Question

1. Suppose the price of cheese rises. In the market for pizza, one would expect that

		the demand for pizza would increase, and the price would increase.
		the demand for pizza would decrease, and price would fall.
		the supply of pizza would increase, and the price would fall.
		the supply of pizza would decrease, and price would rise.

2. Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?

		Coase argued that government intervention is necessary to achieve economic efficiency in markets that are affected by externalities.
		Coase argued that with clearly defined and enforced property rights and low transaction costs private solutions to the problems of externalities will occur.
		Coase proved that economic efficiency cannot be achieved in a market that is affected by positive or negative externalities.
		Coase proved that a competitive market achieved a greater degree of economic efficiency than a non-competitive market when externalities occur.

Answer 1

1) the supply of pizza would decrease, and price would rise. Cheese is an ingredient used in pizza and higher cost of ingredients implies that production cost of Pizza will increase. this is going to decrease its supply and when the supply curve shifts to the left there will be an increase in the price

2) Coase argued that with clearly defined and enforced property rights and low transaction costs private solutions to the problems of externalities will occur. he provided the three major conditions for successful bargaining between parties involved in externalities. This includes well defined property rights low transaction cost and low bargaining cost