In monopolistic competition, barriers to entry give the firms the power to set their price.
Indicate whether the statement is true or false
Ques. 2If a nonrenewable natural resource's price is expected to increase at a rate faster than the interest rate, then the supply today will
A) the supply today will increase.
B) the supply today will decrease.
C) the demand today will decrease.
D) the price today will fall.
Ques. 3Food stamps provided by the U.S. Department of Agriculture are an example of
A) a positive externality.
B) a private subsidy.
C) vouchers.
D) an external benefit.
Ques. 4The income that includes a household's earnings in addition to cash transfers from the government is called
A) market income.
B) real income.
C) money income.
D) cash income.
Ques. 5A risk averse person has diminishing marginal utility of wealth.
Indicate whether the statement is true or false
Ques. 6Next year's expected price of oil is 88 per barrel and the interest rate is 10 percent per year. According to the Hotelling Principle the price of oil this year is
A) 80 per barrel.
B) 88 per barrel.
C) 96 per barrel.
D) None of the above answer is correct.
Ques. 7Vouchers create the efficient outcome only if production is such that the marginal social cost
A) exceeds the marginal private benefit.
B) equals the marginal external benefit.
C) equals the marginal social benefit.
D) is decreased so it equals the marginal private cost.
Ques. 8Mike has the utility of wealth curve shown in the figure above. He owns a car worth 20,000, and that is his only wealth. There is a 10 percent chance that Mike will have an accident within a year. If he does have an accident, his car is worthless.
a) What is Mike's expected utility? b) What is the maximum amount that Mike is willing to pay for auto insurance? c) Suppose all car owners are like Mike insofar as they have a 10 percent chance of having an accident. An insurance company agrees to pay each person who has an accident the full value of his or her car. The company's operating expenses are 1,000. What is the minimum insurance premium that the company is willing to accept? d) Will Mike buy the company's policy? Why or why not?
Ques. 9Diseconomies of scale definitely means that as the firm increases its output, its
A) long-run average total cost increases.
B) long-run average total cost decreases.
C) short-run average total cost increases.
D) short-run average total cost decreases.
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