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Reading 15: Markets in Action - LOS d ~ Q1-4

1.Which of the following is the most likely effect of fines and penalties that are only imposed on the seller in a market for illegal goods?

A)   The price will rise and the quantity supplied will remain the same.

B)   The price will rise and the quantity supplied will decline.

C)   The price will rise and the quantity supplied will increase.

D)   The price will remain the same but the quantity supplied will decline.

2.Which of the following is the most likely effect of a quota on wheat?

A)   The equilibrium quantity of wheat will increase.

B)   The supply curve will shift downward.

C)   Nothing if the quota is set above the equilibrium quantity.

D)   Marginal costs will be greater than marginal benefit.

3.Which of the following is the most likely effect of a subsidy in the market for corn?

A)   The equilibrium quantity of corn will decrease.

B)   The supply curve for corn will shift downward.

C)   The equilibrium price paid by buyers will increase.

D)   Marginal costs will be less than marginal benefit.

4.Assuming equal expected penalties to buyers and sellers in the market for an illegal good, which of the following most accurately describes equilibrium price and quantity relative to the market for a legal good?

 

Price

Quantity

 

A)                                        Same    Higher

B)                                        Same    Lower

C)                                        Lower    Lower

D)                                        Higher    Lower

答案和详解如下:

1.Which of the following is the most likely effect of fines and penalties that are only imposed on the seller in a market for illegal goods?

A)   The price will rise and the quantity supplied will remain the same.

B)   The price will rise and the quantity supplied will decline.

C)   The price will rise and the quantity supplied will increase.

D)   The price will remain the same but the quantity supplied will decline.

The correct answer was B)

If the penalty for trading in illegal goods is on sellers rather than on buyers, the supply curve will shift up and the market price will rise above the initial market price. The equilibrium quantity traded will decline.

2.Which of the following is the most likely effect of a quota on wheat?

A)   The equilibrium quantity of wheat will increase.

B)   The supply curve will shift downward.

C)   Nothing if the quota is set above the equilibrium quantity.

D)   Marginal costs will be greater than marginal benefit.

The correct answer was C)

A quota does not cause the supply curve to shift. The equilibrium quantity will decrease to the quota amount. Marginal cost will be less than marginal benefit, leading to a deadweight loss from underproduction.

3.Which of the following is the most likely effect of a subsidy in the market for corn?

A)   The equilibrium quantity of corn will decrease.

B)   The supply curve for corn will shift downward.

C)   The equilibrium price paid by buyers will increase.

D)   Marginal costs will be less than marginal benefit.

The correct answer was B)

A subsidy causes a shift in the supply curve downward by the amount of the subsidy. The equilibrium quantity will increase and the price paid by buyers will decrease. Marginal cost will exceed marginal benefit and a deadweight loss will result from overproduction.

4.Assuming equal expected penalties to buyers and sellers in the market for an illegal good, which of the following most accurately describes equilibrium price and quantity relative to the market for a legal good?

 

Price

Quantity

 

A)                                        Same    Higher

B)                                        Same    Lower

C)                                        Lower    Lower

D)                                        Higher    Lower

The correct answer was B)

With an equal penalty to buyers and sellers, the vertical shift in both the supply and demand curve offset each other, and the price for the illegal good remains the same. The equilibrium quantity, however, is less than that for the legal good.

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thanks a lot

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