Use the following diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs, to answer the question below.
Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should
A. tax producers so that the market supply curve shifts leftward (upward).
B. subsidize consumers so that the market demand curve shifts leftward.
C. not intervene because the market outcome is optimal.
D. subsidize producers so that the market supply curve shifts leftward (upward).
Answer: A
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Refer to the figure below. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as
A. long-run aggregate supply shifting leftward B. Short-run aggregate supply shifting downward C. Aggregate demand shifting rightward D. Aggregate demand shifting leftward
What would be an example of consumption good?
A) Antonio, the manager of the local Taco Hut, purchases a new deep fryer. B) The local driver's license office purchases a new digital camera and printer. C) Rhianna gets a haircut. D) Jake buys an iPhone. E) Donald Trump purchases furniture for his office.
What is the "omitted variable" problem in determining cause and effect?
A) It is a problem that arises when an economic variable that affects other variables is omitted from an analysis and its omission leads to false conclusions about cause and effect. B) It is a problem that arises when a significant variable is not given enough weight in an economic experiment leading to skewed conclusions about cause and effect. C) It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic experiment leading to false conclusions about cause and effect. D) It is a problem that arises when an insignificant variable is given too much weight in an economic analysis leading to skewed conclusions about cause and effect.
If the demand for a good is perfectly inelastic, then:
a. the value of price elasticity of demand of the good is equal to 1. b. the value of price elasticity of demand of the good is equal to -1. c. the demand curve of the good is nonexistent. d. consumers are very responsive to a change in the price of the good. e. quantity demanded does not change when price of the good changes.