Question

unit 2 test. understanding markets
test b
record the best answer. (2 points per question) -------/50 points total

1. an externality is defined as

a. an additional cost imposed by the government on producers.
b. a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer.
c. an additional gain received by consumers from decisions made by the government.
d. the additional amount consumers have to pay to consume an additional amount of a good or service.

1. what will happen in the rice market if buyers are expecting higher prices in the near future?

a. the demand for rice will increase.
b. the demand for rice will decrease.
c. the demand for rice will be unaffected.
d. the supply of rice will increase.

1. the national football league “blacks out” local television of football games when the game in question is not sold out in advance. the nfl supports this action because it

a. increases the demand for football tickets.
b. reduces the supply of football tickets.
c. reduces the price of football tickets.
d. increases the amount of money that the net- works pay to televise nfl games.

1. which of the following types of firms is likely to be a monopolistic competitor?

a. a cell phone company.
b. an automobile manufacturer.
c. a fast food restaurant.
d. all of these are likely to be monopolistic competitors.
graph 6.1

1. in graph 6 - 1, a binding (legal) price ceiling is shown in

a. panel (a).
b. panel (b).
c. both panel (a) and panel (b).
d. neither panel (a) nor panel (b).
graph 4 - 1

Explanation:

1. An externality is a cost or benefit that impacts a third - party not involved in production or consumption directly. So option b is correct.
2. When buyers expect higher future prices, they tend to buy more now, increasing current demand. So the demand for rice will increase (option a).
3. The NFL blacking out local TV when games aren't sold out aims to increase ticket demand as fans have to attend the game to watch it. Option a is correct.
4. A fast - food restaurant is in a monopolistically competitive market as it sells differentiated products and has many competitors. Option c is correct.
5. A binding price ceiling is below the equilibrium price. In panel (b), the price ceiling is below the equilibrium price, causing a shortage. So option b is correct.

Answer:

1. b. a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer.
2. a. The demand for rice will increase.
3. a. Increases the demand for football tickets.
4. c. A fast food restaurant.
5. b. panel (b).