
3. Incumbent firms are affected through the loss of sales Resale price
maintenance is a
requirement by producers that retailers sell their product for a price specified by
the manufacturer
Some think it limits the ability of retailers to compete on the basis of price.
Resale price maintenance reduces competition which is a violation of the
competition laws.
Others disagree and enumerate the benefits: stops consumers from taking
advantage and participating in free-ride.
2. Entry of firms in a monopolistically competitive industry is characterized by two
“external” effects. List these effects and briefly describe how consumers and incumbent
firms are influenced by these externalities. (4 marks)
External effects:
1) product variety
Incumbent firms face a market with more substitutes
Consumers have more product and variety to choose from.
2) business stealing
Consumers are affected by a lower price
Incumbent firms are affected through loss of sales