A simplified representation of the real world that is used to explain economic phenomena is a(n)
A) viewpoint.
B) model.
C) assumption.
D) implication.
Ques. 2Refer to the above figures. Which of the panels would be consistent with the situation in which external costs exist?
A) Panel 1
B) Panel 2
C) Panels 1 and 2
D) neither panel
Ques. 3We observe that people buy less steak and more potatoes when the price of steak relative to potatoes increases. This indicates that steak and potatoes are
A) substitutes.
B) complements.
C) inferior goods.
D) unrelated goods.
Ques. 4A possible solution to the problems of external benefits is
A) to tax those receiving the extra benefits.
B) production of the good by government.
C) effluent fees.
D) to restrict the amount of the good through direct government regulation.
Ques. 5We cannot predict the effect on the market clearing price, but know that the equilibrium quantity will increase when
A) supply increases and demand decreases.
B) supply and demand for a product simultaneously decrease.
C) supply and demand for a product simultaneously increase.
D) supply decreases and demand increases.
Ques. 6Another term for economic models is
A) economic systems.
B) economic theories.
C) economic science.
D) economic institutions.
Ques. 7An effluent fee is a
A) subsidy given to the producer of a positive externality.
B) charge to a polluter that gives the right to discharge pollution into the air.
C) fine imposed on a polluter for dumping illegal pollution.
D) charge for a public good.
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