quiz 2 with answers and hints-1

quiz 2 with answers and hints-1 - 1. Consider a perfectly...

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1. Consider a perfectly competitive market for good Y. Now assume the government introduces a price ceiling which is below the equilibrium price. Which following statement is true? a. price ceiling induces oversupply in the market. b. both demand curve and supply curve will shift. c. price ceiling induces shortage in the market. d. price ceiling creates higher producer surplus. e. price ceiling will shift the demand curve up. [Hint: page 144-145 in textbook.] 2. If a consumer purchases more units of a good as its price decreases we usually assume that marginal benefit: a. decreases and total willingness to pay increases . b. increases and total willingness to pay increases. c. and total willingness to pay changes towards market equilibrium. d. increases and total willingness to pay decreases. e. none of the above. [Hint: page 102-103 and 141 in textbook] 3. Consider a perfectly competitive market for good X. Suppose the government reduces the existing consumption tax on good X. As a result demand for good X _____ and consumer surplus ______: a. increases, decreases. b. increases, decreases. c. decreases, remains constant. d. decreases, increases. e. increases, increases. [Hint: Demand curve will shift up, which also increases consumer surplus.] 4. Suppose that in a perfectly competitive market the government charges a tax on producers. Which of the following statements is true? a. only producer surplus decreases, if demand is less price elastic b. tax revenue for the government will be larger, if the demand is more price elastic c. deadweight loss will be larger, if demand is less price elastic d. equilibrium price increases and equilibrium quantity increases e. the demand curve shifts down immediately [Hint: Due to a typo, there were no correct answers for this question so everyone who attempted the quiz has received a mark for this question. For more info about why all of the answers are wrong see page 148 in textbook.]
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5. Consider a perfectly competitive market for good Y in equilibrium. Now assume the government introduces a price floor which is below the equilibrium price. Which following statement is true? a. demand is greater than supply, there is a shortage in the market.
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quiz 2 with answers and hints-1 - 1. Consider a perfectly...

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