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Tutorial 1 Questions

This document contains tutorial questions related to microeconomics concepts covered in chapters 1 and 2 of the textbook. It includes multiple choice questions testing understanding of graphs of market supply and demand and the impacts of externalities. It also includes questions requiring explanations of government policies to create market surpluses, calculations of market equilibrium prices and quantities, and impacts of changes in market supply on prices, quantities, consumer surplus and producer surplus. The questions require application of concepts like equilibrium, surplus, externalities and impacts of policy changes.

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Shayal Chand
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136 views4 pages

Tutorial 1 Questions

This document contains tutorial questions related to microeconomics concepts covered in chapters 1 and 2 of the textbook. It includes multiple choice questions testing understanding of graphs of market supply and demand and the impacts of externalities. It also includes questions requiring explanations of government policies to create market surpluses, calculations of market equilibrium prices and quantities, and impacts of changes in market supply on prices, quantities, consumer surplus and producer surplus. The questions require application of concepts like equilibrium, surplus, externalities and impacts of policy changes.

Uploaded by

Shayal Chand
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Resources & Environmental Economics EC307

Lekima Nalaukai Semester 2, 2021


Tutorial 1 Questions
Week 1 and 2 (Chap 1 & 2 Callan & Thomas)
Section A: Multiple Choices
Use this graph to answer Question 1 to 3:

Consider the following graph of the market for chemical solvents, production of which damages a
waterbody used for recreation. Use the graph to answer any or all of Questions 14 through 18.

MSC
$ A
E

D
MPC
H
G

MSB = MPB

C K L Q of chemical solvents

1. The loss of profit to the chemical solvent manufacturer from changing its output from QC to QE is:
A. DGH
B. DEH
C. DEHG
D. EH

2. The firm's marginal profit (Mπ) at the efficient equilibrium is


A. EH
B. HL
C. GK
D. DG

3. The reduction in damages to the environment from changing output from QC to QE is


A. EH
B. DG
C. DEHG
D. DGH

4. In the presence of a negative externality


A. there is an over allocation of resources to production
B. the competitive equilibrium will not achieve an allocatively efficient solution
C. MSC exceeds MSB at the competitive output level
D. all of the above

5. According to the Coase Theorem


A. efficiency can result only if producers hold the property rights
Resources & Environmental Economics EC307
Lekima Nalaukai Semester 2, 2021
Tutorial 1 Questions
Week 1 and 2 (Chap 1 & 2 Callan & Thomas)
B. an efficient outcome is possible as long as property rights are assigned
C. efficiency is not possible in the presence of an environmental externality
D. none of the above

Section B: Review of the Basics


1. Describe a real-world government policy that creates a market surplus. Be sure to carefully define the relevant
market.
Resources & Environmental Economics EC307
Lekima Nalaukai Semester 2, 2021
Tutorial 1 Questions
Week 1 and 2 (Chap 1 & 2 Callan & Thomas)

2. Explain the efficiency implications of such a policy. Be specific.

3. In the instance you have described, what is the government's motivation for intervening in the market in this
way?

Section C: Calculations
1. Suppose QD = 200 – 4P and QS = 100 describe market demand and market supply in a given market.
A. Algebraically find equilibrium price and quantity and support your answer graphically.
Resources & Environmental Economics EC307
Lekima Nalaukai Semester 2, 2021
Tutorial 1 Questions
Week 1 and 2 (Chap 1 & 2 Callan & Thomas)

B. What is unusual about this market? Give an example of a good or service that might be
characterized in this way.

2. Suppose the market for organically grown wheat is modeled through the following market
supply and demand functions:

P = 10 + 0.5QS and P = 22 ‒ 2.5QD,

where QS and QD are in millions of bushels, and P is price per bushel.

A. Find the market equilibrium price, PE, and market equilibrium quantity, QE.

B. Now determine the value of producer surplus and consumer surplus at equilibrium

3. Consider a market for bottled water modeled below. The demand and market supply
equations are

QD = –100P + 1,150 and QS = 400P – 100,

where PE = $2.50 and QE = 900.

Now, suppose the change in standards results in a new market supply of QS’ = 400P – 350,
with no change in market demand.

A. Determine the new PE’ and QE’ for bottled water.

B. Graphically illustrate the market for bottled water before and after the change in labeling
standards. Be sure to label all relevant points.

C. Compare the values of consumer surplus and producer surplus before and after the change in
labeling standards. Is this result expected? Why or why not?

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