Question 1

Suppose the market for apartments in a city is described by the demand equation $$QD = 1000 - 2P$$ and the supply equation $$QS = 4P - 400. $$The city imposes a rent ceiling of $$P = 200. $$What is the quantity of apartments actually rented after the ceiling is imposed?

Accepted Answer

$$400$$

Question 2

A binding price floor in the labor market, such as a minimum wage set above equilibrium, will most likely result in which of the following?

Accepted Answer

A surplus of labor (unemployment)

Question 3

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 4

A per-unit tax of $$t$$ dollars is imposed on sellers. The original supply equation is $$QS = 2P - 100. $$What is the new supply equation after the tax?

Accepted Answer

$$QS = 2(P - t) - 100$$

Question 5

Which of the following best describes the deadweight loss from a binding price ceiling?

Accepted Answer

It is the reduction in economic surplus due to fewer units being traded than at equilibrium.

Question 6

Suppose a negative externality exists in the production of a good. Which of the following is true at the unregulated market equilibrium?

Accepted Answer

Marginal social cost exceeds marginal private cost, and the good is overproduced.

Question 7

A Pigovian tax is imposed on a good with a negative externality. Which of the following is the intended effect?

Accepted Answer

To shift the supply curve up to reflect the marginal social cost.

Question 8

Which of the following is an example of a common resource?

Accepted Answer

Fish in the ocean

Question 9

According to the Coase theorem, private bargaining can solve the problem of externalities if:

Accepted Answer

Property rights are assigned and transaction costs are low

Question 10

Which of the following best explains why public goods are underprovided by private markets?

Accepted Answer

They are nonrival and nonexcludable, leading to free riding

Question 11

Suppose the demand for a good is given by $$QD = 500 - 5P$$ and the supply is $$QS = 3P + 50. $$What is the equilibrium price?

Accepted Answer

$$P = 50$$

Question 12

Which of the following is true about the efficient level of pollution reduction?

Accepted Answer

It is where the marginal benefit of reduction equals the marginal cost.

Question 13

A city government is considering two policies to reduce air pollution: (1) requiring all firms to install the same pollution-control technology, or (2) implementing a cap-and-trade system. Which statement is correct?

Accepted Answer

Cap-and-trade achieves the same total reduction at a lower cost if firms have different abatement costs.

Question 14

Which of the following goods is best classified as a quasi-public good?

Accepted Answer

Cable television

Question 15

If a per-unit tax is imposed on a good, what happens to the equilibrium quantity and the prices paid and received by buyers and sellers?

Accepted Answer

Equilibrium quantity falls; buyers pay more; sellers receive less.

Question 16

Which of the following is the correct formula for consumer surplus in a market with a linear demand curve and a market price $$P^*$$?

Accepted Answer

$$\frac{1}{2} 	imes (	ext{base}) 	imes (	ext{height})$$

Question 17

Which of the following is a normative statement regarding price controls?

Accepted Answer

Rent control is desirable because it helps low-income renters.

Question 18

In the context of externalities, what does it mean to 'internalize the externality'?

Accepted Answer

To make the party creating the externality bear its full cost or benefit.

Question 19

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

Accepted Answer

The tendency for common resources to be overused because users ignore the cost imposed on others.

Question 20

Suppose the government wants to encourage vaccination, which has a positive externality. Which policy would most directly address the market failure?

Accepted Answer

Providing a Pigovian subsidy equal to the marginal external benefit

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

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