Apart from taxes used to offset ____, taxes are ____. Which pair completes the sentence?
Correct answer D. Externalities, distortionary
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Taxes drive a wedge between the price paid by buyers and the price received by sellers, preventing the price system from equating which two things?
Correct answer B. Marginal costs, marginal benefits
A tax designed to offset a negative externality will ____ price and ____ quantity. Which pair completes the sentence?
Correct answer A. Increase, reduce
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Why does monopoly power create social costs?
Correct answer D. There is too little output at too high a cost
When two firms carrying out the same activity in the same industry combine, what is it called?
Correct answer B. Horizontal merger
A natural monopoly faces a ____, which means that ____. Which option completes the sentence?
Correct answer D. Decreasing average cost curve, marginal cost lies below average cost
If a rise in the price of blue jeans increases the demand for tennis shoes, how are the two goods related?
Correct answer A. Substitutes
What does the law of supply state about a rise in the price of a good?
Correct answer A. It increases the quantity supplied of that good
What does a monopolistic market have?
Correct answer A. Only one seller
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All of these shift the supply of watches to the right EXCEPT which one?
Correct answer A. An increase in the price of watches
What happens when a good’s price is below the equilibrium price?
Correct answer B. There is a shortage and the price will rise
What does an increase (rightward shift) in the demand for a good tend to cause?
Correct answer C. An increase in the equilibrium price and quantity
If both supply and demand for personal computers increase, what would we expect in that market?
Correct answer D. The equilibrium quantity to rise and the change in the equilibrium price to be ambiguous
Which statement is correct about the effect of a rise in the price of lettuce?
Correct answer C. The equilibrium price and quantity of salad dressing will fall
Consumer tastes shift towards eating apples. Which statement accurately describes the effect on the apple market?
Correct answer D. There is an increase in the demand for apples and an increase in the quantity supplied of apples
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For an inferior good, what does a rise in income cause?
Correct answer D. A decrease in demand
What effect does a rise in income have?
Correct answer B. It shifts the demand curve
A shift in supply will affect price more than output when demand has which characteristic?
Correct answer A. Price inelastic
What would happen if the price were fixed below the equilibrium price?
Correct answer B. Excess demand
What effect does a subsidy paid to producers have?
Correct answer C. It shifts the supply curve