Question 1

Question 1
Use the following information to answer questions 1, 2 and 3:

The demand for coal briquettes is given by the following: p=200-0.5*Q. The private marginal cost of coal briquettes is given by the following: MC=20+0.5Q. In addition, there is an external cost of coal briquettes (E) to residents who live near the coal mine given by the following: E=Q.

The socially optimal level of coal production is:

30.

90

110.

180.

none of the above.

Question 2
If the market for coal briquettes is competitive, the deadweight loss to society is equal to:

0.

4500.

8100.

9000.

None of the above.

1 points

Question 3
A Pigouvian tax of _______ on coal production will ensure the efficient outcome is achieved:

0.

$45.

$90.

$135.

$180.

Question 4
Consider the following game. Roger and Jemima are roommates who must make decisions about cleaning. Roger’s payoff is the first number in each cell and a higher number is a better outcome:

Jemima

Clean

Don’t clean

Roger

Clean

( 6, 10 )

( 2, 6 )

Don’t clean

( 6, 4 )

( 4, 0 )

This game has no Nash equilibrium.

This game has a single Nash equilibrium.

This game has more than one Nash equilibrium.

Both Roger and Jemima have a strictly dominant strategy.

both b and d are correct.

Question 5
Assume that there is a world price for corn and that the domestic market has the usual downward sloping demand curve and upward sloping supply curve. Which of the following statements is true for a country that exhibits an absolute disadvantage in the production of corn?

The country will import corn and consumer surplus will increase relative to the no trade situation.

The country will import corn and producer surplus will increase relative to the no trade situation.

The country will export corn and consumer surplus will increase relative to the no trade situation.

The country will export corn and producer surplus will increase relative to the no trade situation.

More information is required.

Question 6
Which of the following statements about markets and the problem of externalities is (are) true?

Externalities generally lead to an inefficient level of consumption and or production

The inefficiency caused by an externality may be resolved by appropriately defining property rights

Taxes or subsidies may be used to correct the inefficiency caused by an externality

Even for a negative externality such as pollution, efficiency generally requires a positive level of pollution

All of the above.

Question 7
Which of the following statements is (are) true?

Individuals have a demand for public goods and competitive markets supply an efficient amount.

A demand curve for public goods is the horizontal sum of the demand curves of each individual.

A demand curve for public goods is the vertical sum of the demand curves of each individual.

Efficiency for a public good requires that the marginal benefit for each individual equals the marginal cost of producing the public good

Both c. and d.

Question 8
Bob has a demand curve for public broadcasting (denoted by G) given by the following: G = 9 – 0.5p. Similarly, Christine has a demand curve given by the following: G= 7 – p. Assume that the marginal cost of providing every hour of broadcasting is equal to 6. The efficient number of hours supplied equals:

0.

4.

5.

7.

10.

Question 9
Two shops in Newtown, “Artisan Pens” and the Thrift Shop, are deciding whether to hire a security guard. The security guard represents a public good in that the guard will provide deterrence to both stores. The cost of hiring a guard is $20 in total or $10 per store if the cost is shared. Each store will benefit from the presence of a security guard by reducing theft by $12. The payoffs for the Thrift Shop are shown first in each cell. If the payoff matrix is given by:

Artisan pen store

Hire

Do not hire

Thrift shop

Hire

2, 2

-12, 8

Do not hire

8, -12

0, 0

In the Nash equilibrium:

A guard will be hired.

No guard is hired.

One store hires the guard and both benefit from the presence of the guard.

Neither player has a dominant strategy and there are no Nash equilibrium.

More information is required to answer the question.

Question 10
Australia is a small open economy (a price taker) that imports televisions, an internationally traded commodity. Suppose the demand for TVs in Australia rises by 10 per cent. The domestic price of TVs ______ and imports _______.

falls, increase.

falls, decrease.

remains unchanged, increase.

remains unchanged, decrease.

none of the above.

Question 11
Which one of the following is true for a competitive market?

For a private good everyone can consume the same amount but the marginal valuation on the last item consumed may be different for different individuals.

For a private good everyone can consume a different amount and the marginal valuation on the last item consumed is different for different individuals.

For a public good everyone consumes the same amount and the marginal valuation on the last item consumed is the same for all individuals.

For a public good everyone can consume a different amount and the marginal valuation on the last item consumed is the same for all individuals.

None of the above.

Question 12
Consider the following sequential game in which BHP and Rio can make a decision to make a large (L), medium (M) or small (S) investment. Note that BHP makes it decision first and that the payoffs represent profits. What is the Nash equilibrium of this game?

BHP plays S; Rio plays L.

BHP plays M; Rio plays L.

BHP plays S; Rio plays M.

BHP plays L; Rio plays L.

None of the above.

1 points

Suppose individuals A and B have the following demand curves for a public good: QA = 40 – 2p and QB = 40 – p, where Q is the amount of the public good. If the marginal cost of production is constant and equal to 30, the quantity produced in the competitive equilibrium would equal ____ and the efficient outcome is equal to ____:

0, 10.

10, 10.

10, 20.

10, 30.

None of the above.

Question 14
Which of the following statements is true?

A public good can be characterised as an externality because individuals compare only the private marginal benefits and costs when deciding how much to purchase.

A public good is non rivalrous.

A public good is non excludable.

a and b are correct but c is incorrect.

a, b and c are correct.

Question 15
Which of the following statements is true?

Common property resources can be characterised as an externality because individuals compare only the private marginal benefits and costs when deciding how much to use the common resource.

A common property resource is non excludable.

A common property resource is non rivalrous.

Both a and b are correct but c is incorrect.

a, b and c are correct.

Question 16
Questions 16, 17 & 18 refer to the following situation:

Assume that the domestic demand for cars is given by Qd=8000-2P and the domestic supply of cars is given by Qs=P-1000. The price of cars on the world market is $2000. In the absence of international trade the quantity exchanged is ______ and total surplus is equal to _________:

2,000; 6,000,000.

2,000; 3,000,000.

3,000; 3,000,000.

3,000; 10,500,000.

2,000; 7,000,000.

Question 17
In the presence of international trade the price in the domestic market exchanged is ______ and consumer surplus is equal to _________:

2,000; 12,000,000.

2,000; 3,000,000.

3,000; 12,000,000.

3,000; 24,000,000.

None of the above.

Question 18
The deadweight loss from not engaging in international trade is equal to:

0.

1,500,000.

3,000,000.

5,000,000.

None of the above.

Question 19
Free to air television (FTA) is a pure public good that is consumed by two individuals, Gordon and Desmond. Gordon has a demand for FTA given by the following: q=25-0.5p. Desmond has a demand curve for FTA given by the following: q=30-p. If the constant marginal cost of producing FTA is $40, in a competitive market the quantity of television would be ____ while the efficient quantity of FTA is equal to _____;

5 ; 10.

10 ; 20.

5 ; 5.

10 ; 15.

none of the above.

Question 20
The government is considering removing a quota on the import of lithium batteries. The domestic demand curve is given by Q=90-p. The domestic supply curve is P=30+0.5Q. The world price for lithium batteries is $40. If the quota is set for 20 units, what is the deadweight loss from the quota? (Hint: After the quota is imposed, the supply curve at prices greater than $40 is given by the following, p=20+0.5Q).

0.

16.67.

40.33

150.

None of the above.