Question 1

Residents of Vancouver often complain when the temperature drops below zero while residents of Winnipeg frequently endure temperatures of - 40. How can economics explain this?

Accepted Answer

Houses in Vancouver may be colder than those in Winnipeg because the marginal cost of heating is higher. Vancouver has a moderate climate, with temperatures rarely dropping below freezing, so many houses may not be well-insulated or equipped with heating systems that can handle extreme cold temperatures. In contrast, Winnipeg residents are used to very cold temperatures and have invested in better insulation and heating systems.

Question 2

An import tariff:

Accepted Answer

An import tariff generates tariff revenues for the government as importers pay the tariff to the government when they bring goods into the country.

Question 3

In the long run, if the demand curve in a decreasing cost market shifts up and to the right, then:

Accepted Answer

In a decreasing cost market, as demand increases, firms experience lower costs due to economies of scale, leading to a lower equilibrium price and higher quantity.

Question 4

Suppose that the demand for labour is given by P = 30 - Q and the supply of labour is given by P =
2Q. Which of the following is true if a minimum wage of 24 is imposed on the labour market?

Accepted Answer

The answer of Suppose that the demand for labour is...

Question 5

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the government revenue from the tax is:

Accepted Answer

The equilibrium price without tax is found by setting D = S: 10 - P = -2 + P, solving gives P = 6. With a $1 tax, the new supply equation is S = -2 + (P - 1). Setting the new supply equal to demand: 10 - P = -2 + P - 1, solving gives P = 6.5. The quantity is 3.5 packs, so revenue is 3.5 packs * $1 tax = $3.5.

Question 6

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the producers' tax burden is:

Accepted Answer

The producers' tax burden is the difference between the price they receive after the tax and the price they would have received without the tax. In this case, the price they receive after the tax is $1 less than the price they would have received without the tax, so the producers' tax burden is $1.

Question 7

If the demand curve shifts down and to the left in an increasing cost market, then:

Accepted Answer

In an increasing cost market, as demand shifts down and to the left, it means that consumers are willing to purchase less at every price level due to factors such as a decrease in income, changes in consumer preferences or the appearance of substitute goods. This leads to a decrease in both the long run price and quantity in the market. As costs increase, producers are not able to provide the same quantity of goods at the same price as before, hence the decrease in quantity. Therefore, Option D is the correct answer.

Question 8

Rent control:

Accepted Answer

Rent control represents a price ceiling on rental prices, limiting how much landlords can charge for their properties. This can lead to a reduction in the quantity and quality of rental housing available, as landlords may not have enough incentive to invest in maintaining or improving their properties. Additionally, rent control can create a dead weight loss, as there may be inefficient allocation of resources and reduced overall economic activity. While rent control may provide short-term benefits to renters in the form of lower prices, it can ultimately have negative impacts on both renters and the broader economy.

Question 9

Which of the following will not cause an increase in the equilibrium price?

Accepted Answer

An invention that makes capital more productive typically leads to increased efficiency and potentially lower production costs, which does not inherently cause an increase in the equilibrium price.

Question 10

When a per unit tax is imposed on an industry characterized by a perfectly inelastic supply curve:

Accepted Answer

When a per unit tax is imposed on an industry characterized by a perfectly inelastic supply curve, producers pay the full amount of the tax. This is because the perfectly inelastic supply curve means that the quantity supplied does not change in response to changes in price. Therefore, the producers cannot pass on the tax to consumers by raising prices.

Question 11

A price ceiling is a policy that:

Accepted Answer

A price ceiling sets a maximum price that can be charged for a good or service. If the ceiling price is set below the equilibrium price, it will create a shortage because the quantity demanded will exceed the quantity supplied at the lower price. Therefore, choice A is the correct answer. Choice B describes a price floor, not a price ceiling. Choice C is incorrect because a price ceiling must be set below the equilibrium price to have any effect. Choice D is incorrect because price ceilings create deadweight loss by reducing the quantity of goods or services exchanged in the market.

Question 12

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the deadweight loss is:

Accepted Answer

The deadweight loss from a tax is calculated as the loss in consumer and producer surplus that is not offset by tax revenue. Here, the tax shifts the supply curve leftward (or upward in terms of price), effectively making the new supply equation S = -2 + (P + 1). To find the new equilibrium, set D = S: 10 - P = -2 + P + 1. Solving for P gives P = 5.5 before the tax, and the quantity is 4.5. After the tax, the price consumers pay would be higher, but for simplicity, we calculate the deadweight loss using the change in quantity. The tax reduces the quantity traded from 5 to 4.5, a reduction of 0.5. The area of the triangle that represents the deadweight loss is 0.5 * 1 * 0.5 = 0.25, where 0.5 is the base (the reduction in quantity) and 1 is the height (the tax), making the area (and thus the deadweight loss) $0.25.

Question 13

When a price ceiling such as a rent control is substituted for market allocation:

Accepted Answer

When a price ceiling is in place, it distorts market signals and incentives, which may lead to shortages, surpluses, or inefficient allocation of goods. It is difficult to determine whether the goods are getting allocated optimally because the price is no longer reflecting the supply and demand for the good.

Question 14

If the demand curve shifts down and to the left in an increasing cost market, then:

Accepted Answer

When the demand curve shifts down and to the left, it indicates a decrease in demand. In an increasing cost market, this leads to a decrease in both short run and long run prices. This is because in the short run, firms still have fixed costs that they need to cover, so they lower prices to try to sell their goods. In the long run, however, this lower demand will lead to firms exiting the market, which decreases supply and causes prices to increase again. However, in the short run, prices will still decrease.

Question 15

One reason that the predictions of the Club of Rome have not come to fruition is because

Accepted Answer

The answer of One reason that the predictions of the...

Question 16

If the elasticity of demand is low, then the introduction of excise taxes implies:

Accepted Answer

When the elasticity of demand is low, consumers are less sensitive to price changes, meaning they will continue to buy the product even if the price increases due to an excise tax. This results in consumers bearing a larger portion of the tax burden compared to producers.

Question 17

Houses in cold winter climates will have cooler inside temperatures in the summer because:

Accepted Answer

Houses in cold winter climates are typically built with better insulation to keep the heat inside during the winter, which also helps to keep the heat out during the summer. Therefore, the answer is D. The outside temperature being cooler (A) does have an impact but is not the primary reason. Saving money for heating costs in the winter (B) does not necessarily affect the warm weather indoor temperatures. Having more windows in general (C) can actually increase indoor temperatures in the summer due to the greenhouse effect.

Question 18

A rent controlled market is an example of:

Accepted Answer

A rent controlled market is an example of a price ceiling, as it sets a cap on how much landlords can charge for rent.

Question 19

Which of the following would not be expected effects of a binding maximum price control on downtown apartments?

Accepted Answer

A binding maximum price control on downtown apartments would likely lead to a shortage of apartments and potentially an increase in deposits, as landlords would try to offset the effects of the price control. Rent being due in advance is not necessarily a direct effect of the price control, but rather a policy that could be implemented by landlords as a way to mitigate risk. However, new developments downtown would be unlikely to occur under a binding price control, as developers would have less incentive to invest in new construction under such conditions.

Question 20

The dead weight loss of a tax is a result of

Accepted Answer

The deadweight loss of a tax is a measure of the efficiency loss caused by the tax. It arises when the marginal benefit of the good or service is greater than its marginal cost, but the tax leads to reduction in quantity demanded and production. Therefore, the optimal level of consumption and production is not achieved, resulting in a welfare loss. This situation is caused by the imposition of a tax, hence the best choice is D, where the marginal benefit is greater than the marginal cost.

Quiz 9: Applications of the Competitive Model

Residents of Vancouver often complain when the temperature drops below zero while residents of Winnipeg frequently endure temperatures of - 40. How can economics explain this?

An import tariff:

In the long run, if the demand curve in a decreasing cost market shifts up and to the right, then:

Suppose that the demand for labour is given by P = 30 - Q and the supply of labour is given by P = 2Q. Which of the following is true if a minimum wage of 24 is imposed on the labour market?

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the government revenue from the tax is:

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the producers' tax burden is:

If the demand curve shifts down and to the left in an increasing cost market, then:

Rent control:

Which of the following will not cause an increase in the equilibrium price?

When a per unit tax is imposed on an industry characterized by a perfectly inelastic supply curve:

A price ceiling is a policy that:

Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the deadweight loss is:

When a price ceiling such as a rent control is substituted for market allocation:

If the demand curve shifts down and to the left in an increasing cost market, then:

One reason that the predictions of the Club of Rome have not come to fruition is because

If the elasticity of demand is low, then the introduction of excise taxes implies:

Houses in cold winter climates will have cooler inside temperatures in the summer because:

A rent controlled market is an example of:

Which of the following would not be expected effects of a binding maximum price control on downtown apartments?

The dead weight loss of a tax is a result of