Question

economics 2025-26 unit 3 study guide
c. multiple choice

1. suppose demand for movie tickets is elastic. if theaters lower ticket prices, what will likely happen to their total revenue?

a. total revenue will increase
b. total revenue will decrease
c. total revenue will stay the same
d. there is not enough information to say

1. which situation is most likely to have inelastic supply?

a. a factory that can easily add an extra shift
b. a farmer who must wait an entire season to plant and harvest
c. a clothing company that can quickly switch styles
d. an online seller who can scale digital products instantly

part iv – externalities
a. fill in the blank

1. a __________ externality occurs when an action imposes costs on bystanders who are not part of the original transaction.
2. a __________ externality occurs when an action creates benefits for bystanders who are not part of the original transaction.
3. a ________ ________ is a tax designed to \internalize\ a negative externality by making the decision-maker face the full social cost.
4. a government __________ for education or vaccines is often used to encourage activities with positive externalities.
5. to \internalize\ an externality means to make the decision-maker take into account the ________ and ________ that fall on others.

Explanation:

For question 8: When demand is elastic, the percentage change in quantity demanded is greater than the percentage change in price. Lowering price leads to a larger increase in quantity sold, so total revenue (price × quantity) rises.
For question 9: Inelastic supply means quantity supplied is unresponsive to price changes. A farmer must wait a full season to adjust output, so supply can't change quickly.
For fill-in-the-blank:

1. Negative externalities impose costs on third parties.
2. Positive externalities create benefits for third parties.
3. Pigouvian taxes are used to address negative externalities by aligning private and social costs.
4. Subsidies encourage activities with positive externalities by reducing costs.
5. Internalizing externalities means making decision-makers account for all costs and benefits affecting others.

Answer:

Multiple Choice

1. A. Total revenue will increase
2. B. A farmer who must wait an entire season to plant and harvest

Fill in the Blank

1. negative
2. positive
3. Pigouvian tax
4. subsidy
5. costs; benefits