Econ_1_Final_W04_Answers

Econ_1_Final_W04_Answers - DARTMOUTH COLLEGE ECONOMICS 1:...

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D ARTMOUTH C OLLEGE P ROFESSOR J ESSE G IUMMO E CONOMICS 1: P RICE S YSTEM F INAL E XAM : W INTER 2004 P ART I: 16 M ULTIPLE -C HOICE Q UESTIONS (32 POINTS ) 1. In a market for pollution rights an increase in demand would: A) raise the price of pollution rights, but leave the quantity unchanged. B) stimulate the economic incentive to pollute. C) increase the actual amount of pollution. D) induce an increase in the supply of pollution rights. Ans: A 2. When farmer Fred weighs the benefits of cost of placing pesticides on his corn his doesn’t consider the costs that the pesticide in the runoff from his field will have on fishing in nearby streams. In the market for corn this is an example of a: A) positive supply side externality. B) positive demand side externality. C) negative supply side externality. D) negative demand side externality. Answer C 3. In the case of a negative supply side externality in the production of a good the intersection of private demand and private supply: A) results in and under-allocation of and higher price than the social optimum. B) results in and under-allocation of and lower price than the social optimum. C) results in and over-allocation of and higher price than the social optimum. D) results in and over-allocation of and lower price than the social optimum. Answer D 4. A natural monopoly exists when: A) unit costs are minimized by having one firm produce an industry's entire output. B) several formerly competing producers merge to become the only firm in an industry. C) short-run average total cost curves are tangent to long-run average total cost curves. D) minimum efficient scale is attained at a small level of output. Ans: A 5. Which of the following is a characteristic of pure monopoly? A) close substitute products B) barriers to entry C) the absence of market power D) "price taking" Ans: B 6. A nondiscriminating pure monopolist's demand curve: A) is perfectly inelastic. B) coincides with its marginal revenue curve. C) lies above its marginal revenue curve.
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D ARTMOUTH C OLLEGE P ROFESSOR J ESSE G IUMMO E CONOMICS 1: P RICE S YSTEM D) lies below its marginal revenue curve. Ans: C 7. In comparing the demand curve of a pure monopolist with that of a monopolistically competitive firm, we would expect the monopolistic competitor to have a: A) perfectly elastic demand curve and the monopolist to have a perfectly inelastic demand curve. B) generally more elastic demand curve. C) generally less elastic demand curve. D) demand curve whose elasticity coefficient is 1 at all possible prices. Ans: B 8. The mutual interdependence that characterizes oligopoly arises because: A) the products of various firms are homogeneous. B) the products of various firms are differentiated. C) a small number of firms produce a large proportion of industry output.
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This note was uploaded on 10/30/2008 for the course ECON 001 taught by Professor Zarnowski during the Spring '08 term at Dartmouth.

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Econ_1_Final_W04_Answers - DARTMOUTH COLLEGE ECONOMICS 1:...

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