If either the production or consumption of a good generates an external cost, then the market equilibrium quantity will be:
A. greater than the socially optimal quantity.
B. socially optimal.
C. equal to zero.
D. less than the socially optimal quantity.
Answer: A
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"The operator of the tunnel that links Britain and France, Eurotunnel, said that commercial and tourist traffic using its car and coach shuttle service had fallen sharply in 2004, leading to a drop in operating revenues of 4%. Eurotunnel's chief executive, Jean-Louis Raymond, blamed cut-throat competition from budget airlines." (news story, January 2005)
a. If Mr. Raymond is correct, are the services of airlines and Eurotunnel substitutes or complements? b. Use demand and supply analysis to explain how lower airfares between Paris and London impact the market for the shuttle services of Eurotunnel.
Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause
a. the demand for this company's stock to decrease, so the price would rise. b. the demand for this company's stock to decrease, so the price would fall. c. the supply of this company's stock to decrease, so the price would fall. d. the supply of this company's stock to decrease, so the price would rise.
If M stands for the money stock, P for the price level, and Y for real GDP, then velocity, V, equals:
A. (M × P)/ Y. B. (P × Y)/M. C. (M × Y)/ P. D. (P × M)/ Y.
What was the total revenue generated before the price change?
a. $140
b. $240
c. $560
d. $700