Question

1. If the social cost of producing honey is greater than the private cost, then:

(a) a positive externality exists.

(b) a negative externality exists.

(c) honey production should be subsidised.

(d) honey is healthful and more should be produced.

(e) honey is manufactured more efficiently by external producers.

2. If France has a comparative advantage in producing cheese and it allows trade:

		(a) everyone in the country benefits.
		(b) everyone in the country loses.
		(c) the gains of the producers exceed the losses of the consumers.
		(d) the losses of the consumers exceed the gains of the producers.
		(e) the losses of the consumers equal the gains of the producers.

3. In a competitive market where the government has set the price below the equilibrium price, one might expect:

		(a) excess quantity supplied.
		(b) economic surplus to be maximised.
		(c) quantity demanded to equal quantity supplied.
		(d) a black market to develop as individuals try to take advantage of unexploited opportunities.
		(e) Both (a) and (d).

4.

A tax levied on the buyers of a product shifts the:

		(a) supply curve upwards or to the left.
		(b) supply curve downwards or to the right.
		(c) demand curve upwards or to the right.
		(d) demand curve downwards or to the left.
		(e) both B and D.

5. Suppose that the demand for coffee rises. This means that the producer surplus for coffee will:

		(a) increase
		(b) decrease
		(c) increase or decrease because the effect is ambiguous
		(d) neither increase nor decrease because supply hasn't changed
		(e) neither increase nor decrease because the price hasn't changed

Answer 1

1) option B is correct because there is an external cost which is increasing the social cost of production.

2) option C is correct. Comparative advantage results in in gains from trade forgot exporting and importing country because the overall gains are greater than the losses

3) option D. given that current price is less than the market price which means there is a price ceiling in the market and there must be a shortage where quantity demanded is greater than quantity supplied. as a result of this shortage there will be a development of black market.

4) option D

5) option C