Q&A Hero

Q: At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula. A) 2 B) 1.25 C) 0.9 D) 0.75

Q: Suppose the demand curve for hybrid cars shifts to the right. This will cause a relatively small increase in the price of hybrid cars if A) demand is elastic and supply is inelastic. B) demand is inelastic and supply is elastic. C) both demand and supply are inelastic. D) both demand and supply are elastic.

Q: If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would A) also double. B) decrease by 50%. C) be cut in half. D) remain constant.

Q: Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price? A) The more elastic the supply curve, the greater the price increase. B) The more elastic the supply curve, the smaller the price increase. C) The increase in price is not affected by the elasticity of the supply curve. D) There will be no increase in price if the supply curve is perfectly inelastic.

Q: Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Source: Jonathan D. Glater and Alan Finder, "In New Twist on Tuition Game, Popularity Rises With the Price," New York Times, December 12, 2006 Based on the information above, the demand for Hendrix College education is A) unit-elastic. B) perfectly elastic. C) relatively inelastic. D) More information is needed to answer the question.

Q: Figure 6-12 Refer to Figure 6-12. The diagram shows two supply curves, SA and SB. As price rises from P0 to P1, which supply curve is more elastic? A) SA B) SB C) They are equally inelastic. D) They are equally elastic.

Q: If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is A) unit-elastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.

Q: Figure 6-12 Refer to Figure 6-12. Suppose the diagram shows the supply curves for a product in the short run and in the long run. Which supply curve represents supply in the short run and which curve represents supply in the long run? A) SB represents supply in the short run and SA represents supply in the long run. B) Either SA or SB could represent supply in the short run; in the long run the supply curve must be a vertical line. C) Either SA or SB could represent supply in the long run; in the short run the supply curve must be a horizontal line. D) SA represents supply in the short run and SB represents supply in the long run.

Q: If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is A) unit-elastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.

Q: Which of the following is a key determinant of the price elasticity of supply? A) the slope of the supply curve B) the availability of substitutes in production C) the available technology D) the time it takes to change output in response to a change in price

Q: Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve? A) It is inelastic at high prices and elastic at low prices. B) It is unit-elastic throughout the demand curve. C) It is elastic at high prices and inelastic at low prices. D) It is perfectly elastic at very high prices and perfectly inelastic at very low prices.

Q: The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by A) 1.5 percent. B) 15 percent. C) approximately 25 percent. D) approximately 5 percent.

Q: Figure 6-4 Refer to Figure 6-4. At the midpoint of the demand curve, in absolute value A) the price elasticity coefficient is at a maximum. B) the price elasticity coefficient is at a minimum. C) the price elasticity coefficient is zero. D) the price elasticity coefficient is one.

Q: The price elasticity of supply is usually a positive number because A) quantity supplied increases in response to income increases. B) quantity supplied increases in response to price increases. C) the quantity demanded usually rises when price falls and therefore suppliers would want to capitalize on this increase in demand. D) price rises when supply increases.

Q: Figure 6-4 Refer to Figure 6-4. The inelastic segment of the demand curve A) is coincident with the horizontal axis. B) is coincident with the vertical axis. C) lies below the midpoint of the curve. D) lies above the midpoint of the curve.

Q: Table 6-7PriceQuantity DemandedQuantity Supplied$65,0002,00074,0002,00083,0002,00092,0002,000101,0002,000The town of Bloomfield is well known for its basketball team. The price of basketball game tickets is determined by market forces. Table 6-7 above shows the demand and supply schedules for basketball games tickets.Refer to Table 6-7. What is the numerical value of the price elasticity of supply?A) 1B) greater than 0 but less than 1C) 0D) greater than 1

Q: Figure 6-4 Refer to Figure 6-4. Which of the following statements is true about the price elasticity of demand? A) The elasticity coefficient is constant along the demand curve. B) The elastic portion of a straight-line downward sloping demand curve corresponds to the segment above the midpoint. C) The inelastic portion of the demand curve corresponds to the segment above the midpoint. D) At the midpoint of the demand curve, the elasticity coefficient is zero.

Q: Table 6-7PriceQuantity DemandedQuantity Supplied$65,0002,00074,0002,00083,0002,00092,0002,000101,0002,000The town of Bloomfield is well known for its basketball team. The price of basketball game tickets is determined by market forces. Table 6-7 above shows the demand and supply schedules for basketball games tickets.Refer to Table 6-7. What is the most distinctive feature of the supply curve?A) The supply curve is perfectly inelastic.B) The supply curve is horizontal.C) The supply curve is upward sloping.D) The supply curve is perfectly elastic.

Q: Which of the following statements about price elasticity of demand is false? A) The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. B) If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. C) The value of the price elasticity of demand along a downward-sloping demand curve is always negative. D) A linear downward-sloping demand curve has a varying price elasticity coefficient.

Q: A supply curve that is vertical A) is perfectly elastic. B) is perfectly inelastic. C) is impossible. D) has an elasticity equal to 1.

Q: Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula. A) 1.67 B) 1.0 C) 0.6 D) 0.53

Q: If a supply curve is a horizontal line, supply is said to be A) perfectly inelastic. B) unit-elastic. C) inelastic. D) perfectly elastic.

Q: Figure 6-3 Refer to Figure 6-3. Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f. A) 0.32 B) 0.4 C) 2.5 D) 3.125

Q: Inelastic supply occurs whenever the elasticity of supply value is A) negative and < -1. B) any positive number. C) positive and > 1. D) positive and < 1.

Q: Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? A) 0.11 B) 0.37 C) 2.69 D) 9.33

Q: If an 8 percent decrease in the price of lobster leads to a 15 percent decrease in the quantity supplied of lobster, then the supply of lobster is A) unit-elastic. B) unitarily elastic. C) elastic. D) perfectly inelastic.

Q: Figure 6-2 Refer to Figure 6-2. The absolute value of the price elasticity of demand at points a and b is 1. What is the value of Pb? A) $50 B) $40 C) $30 D) $20

Q: Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by 16 percent. Based on this information the price elasticity of supply of jean-jackets is A) 0.625. B) 6%. C) 1.6. D) 1.6%.

Q: If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula. A) 0.17 B) 0.62 C) 1.62 D) 5

Q: Classifying a good as rival means A) that the good is produced in a competitive market. B) that there is a shortage of the good. C) that when one person consumes a unit of the good no one else can consume it. D) anyone who does not pay for the good cannot consume it.

Q: Classifying a good as excludable means A) that someone can be barred from consuming the good based on race, creed or some other irrelevant characteristic. B) that anyone who does not pay for the good cannot consume it. C) that consumption of the good causes no externalities. D) that a producer with patent or copyright protection can exclude any other producer from selling his product.

Q: Goods can be classified on the basis of whether their consumption is A) internal and excludable. B) rival and competitive. C) includable and cooperative. D) rival and excludable.

Q: Public goods are distinguished by two primary characteristics. What are they? A) nonrivalry and nonexcludability B) government intervention and low prices C) market failure and high prices D) rivalry and exclusivity

Q: Global warming refers to the effect of global pollutants such as carbon dioxide on climates on the earth. Climate-induced changes in temperatures affect, among other things, agriculture. Which of the following is a reason why policymakers are still debating if this problem should be addressed and how it should be addressed? A) Scientists agree about the damage caused by carbon emissions but disagree about the methods of reducing emissions. B) The marginal cost of reducing carbon emissions is known with certainly but the marginal benefit from reduction is not known with certainty. C) The marginal cost of reducing carbon emissions is not known with certainly but the marginal benefit from reduction is known with certainty. D) There is much disagreement about all aspects of the problem: how much carbon emissions contribute to damage from climate change which in turn informs the benefits from reduction, and what methods to use which in turn determines the cost of reduction.

Q: The basic cause of deadweight losses from the existence of common resources and externalities is A) a lack of clearly defined and enforceable property rights. B) the self interested rationality of human beings. C) the use of a market system to deal with scarcity. D) the absence of government intervention.

Q: The tragedy of the commons was avoided in the Middle Ages by A) selling common grounds to individuals. B) the local police who monitored entry into the commons. C) social pressure to uphold traditionally accepted limits on family use of the commons. D) the government which imposed a tax for the use of the commons.

Q: Overuse of a common resource may be avoided by all of the following methods except A) charging for the use of a common resource. B) issuing tradable permits for the use of a common resource. C) government taking over ownership of all private common resources. D) setting quotas or legal limits on the quantity consumed of the common resource.

Q: Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Refer to Figure 5-15. Identify the area that shows the deadweight loss from overfishing. A) egh B) ekh C) efh D) eghk

Q: Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Refer to Figure 5-15. The current market equilibrium output is partly the result of overfishing. In that case, what does S2 represent? A) the private marginal benefit of harvesting salmon B) the social marginal benefit of harvesting salmon C) the private marginal cost of harvesting salmon D) the social marginal cost of harvesting salmon

Q: Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Refer to Figure 5-15. The current market equilibrium output is partly the result of overfishing. In that case, what does S1 represent? A) the private marginal benefit of harvesting salmon B) the social marginal benefit of harvesting salmon C) the private marginal cost of harvesting salmon D) the social marginal cost of harvesting salmon

Q: Consider the stock of ocean tuna which is massively overfished. It is rational for an individual to exploit the resource rather than to conserve the stock because A) the private benefit of harvesting tuna is higher than the social benefit of harvesting it. B) the private benefit of harvesting tuna is lower than the social benefit of harvesting it. C) the social cost of harvesting the fish is lower than the private cost. D) the private cost of harvesting the fish is lower than the social cost.

Q: Which of the following exemplifies the tragedy of the commons? A) Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. B) The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. C) Canadian citizens receive free universal health care administered by provincial governments. D) The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

Q: Which of the following is an example of a common resource? A) catfish in a private pond in Mississippi B) impounded dogs in a dog pound C) public health care services in the United States D) sea otters in the coastal waters of the Pacific Ocean

Q: A tragedy of the commons occurs when a resource is A) rival and excludable. B) ) rival and non-excludable. C) non-rival and non-excludable. D) non-rival and excludable.

Q: The "tragedy of the commons" refers to the phenomenon where A) individuals are free riders. B) people overuse a common resource. C) people do not internalize an externality. D) there is rivalry in consumption.

Q: Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service. The value of the service to each of them is $50 and it costs $80 to hire a housecleaner. Suppose Bella is lazy and a spendthrift and Sefronia suspects that Bella will be willing to pay $80. What is Sefronia likely to do, given that she is as rational as any other person? A) She will correctly rationalize that Bella's laziness and spendthrift ways are irrelevant to the decision at hand. B) She might claim that she is not willing to pay for a housecleaner, hoping that Bella would pay the entire $80. C) She might offer to do Bella's housecleaning chores if Bella would pay her $50. D) She will come clean and tell Bella that since Bella is lazy and a spendthrift she should pay a bigger share of the $80.

Q: Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service. The value of the service to each of them is $50 and it costs $80 to hire a housecleaner. Should they hire a housecleaner? A) Yes, if each contributes $50, then each stands to gain a consumer surplus. B) No, because each will wait for the other to hire the housecleaner. C) Yes, but only if a housecleaner will accept $50 so that each can take turns to pay the housecleaner. D) No, because it will be difficult for them to agree on which housecleaning service to use.

Q: Private producers have no incentive to provide public goods because A) the government subsidy granted is usually insufficient to enable private producers to make a profit. B) production of huge quantities of public goods entails huge fixed costs. C) they cannot avoid the tragedy of the commons. D) once produced, it will not be possible to exclude those who do not pay for the good.

Q: For-profit producers will produce only private goods because A) markets exist for private goods but not for public goods. B) the cost of production can be easily determined. C) buyers will be willing to pay for the goods since the benefits are excludable. D) all external benefits can be internalized using market prices.

Q: For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied? A) It conducts public surveys to determine if consumers want the product. B) It hires economists to estimate the market demand for the product. C) It takes a vote in Congress. D) It evaluates the costs and benefits of producing the good.

Q: One difference between the demand for a private good and that for a public good is that A) with a private good, each consumer chooses the quantity she wants to consume but with a public good, each consumer chooses the price she is willing to pay for a fixed quantity. B) with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity. C) with a private good, each consumer receives different amounts of benefit from consuming the product but with a public good, every consumer realizes the same amount of benefit from consuming the product. D) the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the former.

Q: The market demand for a public good can be determined by A) adding up the total private benefits and external benefits that each quantity provides the citizens of a country. B) adding up how much each citizen expects to consume at each possible price. C) adding up how much each consumer is willing to pay for each unit of the public good. D) estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.

Q: How does the construction of a market demand curve for a private good differ from that for a public good? A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Q: The demand curve for a public good is also called the A) total welfare curve. B) marginal social benefit curve. C) total social benefit curve. D) total willingness-to-pay curve.

Q: In economics, the term "free rider" refers to A) a person who evades taxes. B) a supervisor who delegates menial time-consuming activities to others. C) one who volunteers her services. D) one who waits for others to produce a good and then enjoys its benefits without paying for it.

Q: Common resources differ from public goods in that A) common resources are non-excludable while public goods are excludable to those who do not pay for the good. B) unlike public goods, common resources are rivalrous in consumption. C) common resources are collectively owned by a group of people while public goods are government owned. D) common resources are resources that cannot be renewed but the production of public goods can be increased any time.

Q: Which of the following is an example of a common resource? A) the Sumatran tiger population in the world B) rabbit fur C) the stock of knowledge in the public domain D) taxicab services

Q: Which of the following is an example of a quasi-public good? A) cable television B) organic apples C) stock of knowledge in the public domain D) crime prevention

Q: Which of the following is an example of a product that is nonexcludable and rivalrous? A) free concert (with limited seating) in a park B) national defense C) automobiles D) flu vaccinations

Q: Which of the following displays rivalry and excludability in consumption? A) public goods B) private goods C) quasi-public goods D) common resources

Q: Which of the following displays these two characteristics: nonrivalry and excludability? A) public goods B) private goods C) quasi-public goods D) common resources

Q: Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? A) public goods B) private goods C) quasi-public goods D) common resources

Q: Which of the following displays these two characteristics: rivalry and nonexcludability? A) a public good B) a private good C) a quasi-public good D) a common resource

Q: A product is considered to be nonexcludable if A) you can keep those who did not pay for the item from enjoying its benefits. B) you cannot keep those who did not pay for the item from enjoying its benefits. C) your consumption of the product reduces the quantity available for others to consume. D) it is jointly owned by all members of a community.

Q: A product is considered to be rivalrous if A) you can keep those who did not pay for the item from enjoying its benefits. B) you cannot keep those who did not pay for the item from enjoying its benefits. C) your consumption of the product reduces the quantity available for others to consume. D) it is jointly owned by all members of a community.

Q: Figure 5-14 Figure 5-14 shows the market for aviation security. Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security. Refer to Figure 5-14 to answer the following questions. a. In the absence of any government intervention what is the equilibrium level of security that airlines will supply? Denote this level, Q*. Briefly explain why this quantity is not the economically efficient level of aviation security. b. In the diagram, illustrate the presence of positive externalities in the aviation security market. Label any new curve that you draw. c. On your diagram identify the economically efficient level of aviation security. Denote this level Qe. d. Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level. Be sure to identify the size of the subsidy.

Q: Some environmentalists have criticized tradable emissions allowances on the grounds that they give permit holders a license to pollute. Furthermore, environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment. Use economic reasoning to evaluate this criticism.

Q: What is meant by the term "internalizing an externality"? How does a Pigovian tax or subsidy internalize an externality?

Q: Economist A.C. Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality. What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

Q: Briefly explain the command-and-control approach in dealing with an externality such as pollution. Give an example of the U.S. government using the command-and-control approach to deal with the pollution problem.

Q: What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

Q: Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

Q: A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Q: When the government imposes a tax equal to the external cost of producing a product that causes pollution, the government is said to externalize the externality.

Q: Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry. For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

Q: One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.

Q: When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

Q: Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The gasoline tax raises the price paid by consumers by ________ per gallon. A) $0.75 B) $1.25 C) $1.75 D) $2.00

Q: Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The amount of the gasoline tax is ________ per gallon. A) $0.75 B) $1.25 C) $1.75 D) $2.00

Q: Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon. A) $3.00 B) $3.75 C) $4.25 D) $5.00