Question 1

Suppose the market for apartments in a city is described by the following equations: demand $$Q_D = 1000 - 2P$$, supply $$Q_S = 4P - 400. $$What is the equilibrium price and quantity in this market?

Accepted Answer

Equilibrium price $$P^* = 200$$, equilibrium quantity $$Q^* = 600$$

Question 2

A city government imposes a binding rent ceiling below the equilibrium price for apartments. Which of the following is most likely to occur as a result?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied

Question 3

Which of the following statements about price floors is correct?

Accepted Answer

A binding price floor creates a surplus in the market

Question 4

Suppose the government imposes a per-unit tax of $$t on $$sellers. Which of the following best describes the effect on the supply curve?

Accepted Answer

The supply curve shifts up by $$t$$

Question 5

If the demand for a good is perfectly inelastic and a per-unit tax is imposed, who bears the entire burden of the tax?

Accepted Answer

Buyers bear the entire burden

Question 6

A tax of $$t$$ per unit is imposed on a good. The price buyers pay increases by less than $$t. $$What does this imply about the relative elasticities of demand and supply?

Accepted Answer

Both sides are somewhat responsive to price; the burden is shared

Question 7

Suppose the demand for a product is $$Q_D = 500 - 5P$$ and the supply is $$Q_S = 2P + 100. If a $$price ceiling of $$P = 40 is $$imposed, what is the quantity actually traded?

Accepted Answer

Quantity traded is $$Q = 180$$

Question 8

Which of the following best describes a negative externality in production?

Accepted Answer

The marginal social cost exceeds the marginal private cost, leading to overproduction

Question 9

A positive externality in consumption, such as vaccination, leads to which of the following outcomes in a free market?

Accepted Answer

The market produces less than the efficient quantity

Question 10

According to the Coase theorem, under what conditions will private bargaining lead to an efficient outcome in the presence of externalities?

Accepted Answer

Property rights are assigned, and transactions costs are low

Question 11

Which of the following is NOT a necessary condition for the Coase theorem to hold?

Accepted Answer

The government must set a Pigovian tax

Question 12

Which of the following policies is most likely to achieve the efficient reduction of pollution at the lowest cost when firms have different abatement costs?

Accepted Answer

Pigovian tax or cap-and-trade system

Question 13

A Pigovian tax is set equal to the marginal external cost of a negative externality. What is the effect on market output?

Accepted Answer

Output falls to the efficient level

Question 14

Which of the following goods is both nonrival and nonexcludable?

Accepted Answer

National defense

Question 15

What is the main reason that public goods are underprovided by private markets?

Accepted Answer

Free riding makes it unprofitable for private firms to supply them

Question 16

Which of the following best describes the 'tragedy of the commons'?

Accepted Answer

Overuse of a common resource due to lack of excludability

Question 17

Suppose a city introduces a minimum wage above the equilibrium wage. What is the most likely effect in the labor market?

Accepted Answer

A surplus of labor (unemployment)

Question 18

Which of the following statements about tax incidence is correct?

Accepted Answer

The side of the market that is less sensitive to price bears more of the tax burden

Question 19

If the demand for a public good is determined by the vertical sum of individual demand curves, what does this mean in practice?

Accepted Answer

At each quantity, add up each person's willingness to pay

Question 20

Which of the following is an example of a quasi-public good?

Accepted Answer

Cable television

Microeconomics Study Guide: Price Controls, Taxes, Externalities, and Public Goods

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