Economics Quiz

Which of the following statements is correct?

• Private markets fail to account for externalities because externalities don't occur in private markets.

• Private markets fail to account for externalities because sellers include costs associated with externalities in the price of their product.

• Private markets fail to account for externalities because decisionmakers in the market fail to include the costs of their behavior to third parties.

• Private markets fail to account for externalities because the government cannot easily estimate the optimal quantity of pollution.

The market demand curve for a monopolist is typically

• unit price elastic.

• downward sloping.

• horizontal.

• vertical.

Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to Alicia. She loves potatoes, however. If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis, her indifference curves will

• slope downward

• be vertical straight lines

• slope upward

• be horizontal straight lines

According to the neoclassical theory of distribution, the wages paid to workers

• reflect the market prices of the goods those workers produce

• reflect the degree of market power held by the firms that pay those wages

• fail to reflect those workers' opportunity costs of leisure

• are unrelated to the forces of supply and demand

Which of the following statements is correct?

• When externalities cause markets to be inefficient, government action is always needed to solve the problem.

• When externalities cause markets to be inefficient, private solutions can be developed to solve the problem.

• When externalities cause markets to be inefficient, given enough time, externalities can be solved through normal market adjustments.

• When externalities cause markets to be inefficient, there is no way to eliminate the problem of externalities in a market.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

• Sixty percent of the burden of the tax falls on sellers.

• This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume.

• The effective price received by sellers is $0.40 per bottle less than it was before the tax.

• All of the above are correct

Patent and copyright laws are major sources of

• natural monopolies.

• govemment-created monopolies.

• resource monopolies.

• antitrust regulation.

Which of the following statements is correct?

• Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of demand.

• Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of profits.

• Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of production possibility frontiers.

• Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of wages.

Which of the following statements is not correct?

• The theory of consumer choice explains how people choose between textbooks and energy drinks.

• The theory of consumer choice explains how people choose between labor and leisure.

• The theory of consumer choice explains how people choose between spending now and spending in the future.

• The theory of consumer choice explains how people choose between price and cost

What happens if a price floor is set above equilibrium?

• No effect on the market

• A shortage occurs.

• A surplus occurs.

• Prices drop below equilibrium.