Question 1

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q.The inverse demand for coal is given by P = 180 − 4Q.How much output would a competitive industry produce?

Accepted Answer

The answer of The external marginal cost of producing coal...

Question 2

The domestic demand and supply for sugar are Q^d = 60,000 − 400P and Q^SD = 20,000 + 500P.The foreign supply is Q^SF = 20,000 + 100P.What is the domestic quantity supplied at the domestic market price?

Accepted Answer

To find the domestic quantity supplied at the domestic market price, we should set the domestic demand equal to the domestic supply: Q^d = Q^SD 60,000 − 400P = 20,000 + 500P Solving for P, we get P = $50. Plugging this value back into either the domestic supply or demand equation gives us the quantity supplied: Q^d = 60,000 − 400($50) = 40,000 Therefore, the domestic quantity supplied is 40,000. Thus, the correct answer is D) 30,000.

Question 3

In producing the efficient amount of a public good,government should take into account:

Accepted Answer

In order to produce the efficient amount of a public good, the government should take into account the vertical sum of all individual inverse demand curves. This involves adding up the total willingness to pay for the public good by all consumers, regardless of their level of demand. By considering the vertical sum, the government can ensure that the public good is provided at the optimal level that maximizes social welfare. It is important to take into account the demand of all consumers, not just high or low-demand ones, in order to achieve an efficient outcome. The horizontal sum of all individual inverse demand curves would not provide an accurate representation of total demand for the public good.

Question 4

Which of the following raises domestic prices only when demand is relatively low?

Accepted Answer

A lump sum tariff raises domestic prices only when demand is relatively low because it is a fixed fee on imports regardless of the quantity imported, making it more impactful when demand and thus import volumes are lower.

Question 5

Which of the following is NOT a pure public good?

Accepted Answer

Clean air and national defense are both examples of pure public goods because they are non-excludable and non-rivalrous. However, telephones can be excluded to those who do not pay for them and are thus not pure public goods.

Question 6

The domestic demand and supply for sugar are Q^d = 40,000 − 200P and Q^SD = 10,000 + 300P.The foreign supply is Q^SF = 20,000 + 100P.Suppose an import quota of 5,000 is imposed in the domestic market.How many units of sugar will domestic producers supply after the quota is imposed?

Accepted Answer

Before the quota, the domestic supply is Q^d = 40,000 − 200P, and the foreign supply is Q^SF = 20,000 + 100P. To find the equilibrium, we set domestic supply equal to domestic demand plus the quota: 40,000 - 200P = 10,000 + 300P + 5,000 35,000 = 500P P = 70 Plug P into the domestic supply equation to find the domestic quantity supplied after the quota: Q^d = 40,000 − 200(70) = 25,000 Therefore, the answer is B, 25,000.

Question 7

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q.The inverse demand for coal is given by P = 180 − 4Q.What is the socially efficient level of output?

Accepted Answer

The answer of The external marginal cost of producing coal...

Question 8

Rent seeking:

Accepted Answer

Rent seeking involves individuals or organizations attempting to use their influence to manipulate the government and regulations for their own gain, often through lobbying efforts. This can lead to unfair advantages for certain groups and a distortion of market competition. The other options are not accurate descriptions of rent seeking.

Question 9

The domestic demand and supply for sugar are Q^d = 60,000 − 400P and Q^SD = 20,000 + 500P.The foreign supply is Q^SF = 20,000 + 100P.Suppose an import quota of 13,000 is imposed in the domestic market.What will be the new market price of sugar?

Accepted Answer

The answer of The domestic demand and supply for sugar...

Question 10

The unregulated monopoly in the figure below will earn profit of:

Accepted Answer

The profit-maximizing output for a monopolist is where marginal revenue (MR) equals marginal cost (MC). In the graph, it is shown that the marginal cost of producing the 6th unit is $4, and the marginal revenue at 6 units is $20. Thus, the monopolist will produce 6 units and charge a price of $20. 
Total revenue will be 6 x $20 = $120.
Total cost will be 6 x $4 = $24.
Therefore, profit will be $120 - $24 = $96.
However, the monopolist has to pay $80 in rent, which leaves a profit of $16.

Question 11

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q.The inverse demand for coal is given by P = 180 − 4Q.If the government taxed output at $2 per unit,what would a competitive industry produce?

Accepted Answer

To find the competitive quantity, we need to find the intersection of the industry supply and demand curves.

Industry supply = MC + tax = 6Q + 2Q = 8Q

Setting industry supply equal to demand:

8Q = 180 - 4Q

Solving for Q, we get

Q = 15

Therefore, the competitive quantity is 15 units.

Question 12

Which of the following factors reduces the need for government involvement in the marketplace?

Accepted Answer

Rent-seeking involves individuals or firms trying to gain economic benefits through manipulation or exploitation of the political environment, rather than through productive economic activity. Reducing rent-seeking behavior can decrease the need for government intervention as it allows the market to function more efficiently on its own.

Question 13

The domestic demand and supply for sugar are Q^d = 60,000 − 400P and Q^SD = 20,000 + 500P.The foreign supply is Q^SF = 20,000 + 100P.How many units of sugar will domestic producers supply after the quota is imposed?

Accepted Answer

The quota will raise the domestic price of sugar to the world price, which is determined by the intersection of the foreign supply and domestic demand curves. At this price, domestic producers will supply 35,000 units of sugar.

Question 14

The domestic demand and supply for sugar are Q^d = 60,000 − 400P and Q^SD = 20,000 + 500P.The foreign supply is Q^SF = 20,000 + 100P.What is the domestic market price of sugar?

Accepted Answer

To find the domestic market price, we need to equate the domestic demand and supply equations:
60,000 − 400P = 20,000 + 500P
Solving for P, we get:
P = $20
Therefore, the domestic market price of sugar is $20.

Question 15

The import tariffs that President Bush placed on imported steel likely had what effect?

Accepted Answer

The import tariffs helped domestic steel producers by creating a protected market, but hurt domestic steel consumers who had to pay higher prices for steel. Foreign steel producers were also hurt because they faced reduced demand for their products in the US market.

Question 16

Which of the following raises domestic prices when demand is relatively high?

Accepted Answer

An excise tariff is a tax on a specific type of domestic goods, which raises its price and reduces its supply. Therefore, when demand is relatively high, an excise tariff will further increase domestic prices by reducing the quantity supplied, leading to higher prices. Domestic subsidies may lower domestic prices as they provide financial support to domestic producers and can help increase the domestic supply. A lump sum tariff is a fixed tax on imports that does not vary with the value of goods, so it does not impact domestic prices. A lump sum tariff and excise tariff will further raise domestic prices, but since the question asked for the choice that raises domestic prices when demand is relatively high, only an excise tariff is the correct answer.

Question 17

Consumer surplus in the unregulated monopoly market in the figure below is:

Accepted Answer

Consumer surplus is the difference between the maximum price consumers are willing to pay for a product and the actual price they pay. In the unregulated monopoly market in the given figure, consumers would be willing to pay up to $12 for the product (as indicated by the demand curve), but they only have to pay $4 (as indicated by the monopoly's pricing decision). Therefore, the consumer surplus is the difference between the maximum price they are willing to pay ($12) and the actual price they pay ($4) multiplied by the quantity consumed (6 units). This gives a consumer surplus of (12-4) x 6 = $48. However, since some of this surplus is captured by the monopolist as profits, the net consumer surplus is ($48 - $40), which equals $8.

Question 18

As additional consumers obtain the benefits of a pure public good,such as national defense,the benefits to the existing consumers will:

Accepted Answer

The benefits to existing consumers will stay the same as the consumption of a pure public good by additional consumers does not decrease the benefits of the good to existing consumers. This is because pure public goods are non-excludable, meaning that consumption by one individual does not reduce the availability of the good to others. Therefore, the total benefits from the provision of the public good increase with additional consumers. This is known as the "free-rider problem," where individuals can enjoy the benefits of the public good without paying for it.

Question 19

The main purpose of antitrust policy is to:

Accepted Answer

The main purpose of antitrust policy is to reduce market power, which can lead to monopolies and harm consumer welfare by allowing firms to control prices and limit output. Antitrust policy aims to promote competition and prevent anti-competitive behavior. Control of negative externalities pertains to environmental or social policies, and making information easily obtainable is more related to consumer protection and transparency policies.

Question 20

An unregulated monopolist will likely:

Accepted Answer

An unregulated monopolist will have the power to set their price above marginal cost in order to maximize their profits. This is because they have no competition forcing their prices down and can charge what they believe consumers will pay for their product.

Quiz 14: A Managers Guide to Government in the Marketplace

The external marginal cost of producing coal is MCexternal = 8Q while the internal marginal cost is MC internal = 6Q.The inverse demand for coal is given by P = 180 − 4Q.How much output would a competitive industry produce?

The domestic demand and supply for sugar are Qd = 60,000 − 400P and QSD = 20,000 + 500P.The foreign supply is QSF = 20,000 + 100P.What is the domestic quantity supplied at the domestic market price?