question

1. The slope of a nonlinear function at some particular point

a. is the slope of the straight line that is tangent to the function at that point.

b. is the slope of the straight line connecting the origin and the point.

c. cannot be determined.

d. is constant for the entire function.

a. is the slope of the straight line that is tangent to the function at that point.

b. is the slope of the straight line connecting the origin and the point.

c. cannot be determined.

d. is constant for the entire function.

answer

a.

question

2. Indifference curves

a. are nonintersecting.

b. are contour lines of a utility function.

c. are negatively sloped.

d. All of the above.

a. are nonintersecting.

b. are contour lines of a utility function.

c. are negatively sloped.

d. All of the above.

answer

d.

question

3. For an individual who consumes only two goods, X and Y, the opportunity cost of consuming one

unit of X in terms of how much Y must be given up is reflected in

a. the individual's marginal rate of substitution.

b. the slope of the individual's budget constraint.

c. the slope of the individual's indifference curve.

d. None of the above.

unit of X in terms of how much Y must be given up is reflected in

a. the individual's marginal rate of substitution.

b. the slope of the individual's budget constraint.

c. the slope of the individual's indifference curve.

d. None of the above.

answer

b.

question

4. If bundles of goods A and B lie on the same indifference curve, one can assume the individual

a. prefers bundle A to bundle B.

b. prefers bundle B to bundle A.

c. enjoys bundle A and B equally.

d. bundle A contains the same goods as bundle B.

a. prefers bundle A to bundle B.

b. prefers bundle B to bundle A.

c. enjoys bundle A and B equally.

d. bundle A contains the same goods as bundle B.

answer

c.

question

5. Suppose you were to believe that "money illusion" exists that is as prices and incomes both rise

proportionally, people buy more. Which of the following characteristics of demand does that

cause you to doubt?

a. demand functions are downward sloping

b. demand has a positive vertical intercept

c. demand has a positive horizontal intercept.

d. demand functions are homogeneous of degree zero.

proportionally, people buy more. Which of the following characteristics of demand does that

cause you to doubt?

a. demand functions are downward sloping

b. demand has a positive vertical intercept

c. demand has a positive horizontal intercept.

d. demand functions are homogeneous of degree zero.

answer

d.

question

6. If a good is Giffen and its price increases,

2

a. the income effect will be positive and the substitution effect will be positive.

b. the income effect will be negative and the substitution effect will be negative.

c. the income effect will be positive and the substitution effect will be negative.

d. the income effect will be negative and the substitution effect will be positive

2

a. the income effect will be positive and the substitution effect will be positive.

b. the income effect will be negative and the substitution effect will be negative.

c. the income effect will be positive and the substitution effect will be negative.

d. the income effect will be negative and the substitution effect will be positive

answer

c.

question

7. With only two goods, if the income effect is in the opposite direction as the substitution effect but

the income effect dominates then the good is

a. normal

b. inferior but not Giffen

c. Giffen

d. There is not enough information to answer

the income effect dominates then the good is

a. normal

b. inferior but not Giffen

c. Giffen

d. There is not enough information to answer

answer

c.

question

8. Demand functions are "homogeneous of degree zero in all prices and income." This means

a. a proportional increase in all prices and income will leave quantities demanded unchanged.

b. a doubling of all prices will not alter consumption decisions.

c. prices directly enter individuals' utility functions.

d. an increase in income will cause all quantities demanded to increase proportionately.

a. a proportional increase in all prices and income will leave quantities demanded unchanged.

b. a doubling of all prices will not alter consumption decisions.

c. prices directly enter individuals' utility functions.

d. an increase in income will cause all quantities demanded to increase proportionately.

answer

a.

question

9. Suppose demand can be written as PQ=1000. The price elasticity of demand is

a. increasing as price rises.

b. decreasing as price rises.

c. constant regardless of prices and perfectly elastic.

d. constant regardless of prices and unit elastic.

a. increasing as price rises.

b. decreasing as price rises.

c. constant regardless of prices and perfectly elastic.

d. constant regardless of prices and unit elastic.

answer

d.

question

10. Risk averse individuals will diversify their investments because this will

a. increase their expected returns.

b. provide them with some much-needed variety.

c. reduce the variability of their returns.

d. reduce their transactions costs.

a. increase their expected returns.

b. provide them with some much-needed variety.

c. reduce the variability of their returns.

d. reduce their transactions costs.

answer

c.

question

11. Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 99%. What

must the jackpot be for this to be a fair bet?

a. 10

b. 100

c. 1,000

d. 10,000

must the jackpot be for this to be a fair bet?

a. 10

b. 100

c. 1,000

d. 10,000

answer

b.

question

12. A football team has the chance of scoring the game-winning touchdown on the last play of the

game. It can either run or pass. The defense can play for the run or play for the pass. The

following normal form lists the payoffs from the game made up by this last play. The payoffs are

probabilities of winning the game.

(see Q 12)

What is the defense's dominant strategy?

a. Defend the run.

b. Defend the pass.

c. Defend both plays at random with equal probability.

d. The defense does not have a dominant strategy.

game. It can either run or pass. The defense can play for the run or play for the pass. The

following normal form lists the payoffs from the game made up by this last play. The payoffs are

probabilities of winning the game.

(see Q 12)

What is the defense's dominant strategy?

a. Defend the run.

b. Defend the pass.

c. Defend both plays at random with equal probability.

d. The defense does not have a dominant strategy.

answer

d.

question

13. . A teacher curves the final exam such that the top half of students get an A and the bottom half

an F (so their grade depends only on relative and not absolute performance). Suppose that there

are equal numbers of two groups, the Brainiacs and the Numbskulls. If they both study or they

both party, the Brainiacs will get the As but if the Brainiacs party and the Numbskulls study, the

Numbskulls will get the As. Suppose further that they both dislike studying and both like good

grades. Suppose all students of a type choose the same action (so we can view it as a two-player

game).

(See Q 13)

Characterize the Nash equilibrium or equilibria:

a. There is only one equilibrium, in mixed strategies.

b. The Brainiacs study and the Numbskulls party.

c. There are two: in one, the Brainiacs study and the Numbskulls party, and in the other they do

the reverse.

d. Both types of party

an F (so their grade depends only on relative and not absolute performance). Suppose that there

are equal numbers of two groups, the Brainiacs and the Numbskulls. If they both study or they

both party, the Brainiacs will get the As but if the Brainiacs party and the Numbskulls study, the

Numbskulls will get the As. Suppose further that they both dislike studying and both like good

grades. Suppose all students of a type choose the same action (so we can view it as a two-player

game).

(See Q 13)

Characterize the Nash equilibrium or equilibria:

a. There is only one equilibrium, in mixed strategies.

b. The Brainiacs study and the Numbskulls party.

c. There are two: in one, the Brainiacs study and the Numbskulls party, and in the other they do

the reverse.

d. Both types of party

answer

a.

question

14. Consider the same setup with the curved final exam as in the previous question. Now suppose the

students move sequentially. Which best describes the outcome in the subgame-perfect

equilibrium?

a. Brainiacs study and Numbskulls party regardless of who moves first.

b. Brainiacs party and Numbskulls study regardless of who moves first.

c. The party moving first studies.

d. The party moving first parties.

students move sequentially. Which best describes the outcome in the subgame-perfect

equilibrium?

a. Brainiacs study and Numbskulls party regardless of who moves first.

b. Brainiacs party and Numbskulls study regardless of who moves first.

c. The party moving first studies.

d. The party moving first parties.

answer

c.

question

15. If production is given by Q = Ks

Lb

, (a + b < 1) doubling both inputs

a. more than doubles output.

b. exactly doubles output.

c. increases output but does not double it.

d. leaves output unchanged.

Lb

, (a + b < 1) doubling both inputs

a. more than doubles output.

b. exactly doubles output.

c. increases output but does not double it.

d. leaves output unchanged.

answer

c.

question

16. A firm is defined as

a. a president, some vice presidents, and some employees.

b. any organization that wants to make a profit.

c. any accumulation of productive assets.

d. any organization that turns inputs into outputs

a. a president, some vice presidents, and some employees.

b. any organization that wants to make a profit.

c. any accumulation of productive assets.

d. any organization that turns inputs into outputs

answer

d.

question

17. When isoquants get progressively further apart there is

a. increasing returns to scale

b. decreasing returns to scale

c. constant returns to scale

a. increasing returns to scale

b. decreasing returns to scale

c. constant returns to scale

answer

b.

question

18. The average productivity of capital is defined as

a. the extra output produced by employing one more unit of capital while holding other inputs

constant.

b. the extra output produced by employing one more unit of capital while allowing other inputs

to vary.

c. the ratio of total output produced to the quantity of capital employed

a. the extra output produced by employing one more unit of capital while holding other inputs

constant.

b. the extra output produced by employing one more unit of capital while allowing other inputs

to vary.

c. the ratio of total output produced to the quantity of capital employed

answer

c.

question

19. Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10. If the level of production

is currently efficient, the wage rate must be

a. $10

b. $5

c. $20

d. $40

is currently efficient, the wage rate must be

a. $10

b. $5

c. $20

d. $40

answer

b.

question

20. Suppose the production function for good q is given by q = 3K + 2 L where K and L are capital

and labor inputs. Consider three statements about this function:

I. The function exhibits constant returns to scale.

II. The function exhibits diminishing marginal productivities to all inputs.

III. The function has a constant rate of technical substitution.

Which of these statements is true?

a. All of them.

b. None of them.

c. I and II but not III.

d. I and III but not II.

e. only I.

and labor inputs. Consider three statements about this function:

I. The function exhibits constant returns to scale.

II. The function exhibits diminishing marginal productivities to all inputs.

III. The function has a constant rate of technical substitution.

Which of these statements is true?

a. All of them.

b. None of them.

c. I and II but not III.

d. I and III but not II.

e. only I.

answer

d.

question

21. The firm's expansion path records

a. profit-maximizing output choices for every possible price.

b. cost-minimizing input choices for all possible output levels for when input prices expand

along with production.

c. cost-minimizing input choices for all possible output levels for a fixed set of input prices.

d. cost-minimizing input choices for profit-maximizing output levels

a. profit-maximizing output choices for every possible price.

b. cost-minimizing input choices for all possible output levels for when input prices expand

along with production.

c. cost-minimizing input choices for all possible output levels for a fixed set of input prices.

d. cost-minimizing input choices for profit-maximizing output levels

answer

c.

question

22. A firm whose production function displays increasing returns to scale will have a total cost curve

that is

a. a straight line through the origin.

b. a curve with a positive and continually decreasing slope.

c. a curve with a positive and continually increasing slope.

d. a curve with a negative and continually decreasing slope

that is

a. a straight line through the origin.

b. a curve with a positive and continually decreasing slope.

c. a curve with a positive and continually increasing slope.

d. a curve with a negative and continually decreasing slope

answer

b.

question

23. A firm's total revenue is equal to

a. total quantity produced times marginal cost.

b. total quantity produced times market price.

c. marginal revenue times total quantity produced.

d. market price divided by total quantity produced.

a. total quantity produced times marginal cost.

b. total quantity produced times market price.

c. marginal revenue times total quantity produced.

d. market price divided by total quantity produced.

answer

b.

question

24. Suppose the production function for coffee (C) is C = min(B,W), where B = beans in pounds and

W = water in gallons. Suppose the price of water is $.10 per gallon and the price of beans is $10

per pound. The cost minimizing combination of beans and water for C = 200 is

a. B = 200, W = 2000

b. B = 2000, W = 200

c. B = 100, W = 100

d. B = 200, W = 200

W = water in gallons. Suppose the price of water is $.10 per gallon and the price of beans is $10

per pound. The cost minimizing combination of beans and water for C = 200 is

a. B = 200, W = 2000

b. B = 2000, W = 200

c. B = 100, W = 100

d. B = 200, W = 200

answer

d.

question

25. Suppose a farmer is a price taker for soybean sales with cost functions given by

TC = .1q2 + 2q + 30

MC = .2q + 2

If P = 6 , the profit-maximizing level of output is

a. 10

b. 20

c. 40

d. 80

TC = .1q2 + 2q + 30

MC = .2q + 2

If P = 6 , the profit-maximizing level of output is

a. 10

b. 20

c. 40

d. 80

answer

b.

question

26. Suppose a farmer is a price taker for soybean sales with cost functions given by

TC = .1q2 + 2q + 30

MC = .2q + 2

If P = 6 the profit-maximizing level of profits is

a. 10

b. 20

c. 30

d. −10

TC = .1q2 + 2q + 30

MC = .2q + 2

If P = 6 the profit-maximizing level of profits is

a. 10

b. 20

c. 30

d. −10

answer

a.

question

27. A firm's total revenue is equal to

a. total quantity produced times marginal cost.

b. total quantity produced times market price.

c. marginal revenue times total quantity produced.

d. market price divided by total quantity produced.

a. total quantity produced times marginal cost.

b. total quantity produced times market price.

c. marginal revenue times total quantity produced.

d. market price divided by total quantity produced.

answer

b.

question

28. The short-run market supply curve is

a. the horizontal summation of each firm's short-run supply curve.

b. the vertical summation of each firm's short-run supply curve.

c. the horizontal summation of each firm's short-run average cost curve.

d. the vertical summation of each firm's short-run average cost curve.

a. the horizontal summation of each firm's short-run supply curve.

b. the vertical summation of each firm's short-run supply curve.

c. the horizontal summation of each firm's short-run average cost curve.

d. the vertical summation of each firm's short-run average cost curve.

answer

a.

question

29. If a 1 percent increase in price leads to a .7 percent increase in quantity supplied in the short run,

the short-run supply curve is

a. elastic.

b. inelastic.

c. unit elastic.

d. perfectly inelastic

the short-run supply curve is

a. elastic.

b. inelastic.

c. unit elastic.

d. perfectly inelastic

answer

b.

question

30. If the market for bottled spring water is characterized by a very elastic supply curve and a very

inelastic demand curve, an outward shift in the supply curve would be reflected primarily in the

form of

a. higher prices.

b. higher output.

c. lower prices.

d. lower output

inelastic demand curve, an outward shift in the supply curve would be reflected primarily in the

form of

a. higher prices.

b. higher output.

c. lower prices.

d. lower output

answer

c.

question

31. Long-run elasticity of supply is defined as

a. percentage change in quantity demanded in the long run divided by percentage change in

price.

b. percentage change in price divided by percentage change in quantity demanded in the long

run.

c. percentage change in quantity supplied in the long run divided by percentage change in price.

d. percentage change in price divided by percentage change in quantity demanded in the long

run.

a. percentage change in quantity demanded in the long run divided by percentage change in

price.

b. percentage change in price divided by percentage change in quantity demanded in the long

run.

c. percentage change in quantity supplied in the long run divided by percentage change in price.

d. percentage change in price divided by percentage change in quantity demanded in the long

run.

answer

c.

question

32. Suppose there are 100 firms each with a short run total cost of STC = q2 + q + 10, so that

marginal cost is MC = 2q +1. If market demand is given by QD = 1050 − 50P, how much will the

individual firm produce?

a. 3

b. 4

c. 5

d. 6

marginal cost is MC = 2q +1. If market demand is given by QD = 1050 − 50P, how much will the

individual firm produce?

a. 3

b. 4

c. 5

d. 6

answer

c.

question

33. In the short run, the incidence of a sales tax is

a. wholly absorbed by the producer.

b. shared between the consumer and the producer.

c. deferred until the market is able to re-establish an equilibrium price.

d. wholly absorbed by the consumer.

a. wholly absorbed by the producer.

b. shared between the consumer and the producer.

c. deferred until the market is able to re-establish an equilibrium price.

d. wholly absorbed by the consumer.

answer

b.

question

34. In the long run, the greater burden of a specific tax will usually be absorbed by

a. consumers.

b. the party⎯consumers or producers⎯with the more elastic demand/supply curve.

c. the party with the least elastic demand/supply curve.

d. shareholders and employees of the firm in the form of reduced dividends and wages.

a. consumers.

b. the party⎯consumers or producers⎯with the more elastic demand/supply curve.

c. the party with the least elastic demand/supply curve.

d. shareholders and employees of the firm in the form of reduced dividends and wages.

answer

c.

question

35. In free exchange among two individuals the position on the contract curve finally arrived at will,

among other things, depend on:

I. The bargaining strength of each individual.

II. The initial endowments of the individuals.

III. The individuals' preferences.

Which of these correctly completes the statement?

a. Only III.

b. Only II.

c. I and III, but not II.

d. II and III, but not I.

e. I, II, and III

among other things, depend on:

I. The bargaining strength of each individual.

II. The initial endowments of the individuals.

III. The individuals' preferences.

Which of these correctly completes the statement?

a. Only III.

b. Only II.

c. I and III, but not II.

d. II and III, but not I.

e. I, II, and III

answer

e.

question

36. Suppose the Economics Department has a graduation party for its students but as a final test they

must show they have learned something about trade. The men are given food when they walk in

and the women are given drink. Suppose they have identical preferences where food and drink

provide utility 𝑈𝑈 = 𝐹𝐹𝛼𝛼𝐷𝐷𝛽𝛽. The exchange would be such that

a. both would be guaranteed to be better off than when they entered.

b. both would be guaranteed to be at least as well off as when they entered.

c. the men would end up with more.

d. the women would end up with more.

must show they have learned something about trade. The men are given food when they walk in

and the women are given drink. Suppose they have identical preferences where food and drink

provide utility 𝑈𝑈 = 𝐹𝐹𝛼𝛼𝐷𝐷𝛽𝛽. The exchange would be such that

a. both would be guaranteed to be better off than when they entered.

b. both would be guaranteed to be at least as well off as when they entered.

c. the men would end up with more.

d. the women would end up with more.

answer

b.

question

37. Suppose the Economics Department has a graduation party for its students but as a final test they

must show they have learned something about trade. The men are given food when they walk in

and the women are given drink. Suppose they have very different preferences where food and

drink provide utility. For men U = FαDβ. For women U=min(F,D) The contract curve in the

Edgeworth box using a representative man and woman would be

a. a right angle connecting the lower left corner with the upper right corner.

b. a curve (not necessarily a line) connecting the lower left corner with the upper right corner.

c. a line connecting the lower left corner with the upper right corner.

d. a right angle connecting the upper left corner with the lower right corner.

must show they have learned something about trade. The men are given food when they walk in

and the women are given drink. Suppose they have very different preferences where food and

drink provide utility. For men U = FαDβ. For women U=min(F,D) The contract curve in the

Edgeworth box using a representative man and woman would be

a. a right angle connecting the lower left corner with the upper right corner.

b. a curve (not necessarily a line) connecting the lower left corner with the upper right corner.

c. a line connecting the lower left corner with the upper right corner.

d. a right angle connecting the upper left corner with the lower right corner.

answer

c.

question

38. Consider a two-good production economy in which both goods are produced with fixed

proportions production functions. Then, some efficient allocations will exhibit unemployment of

some factor providing

a. the firms use the inputs in different proportions.

b. the firms exhibit diminishing returns to scale.

c. the firms exhibit increasing returns to scale.

d. production can never be efficient if there are unemployed inputs.

proportions production functions. Then, some efficient allocations will exhibit unemployment of

some factor providing

a. the firms use the inputs in different proportions.

b. the firms exhibit diminishing returns to scale.

c. the firms exhibit increasing returns to scale.

d. production can never be efficient if there are unemployed inputs.

answer

a.

question

39. A monopolist with constant average and marginal cost equal to 8 (AC = MC = 8) faces demand Q

= 100 - P, implying that its marginal revenue is MR = 100 - 2Q. Its profit maximizing quantity is

a. 8

b. 46

c. 50

d. 92

= 100 - P, implying that its marginal revenue is MR = 100 - 2Q. Its profit maximizing quantity is

a. 8

b. 46

c. 50

d. 92

answer

b.

question

40. A monopolist has total cost TC = .1Q2 - 2Q + 100 and marginal cost MC = .2Q - 2. Market

demand is Q = 86 - P, implying that the firm's marginal revenue is MR = 86 - 2Q. Its profitmaximizing

output is

a. 92

b. 46

c. 40

d. 20

demand is Q = 86 - P, implying that the firm's marginal revenue is MR = 86 - 2Q. Its profitmaximizing

output is

a. 92

b. 46

c. 40

d. 20

answer

c.

question

41. From the point of view of economic efficiency, output in a monopolized market is

a. too high.

b. perfect.

c. too low.

d. undesirable.

a. too high.

b. perfect.

c. too low.

d. undesirable.

answer

c.

question

42. Which is not an example of price discriminating by separating markets?

a. offering discounts for students with IDs.

b. charging lower prices for airline tickets with a Saturday stay-over.

c. selling 13 bagels (a "baker's dozen") for the price of 12.

d. selling snowblowers at a discount in relatively warmer climates.

a. offering discounts for students with IDs.

b. charging lower prices for airline tickets with a Saturday stay-over.

c. selling 13 bagels (a "baker's dozen") for the price of 12.

d. selling snowblowers at a discount in relatively warmer climates.

answer

c.

question

43. All monopolies exist because of

a. firms' desire to maximize profits.

b. failure of antitrust laws.

c. barriers to entry.

d. natural selection

a. firms' desire to maximize profits.

b. failure of antitrust laws.

c. barriers to entry.

d. natural selection

answer

c.

question

44. A profit-maximizing monopoly will produce that output for which

a. marginal revenue equals price.

b. average cost is minimized.

c. marginal cost is minimized.

d. marginal cost equals marginal revenue

a. marginal revenue equals price.

b. average cost is minimized.

c. marginal cost is minimized.

d. marginal cost equals marginal revenue

answer

d.

question

45. If a monopoly is maximizing profits,

a. price will always be greater than the elasticity of demand.

b. price will always equal marginal cost.

c. price will always be greater than marginal cost.

d. price will always equal marginal revenue.

a. price will always be greater than the elasticity of demand.

b. price will always equal marginal cost.

c. price will always be greater than marginal cost.

d. price will always equal marginal revenue.

answer

c.

question

46. Suppose there are two firms, Boors and Cudweiser, each selling identical-tasting nonalcoholic

beer. Consumers of this beer have no brand loyalty so market demand can be expressed as P = 5

− .001(QB + QC). Boors' marginal revenue function can be written MR = 5 − .001(2QB + QC) and

symmetrically for Cudweiser. Boors operates with out-of-date technology and has constant cost

of $2 per unit , whereas Cudweiser has constant cost of $1 per unit. Assuming

the firms behave as Cournot competitors, Boor's best-response function is

a. QB = 2,000 − .5QC

b. QB = 1,500 − .5QC

c. QC = 2,000 − .5QB

d. QC = 1,500 − .5QB

beer. Consumers of this beer have no brand loyalty so market demand can be expressed as P = 5

− .001(QB + QC). Boors' marginal revenue function can be written MR = 5 − .001(2QB + QC) and

symmetrically for Cudweiser. Boors operates with out-of-date technology and has constant cost

of $2 per unit , whereas Cudweiser has constant cost of $1 per unit. Assuming

the firms behave as Cournot competitors, Boor's best-response function is

a. QB = 2,000 − .5QC

b. QB = 1,500 − .5QC

c. QC = 2,000 − .5QB

d. QC = 1,500 − .5QB

answer

b.

question

47. Relative to the case in which two identical firms choose quantities simultaneously in a Cournot

model, if one of the two moves first and is observed by the other, how would this affect its

output?

a. it would increase its output, more so if it could deter the other from entering the market at all.

b. it would increase its output, but would moderate this increase if it were concerned about entry

deterrence.

c. it would decrease its output if it couldn't deter entry and increase it otherwise.

d. it would decrease its output whether or not it wanted to deter entry.

model, if one of the two moves first and is observed by the other, how would this affect its

output?

a. it would increase its output, more so if it could deter the other from entering the market at all.

b. it would increase its output, but would moderate this increase if it were concerned about entry

deterrence.

c. it would decrease its output if it couldn't deter entry and increase it otherwise.

d. it would decrease its output whether or not it wanted to deter entry.

answer

a.

question

48. Under the cartel model, each firm produces where

a. marginal cost equals marginal revenue.

b. price equals marginal cost.

c. the average cost curve is at a minimum.

d. price exceeds marginal cost by the greatest amount

a. marginal cost equals marginal revenue.

b. price equals marginal cost.

c. the average cost curve is at a minimum.

d. price exceeds marginal cost by the greatest amount

answer

a.

question

49. Suppose residents of Toadhop live on the Quabache River, a river prone to flooding. Suppose

there are 1000 (type A) people who value flood control more than the 1000 (type B) people.

Type A Demand QD = 100 − P

Type B Demand QD = 50 − P

Where Q measures the quality of flood control. If the price of a unit of flood control is $100,000 and the

citizens of Toadhop did not work together the amount of flood control purchased would be

a. 0

b. 10

c. 25

d. 70

there are 1000 (type A) people who value flood control more than the 1000 (type B) people.

Type A Demand QD = 100 − P

Type B Demand QD = 50 − P

Where Q measures the quality of flood control. If the price of a unit of flood control is $100,000 and the

citizens of Toadhop did not work together the amount of flood control purchased would be

a. 0

b. 10

c. 25

d. 70

answer

a.

question

50. Left to their own, private markets tend to

a. under-allocate resources to public goods.

b. allocate the economically efficient amount of resources to public goods.

c. over-allocate resources to public goods

a. under-allocate resources to public goods.

b. allocate the economically efficient amount of resources to public goods.

c. over-allocate resources to public goods

answer

a.