Question

Answer the following 5 questions? Explain why you chose the answer

1. Public Choice economists explain the existence of tariffs as being the result of:

A. the real cash balance effect

B. Comparative Advantage

C. the special interest group effect

D. the difference between complementary and substitute goods

2. Which of the following goods or services is almost like a public good?

A. A residential apartment in New Orleans

B. Police protection of Boston residents by the Boston Police department

C. Public Schooling in Los Angelos

D. gov't- supplied family- planning service in Chicago

E. cell phone service in Phoenix

3. The price of fertilizer used in most apple orchards rises, the ____ of apples will ___

A.Rise

B. Fall

4. If the price of flour used to make pie crust ( complementary good to apples) rises, the price of apples will

A. Rise

B. Falls

C. be unaffected.

5. If the demand for apples rises and there is a government prohibition on the price of apples rising, which of the following will be among the resluts ( assuming the price of apples was at equilibrium before the demand for apples rose?

A. neither a shortage nor surplus of apples

B. A surplus of apples

C. A shortage of apples

D improved quality of apples

Answer 1

1. C. Special interest group.

Choice a is wrong because real cash balance effect tells us the reason by aggregate expenditure is inversely related to price. Higher the price level, the lower is the purchasing power of money and lower consumption, investment and spending.

Choice b is wrong because comparative advantage in trade means a country will produce those goods in which it has a lower opportunity cost.

Choice C is correct because tariff will protect domestic producers by making imports costlier. The producer surplus will increase.

2.B. Police because it is non-excludable. Everyone in the community is provided police protection.

3. The quantity of apples will fall. The supply curve will shift to the left as the cost of production has increased.

4. B falls. If the price of a complementary good increases, the demand will fall which will lead to a fall in the price of the good.