Question

Question 21. Which of the following would be most likely to increase the demand for jelly?

Select one: a. An increase in income; jelly is a normal good.

b. An increase in the price of peanut butter, which is often used with jelly.

c. Medical research that finds that daily consumption of jelly makes people live 10 years less, on average.

d. The price of jelly falls.

Question 22.

Which one of the following is Demand elasticity when the quantity demanded is not very responsive to changes in price?

Select one:

a. elastic.

b. independent.

c. inelastic.

d. unit elastic.

Question 23.

Which one of the following is not classfied as a public good?

Select one:

a. B1 bombers.

b. Nuclear aircraft carriers.

c. Radio signals

d. Steel mills.

Question 24.

Which one of the following is not considered a benefit externality?

Select one:

a. Shade trees

b. Public parks.

c. Public library.

d. Single occupant automobiles.

Question 25.

Which one of the following points government intervention in cases of spillover should continue?

Select one:

a. Marginal social benefit equals marginal social cost.

b. Marginal social benefit equals average social cost.

c. Total social benefit equals total social cost.

d. Marginal social cost equals average social cost.

Answer 1

21. The increase in demand is caused by changes in factors other than price. The price change is associated with change in quantity demanded. One of the factors which cause an increase in demand is the income of the consumers. The demand for normal goods increase with income of the consumers. Jelly is normal goods and hence its demand increase with increase in income.

If peanut butter and jelly used together an increase in price of peanut butter reduce the demand for jelly.

The medical research findings will reduce the demand for jelly.

When the price of jelly falls its quantity demanded increase, there is no increase demand. The increase in demand is indicated by the rightward shift of the demand curve.

Answer: a. An increase in income; jelly is a normal good.

22. In case of elastic demand the quantity demanded is very sensitive to the change in price. But in case of an inelastic demand the quantity demanded is not very sensitive to the change in price. A rise in price does not reduce the demand to a large extent and a fall in price does not increase demand considerably.

Answer: c. Inelastic

23. The public goods are those goods that are non-excludable and there is non-rivalry in consumption. Non excludable means that those who are not paying cannot be exclude from consumption. Non-rivalry means when one person consumes a good the same good is available to the other. National defense is an example of public goods. B1 bomber, Nuclear aircraft carriers and Radio signals are example of public goods because in their consumption they are non excludable and non-rivalry.

Answer: d. Steel Mills. (It is a private good, it is excludable and there is rivalry in consumption).

24. Shaded trees, Public Park and public library create positive externalities (benefit externalities) where as single occupant automobiles create negative externality through pollution.

Answer: d. Single occupant automobiles.

25. Answer: b. Marginal social benefit equals average social cost.(MSB < MSC).