ISC UTS Pretest Ekpeng

Governments may intervene in a market economy in order to

• protect property rights.

• correct a market failure due to externalities

• achieve a more equal distribution of income.

• All of the above

The circular-flow diagram illustrates that, in markets for the factors of production,

•  households are sellers, and firms are buyers.

• households are buyers, and firms are sellers.

• households and firms are both buyers.

• households and firms are both sellers.

The citizens of Gadjah Mada spend a higher fraction of their income on food than do the citizens of Padjadjaran. The reason could be that

• Gadjah Mada has lower food prices, and the price elasticity of demand is zero.

• Gadjah Mada has lower food prices, and the price elasticity of demand is 0.5.

• Gadjah Mada has lower income, and the income elasticity of demand is 0.5.

• Gadjah Mada has lower income, and the income elasticity of demand is 1.5.

The supply curve for a product is Qs = 2P, and the market price is $10. What is producer surplus? (Hint: Graph the supply curve and recall the formula for the area of a triangle.)

• $5

•  $20

• $100

• $200

Some government grants of monopoly power are desirable if they

• curtail the adverse effects of cut-throat competition.

• make industries more profitable.

• provide incentives for invention and artistic creation.

• save consumers from having to choose among alternative suppliers.