Question

1. Economic profit is:
A) always equal to accounting profit.
B) less than accounting profit if implicit costs are zero.
C) less than accounting profit if implicit costs exist.
D) greater than accounting profit if implicit costs exist.

2. The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire.
A) price inelastic
B) price unit-elastic.
C) perfectly price elastic
D) price elastic

3. Suppose the absolute value of the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax?
A) Yacht builders and buyers will pay equally.
B) Yacht builders will pay more.
C) It's impossible to tell without additional information.
D) Yacht buyers will pay more.

4. A persistent shortage may occur if:
A) the government imposes a price floor below the equilibrium price.
B) demand keeps falling.
C) supply shifts rightward.
D) the government imposes a price ceiling below the equilibrium price.

5. If a country's price in the absence of trade is lower than the price with trade, then the domestic quantity supplied with trade is _____ the domestic quantity demanded.
A) not comparable to
B) greater than
C) less than
D) equal to

Answer 1

a) "C"

The economic profit will be less than the accounting profit if the implicit cost exist. it will increase the opportunity cost that has to be reduced from the actual profit to get the economic profit.

b) "D"

Over 1 means that the demand is elastic in the market.

c) "B" Yatch builders will pay more as the demand is elastic and the supply is elastic.

d) "D"

IF the government set a price ceiling below the equilibrium price it will cause a shortage.

e) "B"

If the supply is greater than the demand then it will happen.