An increase in rent that leads to increased profitability of producing rental ho

Question

An increase in rent that leads to increased profitability of producing rental housing will lead to which of the following shifts in the long run?

Select one: a. DD to D1D1

b. D1D1 to DD

c. S1S1 to SS

d. SS to S1S1

e. None of the choices

2: Refer to the graph below:

Suppose the current tax is T1 and the government wishes to reduce pollution. It should

Select one:

a. raise the tax above T1.

b. lower the tax below T1.

c. shift the MPC curve to the left.

d. shift the MPC curve to the right.

e. do none of the above.

3: Refer to the graph below:

Given production possibilities curve (PPC) (b), point Q

Select one:

a. can be reached if the birth rate is reduced.

b. represents some degree of inefficiency in the use of resources.

c. is undesirable.

d. can be reached if the output of consumer goods is increased while the output of capital goods is reduced.

e. can be reached through an improvement in technology.

4: In a monopoly market, firms

Select one:

a. can enter easily.

b. frequently exit the market due to low demand.

c. always make little or no profit.

d. are blocked from entry.

e. must answer to the demands of government.

5: The negative slope of a production possibilities curve illustrates

Select one:

a. scarcity.

b. unlimited wants.

c. limited wants.

d. the law of increasing opportunity cost.

e. unlimited resources.

Explanation / Answer

(1) (d)

In the long run, higher profitability will provide house-owners to supply more housing for rent, which will increase the supply of housing, shifting supply curve rightward from SS to S1S1.

(2) (b)

The tax has increase units of pollution from q to q1, corresponding to points A0 and A1 respectively. So, to lower pollution, government should decrease tax.

(3) (e)

Improvement in technology will increase the output of capital goods (and/or output of consumer goods), shifting the PPC (b) rightward, enabling the economy to reach point Q.

(4) (d)

In a monopoly market there is only one seller with barriers to entry.

(5) (a)

The negative slope signifies scarcity, which leads to the trade-off between production of the goods. To produce more of one good, some of the other good has to be given up.

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