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Homework answers / question archive / 7
7. In 2001, prices of coffee in Ethiopia fell by half - from 79 cents per kilogram in 2000 to 39 cents. If the demand for Ethiopian coffee is assumed to be price inelastic, the fall in price will cause:
A. A rise in the total revenue of coffee growers
B. A fall in the total revenue of coffee growers
C. No change in total revenue
D. An increase in the profitability of growing coffee in Ethiopia
8. In a free-market economy, an increase in the market price of a good will
A. Always lead to more resources being allocated to production of the good
B. Always lead to a fall in the output of the good
C. Provide information which will influence the production and consumption decisions of producers and consumers
D. Make it less likely that new suppliers will enter the industry
9. If the government wishes to increase economic welfare by introducing policies that create external benefits as well as internal ones, it should:
A. Raise the price of unleaded fuel
B. Increase the highest rates of income tax
C. Increase the school - leaving age
D. Impose higher taxes on polluting producers
10. Which of the following is a case of market failure in the context of the provision of pure public goods?
A. Consumers pay higher prices for a good following a shortage of supply
B. A government decides to supplement the private sector provision of a good
C. A government finds it necessary to provide a range of goods not offered by the private sector
D. A government's financial support for an industry leads to over-supply and a loss of efficiency
11. The government wants to increase taxes on selected products to increase tax revenues. This higher tax would only increase tax revenues if the price elasticity of demand for the products are:
A. Unit elastic
B. Elastic
C. Inelastic
D. Perfectly elastic
12. The benefit of an increase in a government subsidy to milk producers will go mainly to consumers in the form of a lower price when:
A. Demand for milk is price elastic
B. Supply of milk is perfectly inelastic
C. Demand for milk is price inelastic
D. Demand for milk is income elastic
13. Which of the following is True about the effect of a government-imposed price floor when the price floor being set is above the market equilibrium price?
A. Consumer surplus will increase
B. All firms will gain
C. There will be a product shortage
D. Consumer surplus will decrease
14. A consumer is making purchases of products A and B such that MUa / Pa=1.5 and MUb / Pb=3. The utility-maximizing rule suggests that this consumer should:
A. buy more of product A and less of product B.
B. buy more of product B and less of product A.
C. not make any change in the purchase decision.
D. None of the above
15. Information about a firm’s production costs at a particular output level are given below:
Total variable costs $ 7200
Average fixed costs $ 20
Average total costs $ 100
What is the firm’s output?
A. 60 units
B. 72 units
C. 90 units
D. It cannot be computed based on the information provided
19. The diagram above shows Sarah’s costs of producing mugs. The market for mugs is perfectly competitive. If the market price of a mug falls to $5 and Sarah shuts down temporarily her business, her total variable cost is ________ an hour and she incurs an economic loss of ________ an hour.
A. $160; $280
B. $8; $14
C. $0; $300
D. $0; $6
20. In which of the following market structures do individual firms exert no control over product price?
A. oligopoly
B. pure monopoly
C. monopolistic competition
D. pure competition
21. Suppose that a competitive firm has MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will:
A. realize a profit of $4 per unit of output.
B. maximize its profit by producing in the short run.
C. minimize its losses by producing in the short run.
D. shut down in the short run.
22. A pure monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price must be cut to $7.00. The marginal revenue of the 21st toy is:
A. -$10
B. -$13
C. -$18
D. -$21
24. Refer to the above diagram for a non-collusive oligopolist. We assume that the firm is initially in equilibrium at point E where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right):
A. D1ED2.
B. MR2abMR1.
C. MR2aMR2.
D. MR1bMR1.
25. Which of the following situations may improve the degree of allocative and productive efficiency conditions of oligopoly markets?
A. Less foreign competition stimulates more price competition among local oligopoly firms
B. Oligopolies are less technologically competitive so they lose market share
C. Oligopolies may purposely keep prices below profit-maximizing levels (to create barriers for other firms to enter the industry)
D. The more collusive practices of oligopolies lead to more profit-sharing among firms in the industry
7. The correct answer is B A fall in total revenue of coffee growers.
Because when good is inelastic the percentage Change in price is more than percentage Change in quantity. It means when price for inelastic good reduces than the Demand for that good doesn't increase as much as price reduces due to which the total revenue falls.
8. The correct answer is B. Always lead to fall in output of the good.
Because there is invere relation between the price and quantity, when price rises the quantity reduce and vice versa.
11. The correct answer is C. Inelastic
Because when Demand is inelastic the habit of consumer Demand does not change so much whether price of goods increase or decrease. So when tax increase the price the tax revenue increases for government. Inelastic goods are generally necessary goods, so consumer not deny there consumption.
12. The correct answer is C. Demand for milk is price inelastic.
When Demand for good is inelastic a large reduce in price creates small increase in quantity. So consumer get benefit when good is inelastic.
13. The correct answer is D. Consumer surplus will decreases.
Because consumer surplus is the area above the price and below the Demand curve. After the price floor impose the price increases due to which consumer surplus reduce.
14. The correct answer is B. Buy more products of B and less product of A.
Because in the above case the consumer get more marginal utility in case of good B as compared to good A. Therefore, he will buy more of B and less A. This will lead fall in MUb and rise rise MUa. The consumer will continue to buy more B till MUb/Pb = MUa/Pa.
15. The correct answer is C 90 units
Because ATC×Q = AVC×Q + VC
100Q = 20Q + 7200
100Q-20Q = 7200 SO 80Q = 7200 so Q = 90.
20 the correct answer is Pure competition.
Because in pure competition the firm are price taker not price maker
