MICROECONOMICS
Topic Two:Demand,Supply and Elasticity
1.(a) Supposethedemandand supplycurvesforgoodXareasfollows:QD = 200-5P
QS = -25+4PwhereP isindollarsperunitofX.
(i)Sketchthedemandandsupplycurves.
(ii)Whatdoes"ceterisparibus"meaninrelationtothedemandcurve above?
(iii)Inthisexample,whatistheequilibriumpriceofX,quantitysuppliedand demanded,totalpurchasers'expenditureonXandtotal revenuereceivedbysellers?
(b) Atalaterperiodit is foundthatthesupplyfunctionforXis:QS = -7+4P
(i)Whatisthenewequilibriumpriceandwhatquantitiesareboughtand
soldin equilibrium?
(ii)Doesthefallintheequilibriumprice,whichfollowsthisshiftofthesupplycurve, shiftthedemandcurveandhenceraisethe consumptionofX?
2.Supposethedemandand supplycurvesforgoodYareasfollows:QD =600 -7.5P
QS =-100 +10PwhereP ispriceperkgmeasuredindollars
andQisquantitymeasuredin ‘000kgs
(a) SketchthedemandandsupplycurvesforgoodY.(b) Determinetheequilibriumpriceandquantity.
(c) If thepriceofasubstitutegoodforYweretoincrease,outlinetheeffectthatthiswould haveonthedemandandsupplycurvesyouhavedrawn.What effectwouldit haveon theequilibriumpriceandquantity?
(d) Assumethat at thesame time as (c)thepriceoflabourusedtoproducegoodY increased.Outlinethecombinedeffectthatthesewouldhaveonthedemandandsupplycurvesyouhavedrawn.What effectwouldthishaveontheequilibriumprice andquantity?
3.Supposethedemandand supplycurvesforgoodZ areasfollows:QD =15-1.5P
QS = 0+1.0PwhereP isthepriceperlitremeasuredindollars
andQisthequantitymeasuredin ‘00litres
(a)Sketchthedemandandsupplycurves.
(b)Determinetheequilibriumpriceandquantity.
(c)Explainthemeaningofaconsumersurplus,and calculatethevalueat the equilibrium price.
(d)Explainthemeaningofaproducersurplus,andcalculatethevalue at the equilibrium price.
4.AssumethenumberofbicyclesdemandedandsuppliedinVictoria,at variousprices,is as follows:
Priceof BicycleQuantityDemandedQuantitySupplied
($) peryear(‘000) peryear(‘000)
120 / 24 / 9160 / 20 / 16
200 / 17 / 21
240 / 15 / 24
(a) Sketchthedemandandsupplycurves.Fromyoursketchdeterminethe equilibrium priceandquantity.
(b) Calculatethearcelasticityofdemandbetweenthepricesof$160and$200,andinterpretyouranswer.Isthedemand forbicycleselasticorinelasticoverthispricerange?
(c) Calculatethearcelasticityofsupplybetweenthesesametwopricesandinterpretyour answer.
5.Explainpreciselywhyitisnotpossibleto estimatethemagnitudeofanownprice elasticityofdemand,simplybylookingat theslopeofthedemandcurve.
6.ThelocalmovierentalstorehadbeenhiringoutDVDsat $4each.On average,
1800DVDswerehiredperweek.Inresponsetoanincreasein runningcosts,thestoreincreasedtheir DVDhireto$5,resultinginthetypicalnumberofDVDs hiredperweek fallingto1250.
(a)Calculateandinterpretthearcownpriceelasticityofdemandforthisstore’sDVD hire.
(b)Explainwhythestore’srevenuefromDVDrentalshasfallendespiteincreasingtheirprice.
7.“Demand curvesarealwaysnegativelysloped.”Discuss.
8.Statewhether youwouldexpectdemandforthefollowingproductstobe relativelyelasticorinelastic.Ineachcaseoutlinethefactorslikelytobeimportantindetermining theproduct'spriceelasticity.
(a)cigarettes
(b) awell-knownbrandofsoap
9.Explainthelikelycrosselasticityofdemandbetweenthefollowingproducts:(a) riceand noodles
(b) electricityand electricstoves
(c) paperbags, aluminiumfoil,plasticwrap
10.Bookwormand Easyread arebothpublishersofpopularnovels.(a) AssumethatdemandforBookwormnovelsiselastic.
(i)Explainthemeaningoftheunderlinedterm.
(ii)Outlineoneimportantfactorthatyoufeelhashelpedtodeterminethesizeofthis ownpriceelasticity.
(iii)HowwouldafallinBookworm’spriceaffecttheirtotal revenue?
(b) WhenthepriceofEasyreadnovelsincreasedfrom$20to$23,Bookworm’ssalesincreased from105,000to120,000novels.Calculatethearccrossprice elasticity.Arethetwobrands ofnovelsclosesubstitutes?Explain.
(c) Anincreasein averageweeklyearningsfrom$290to$310causedBookworm’s salestoincrease from120,000to130,000novels.Calculateandinterprettheincomeelasticity.
(d) Whentheaveragepriceofwomen’smagazinesincreasedby6%,thedemandfornovels increasedby2%permonth.Dothesefiguressuggestthatnovelsandwomen’smagazinesbelongtothesamemarket? Explain.
TopicThree:Applicationsof Demandand Supply
1.Supposethedemandand supplycurvesforgoodMareasfollows:QD = 70 - 2P
QS =-10 + 2PwhereP ispriceperkgmeasuredindollars
andQisquantitymeasuredin ‘000kgs
(a)Sketchthedemandandsupplycurves.
(b)Determinetheequilibriumpriceandquantity.
(c)Calculatethevalueoftheconsumerandproducer surplusat the equilibrium price.
(d)Explainwhygovernmentsmayintroduceapriceceiling
(e)Supposeapriceceilingof$15weretobeintroduced.Calculatethe consumerand producersurplusafteritsintroduction.
(f)Whohasbenefitedfromtheintroductionofthepriceceiling?
2.Supposethedemandand supplycurvesforgoodWareas follows:QD =100 - 2P
QS =-20 + 4Pwhere P ispriceperkgmeasuredindollars
andQisquantitymeasuredin ‘00kgs
(a)Sketchthedemandandsupplycurves.
(b)Determinetheequilibriumpriceandquantity.
(c)Calculatethevalueoftheconsumerandproducer surplusat the equilibrium price.
(d)Explainwhygovernmentsmayintroduceapricefloor.
(e)Supposeapricefloorof $30weretobeintroduced.Calculatethe consumer andproducersurplusafteritsintroduction.
(f)Whohasbenefitedfromtheintroductionofthepricefloor?
3.Withtheintroductionofaunittax,tobepaidbyproducers,thesupplycurveshiftsupwards. Explainwhy,whenthesametaxislevieddirectlyonconsumers,thedemandcurveshifts downwards.
4.Supposethe government is consideringtheimpositionofaunittax tobeleviedon beerproducers. Theviewofcompaniesisthatthisisjustonemorecostforthemtobear. Consumers disagreesayingthatthecompaniespassthetaxesontothemintermsofhigherprices.
(a)Giventhatthedemandforbeerisinelastic, whichviewpointis correct?(b) Wouldtheburdenofthe taxbeanydifferentifthegovernmentleviedthe
taxonconsumers(overthecounter)ratherthanonbeerproducers?
Explain youranswersfullyandusediagramsinyouranalysis.
TopicFour: Productionand Costs
1.Explainthedifferencebetweenexplicit andimplicit costs,givingexamples.
2.“Economicprofitcanneverbegreaterthanaccountingprofit.”
Discussthisstatement,makingsureyouranswerincludesan explanationofhowthetwo measuresofprofit arecalculated.
3.Bill ownandrunsacomputershop.Thefollowingdataareabouthisfinancialmattersinhis firstyearofbusiness:
$
190,000Total revenue
65,000SalarythatBill couldhaveearnedifhehadworkedforanotherfirm
90,000Loan fromabank
9,000Interestpaidtothebank
70,000Purchaseofdurable assetswithhisownmoney
4,200Dividendthathecouldhaveearnedbyinvestinghis$70,000inshares
14,000Depreciationofthedurableassets
30,000Salaryforanassistant
67,000Rawmaterialspurchasedandused
Usingtherelevantfigures(somefigure/sis/areirrelevant),calculateBill’s accountingprofit and economicprofit forhisfirstyearofbusiness.Showyour calculations.
4.Thetablebelowshowsthetotalproductionofa firm asthequantityoflabour employed increases,with all otherfactorsofproductionremainingconstant.
L / TP0 / 0
1 / 80
2 / 200
3 / 310
4 / 400
5 / 450
6 / 480
7 / 490
8 / 480
(a)Calculatethemarginalproduct (MPL)andtheaverageproductoflabour
(APL).
(b)Definethelawofdiminishingreturns. Isthemarginalproduct calculatedinpart(a)consistentwiththelawofdiminishingreturns?
(c)Drawasketchgraphshowingtherelationshipbetweenthethreecurves:
totalproduct,marginalproduct, andaverageproduct.
5.Giventhefollowingdatafora firm:
QTFC ($)TVC ($)
0 / 200 / 01 / 200 / 50
2 / 200 / 90
3 / 200 / 120
4 / 200 / 160
5 / 200 / 220
6 / 200 / 300
7 / 200 / 400
8 / 200 / 520
9 / 200 / 670
10 / 200 / 900
(a)Foreachofthelevelsof outputshownabove,calculatethefollowing:
• total cost(TC)
• averagefixedcost(AFC)
• averagevariablecost(AVC)
• averagetotal cost(ATC)
• marginalcost(MC).
(b)WhyisMCthesamewhencomputedfromeither TVC orfromTC? (c) SketchagraphshowingAVC,ATC andMC.
(d)Explainhowwecandeterminethevalueof AFC fromthis graph,withoutsketchingtheAFC curve.
(e)ExplainwhytheMC curvecutsAVCandATC attheirminimumpoints.(f) IfTFC were$300rather than$200,explainhowthiswouldaffectthe
AFC,AVC,ATC,andMC curves.
6.Thefollowingproductionfunctionrelatestoasmall firmthatincursfixedcostsof$100and labourcostsof$10perhour.
LabourHours (L)TotalProduct(Q)
18
224
339
450
556
659
761
862
(a)Foreachoftheoutputlevelsshownabovecalculate:
•averageandmarginalproduct
•totalvariableandtotal cost
•averagevariable,averagetotal andmarginalcost
(b)Explaintherelationshipbetween
•averageproduct andaveragevariablecost
•marginalproduct andmarginalcost
(c)Fortheabovedata,over whichoutputrangedoweobservediminishingreturns?
7.Asa firm expandsitsscaleofoutput,it enjoyseconomiesofscale.Hencethelargerisafirm’s scaleof output,thelowerwillbeitslongrun average cost.Discuss.
8.Thelongrun costfunctionfora firmisgivenbelow.
Output(Q) Total Cost (LRTC)
100 / 5,000700 / 29,400
1300 / 46,800
1900 / 60,800
2500 / 75,000
3100 / 93,000
3700 / 122,100
(a)Usingthecostandoutputfiguresgivenabove,calculatethelongrun averagecost (LRAC).
(b)Overwhat rangeofoutputwouldthefirm experienceeconomiesofscale?(c) Which output(s)representminimumefficientscale (MES)forthisfirm?
(Makesureyouranswerincludesadefinitionoftheunderlinedterm.)
9.Whyisit thatinsomemarketslargeandsmall firmscan coexistandareequallyviable? Discuss withreferencetotheconceptof minimumefficientscale.
10.Discusshoweconomiesofscalearerelatedtothestructureof amarket.
TopicFive: PerfectCompetition
1.Usethefigure below,representingaperfectlycompetitivefirm,to completethe followingstatements.
(a)Ifpriceis$7,thefirmshouldproduce _units.
(b)Since averagetotal cost ofthisprofit maximisingoutput is$
total costis$ .
(c)Thereforethefirmmakesatotalprofitof$ . (d)Pricethenfallsto$3.Thefirmwillproduceapproximately
units.
(e)Sinceaveragetotal costat thisoutputis$ , total revenueless total costis$ .
(f)Totalvariablecostis$_; thusthefirm’stotal revenuecoversall variablecost,leavingapproximately$ to applyto fixedcosts.
(g)Ifpricefallsto$2thefirmwillproduce units. Why?
$
MC
8ATC
7•
AVC
6
5
••
4
•
3•
••
2•
1
100300500700900
output
2.Asmallscalegrowersuppliestomatoestolocal fruitshops.Fixedcostsfacingthe grower are$100, and thevariable costdataisgiveninthetablebelow:
Output(Q)TotalVariableCost(TVC)
50100
60110
70130
80160
90200
100250
110310
120380
(a)Fortheoutputandcostfiguresgivenabove,calculatetheaveragevariablecost(AVC) andmarginalcost(MC).
(b)Assumethegroweroperatesunderperfectlycompetitiveconditions,andthepricehereceivesiscurrently$6perkilogram.Determinetheoutputlevelthatwouldmaximisethegrower’sprofits.What areprofitsat thisoutputlevel?
(c)If,dueto aninfluxofnewcompetition,thepriceoftomatoesfallsto$3perkilogram, explainwhetherthegrowershouldcontinuetoproduceintheshortrun andinthelongrun.
3.Usingaperfectlycompetitivefirmoperatingintheshortrun asabasisforyourdiagram,show and explainthepricesassociatedwiththebreakevenandshutdownpoints,andexplaintheoutputrangesoverwhichthefirmproducestomakeapositiveeconomicprofit andtominimise economiclosses.
4.Aperfectlycompetitivefirmhasthefollowingcostdata:
Q(unitsperday) / TotalCost(TC)0 / 90
1 / 110
2 / 126
3 / 139
4 / 150
5 / 163
6 / 178
7 / 196
8 / 219
9 / 249
10289
(a)Fortheoutputandcostfiguresgivenabove,calculatetheaveragetotal cost(ATC), averagevariablecost(AVC)andmarginalcost(MC).
(b)Foreachofthefollowingpricesdeterminethisfirm’sprofit-maximising(orloss-minimising)outputperday,intheshortrun, andcalculatethedailyprofitorloss.
(i)$13.20 (ii)$16.50 (iii)$39.00
(c)Drawthisfirm’sshortrunsupplycurve,indicatingtherelevantnumericalvaluesforprice andoutput.
(d)Supposethisfirm’scostsarethesameasthoseof otherfirmsintheperfectlycompetitivemarket. Indicate,togetherwithabriefexplanation,thenumericalvalueofthecriticalpricelevelbelowwhichthisfirmwillleavethemarketinthelongrun,and abovewhichnewfirmswill enterthatmarketinthelongrun.
5.AperfectlycompetitivefirmproducingXhasthefollowingmonthlycostdata
(Q=totaloutput,MC=marginalcost):
Q(units) / MC ($)1 / 40
2 / 37
3 / 32
4 / 28
5 / 30
6 / 32
7 / 35
8 / 40
9 / 46
10 / 56
(a)Foreachofthefollowingpricesdeterminethisfirm’soptimaloutputpermonthintheshortrun.Showyourcalculations.
(i)$30.50 (ii)$32.40 (iii)$42.00
(b)SupposethemarketpriceofXis$49.00.Calculatethetotal fixedcostthatwould resultinzero economicprofit forthisfirm.Showyour calculations.
(c)Supposethereare400firmsintheperfectlycompetitivemarket forX,eachwiththesamemonthlycostdataastheabovefirm.Drawthismarket’sshortrunsupplycurve, indicatingthespecificpricesandquantitiesofoutput,ontheassumptionthatthecost dataarenotaffectedbythesummationofthefirms’outputs.
(d)SupposethemarketpriceofXis$60.00andthetotal fixedcostofthe abovefirmis $140permonth.
(i)Initially,howwouldthisfirm reacttothesituationinthelongrun?
Explainwiththeaidof yourcalculations.
(ii)Withtheaidofdiagrams(sketcheswillbesufficient–thereisnoneedtoplot theexactdata)showingboththefirmandthemarket, explainhowthismarket adjuststolongrun equilibrium.
6.Inlong-run equilibrium,P =AC =MC.Ofwhatsignificancefortheallocationof resourcesis theequalityofMC and AC? Ofwhatsignificance forthe allocationofresourcesistheequalityofP andMC?
TopicSix:Monopoly
1.Discussthemajorbarriersto entryintoamarket. Explainhoweachbarrier can fostermonopoly. Which barriers,ifany,doyoufeelgiverisetomonopolypowerthatissociallyjustifiable? (FromJacksonReviewquestion1,page 339)
2.A firmhasthefollowingdemandscheduleforitsproduct:Price ($)Quantity
550
501
452
403
354
305
256
207
Derivethemarginalrevenueschedule.Whydoes marginalrevenuefall fasterthanprice?
3.Amonopolyhasthefollowingdemandandcostdataasshownbelow
Assumefixedcostsof$300.
P($)Q (units)TVC ($)
5000
4501230
4002440
3503690
3004990
25051410
20061960
15072710
10083710
(a)Fortheoutputandcostfiguresgivenabove,calculatetheaveragevariablecost
(AVC), averagetotal cost (ATC)andmarginalcost (MC).
(b)Forthepriceandquantityfiguresgivenabove,calculatetotal revenue(TR)andmarginal revenue(MR).
(c)Basedonthefiguresabove,determinetheshortrunprofitmaximising(lossminimising)outputandtotalprofitorlossforthismonopoly.
(d)Supposethe government weretoimposeapriceceilingat theallocativeefficientprice. Whatisthevalueofthispriceand resultinglevelofoutput?
(e)Wouldthemonopolistremaininbusinessinthelongrunifthepriceceiling remainedin place? Explain youranswer.
(f)Defineproductiveefficiency.Atwhichoutputlevelwouldthisfirm achieveproductive efficiency?
4.Tiger’sMineralSprings, amonopoly,facesthefollowingdemandscheduleforbottledmineral water:
QD =20-2P
whereP isthepriceperbottle measuredindollars, and
Qisthequantitymeasuredin ‘000bottles
Tiger’smarginalcostis$4abottle-ie, marginalcostis constantforthisfirm.Assume fixed costsof$4000.
(a)Sketchthedemand,marginalrevenue(MR), averagevariable cost(AVC)
andmarginalcost(MC)curvesforthefirm.
(b)Basedonyourdiagram,determineTiger’sprofit-maximisingoutputandprice, andtheassociatedlevelofprofitorloss.
5.Amonopolyhasthefollowingmonthlydemandand costdata.
(Q=outputorquantitydemanded,P =price,MC=marginalcost):
P($)Q (units)MC ($)
148 / 4 / 100146 / 8 / 95
144 / 12 / 90
142 / 16 / 94
140 / 20 / 101
138 / 24 / 110
136 / 28 / 121
134 / 32 / 134
132 / 36 / 149
(a)Whatisthismonopoly’sprofitmaximisingoutputandpriceintheshortrun? Explain withtheaidof yourcalculations.
(b)Supposethetotal fixedcostofthismonopolywas$500permonth.Whatwouldbethemonthlyprofitorlossofthismonopolyat theoutputdeterminedat (a)? Showyourcalculations.
(c)Supposethe government weretoimposeaprice ceilingonthismonopolyat the allocativelyefficientprice.Determinethevalueofthispriceandtheassociatedlevelofoutputandprofit (orloss)forthefirm.
6.Withtheaidofadiagram,explainhowthemisallocationofresourcesthat resultsfrom monopolycanbeeliminatedbymeansofpriceregulation.
TopicSeven:MonopolisticCompetitionand Oligopoly
1.Whatis (are)themaindifference(s)betweenamonopolisticallycompetitivemarket andamonopolymarket?
2.Explainhowthepresenceofproductdifferentiationinfluencesthewayinwhichfirmsinamonopolisticallycompetitivemarketsettheirprices,ascomparedto firmsoperatinginaperfectlycompetitivemarket.
3.Explainwhyfirmsinbothperfectlycompetitiveandmonopolisticallycompetitivemarkets earnzero economicprofitsin thelongrun.Contrastthelongrunadjustmentprocessforthetwomarketstructures.
4.Firmsinmonopolisticallycompetitivemarketsprovideconsumerswiththebenefitofproductvariety.Discuss.
5.What roledoesadvertisingplayinoligopolisticandmonopolisticallycompetitivemarkets? Isadvertisingsociallydesirable? Discuss.
6.Mutualinterdependenceisa characteristicoftheoligopolymarketstructure,butnottheotherthreemarketstructures.Explain.
7.SupposeChill andFreezearetheonlytwo firmsintheairconditioningmarket.
Each firmis consideringtwopossiblepricingstrategies– eitherP =$700orP=$1500–fortheir goods.Thefollowingpayoff matrix givestheprofitoutcomes(in$m).
Freeze
Chill
(a)Whatpricewill eachofthefirmschooseiftheymaketheirdecisions independently,followingamaximinstrategy? Explainhowyoudeterminedyouranswer.
(b)Whatismeantbythetermcollusion? Ingeneral,whatistheincentivefor firmsin an oligopolymarketto collude? Explain.
(c)Basedonthepayoffsfor Chill andFreeze(shownabove)andyoursolutionin (a), couldthesefirmsbenefitbycolluding?Explain.
(d)Discussfactorsthatdeter firmsoperatingin anoligopolymarketstructurefrom colluding,andexplainhowtheyactasadeterrent.
8.SupposeAlphaandDeltaaretheonlytwofirmsin thespeedboatmarket.Each firmplanstoput onlyonemodelontothemarket. Theyareconsideringtwopossiblechoices–astandard modelat P =$50,000oraluxurymodelat
P=$80,000.Thefollowingpayoffmatrix givestheprofitoutcomes(in$m).
Delta
Alpha
(a)Whatpricewill eachofthefirmschooseiftheymaketheirdecisions independently,followingamaximinstrategy? Explainhowyoudeterminedyouranswer.
(b)BasedonthepayoffsforAlphaandDelta(shownabove)andyoursolutionin (a), couldthesefirmsbenefitbycolluding?Explain.
9Explainwhyfirmsmayprefernon-pricecompetitiontopricecompetition.
10. Inthediagrambelow,bothdemandcurvesarerelevanttooneparticularfirmin anoligopolistocmarketstructure.Onecurveindicatesthequantityofitsproduct demandedat eachpricelevel whenrivalfirmsdonotrespondtoprice changesinitiatedbythisfirm.Theother curverepresentsthefirm’sdemandcurvedrawnupontheassumptionthat rivaloligopolistsdo respondtoprice changesinitiatedbythisfirm.
price
D2
D1quantity
(a) Explainwhichcurveiswhichandjustifyyourchoice.
(b) Underwhat assumptionswoulda “kinked”demandcurveresultfromthediagram above?
(c) Usingthekinkeddemandcurve, explainhowa firm’sprofitmaximisingprice and outputmaynotchange evenwhenthefirm experiencesanincreasein costs.
TopicEight:MarketFailure
1.(a) Explainthemeaningofexternaleconomies(orbenefits)andexternaldiseconomies (orcosts),givingan exampleofeach.
(b) Whydoesthepresenceofan externaleconomyordiseconomyleadtomarket failure? Explain.
(c) Thefollowingdiagramshowsthedemandandsupplycurvesforagood.
DemandcurveDisbasedonmarginalprivatebenefitonly,whiledemandcurveDais basedonmarginalsocialbenefit.
P
S
Da
D
Q
Onthebasisofthediagramandinformationabove,draw adiagramtoindicate
(i)thesociallyoptimaloutputandpriceofthegood,and
(ii) society’slossifthereisnogovernmentinterventioninthedemandorsupplyofthisgood.
(d)ThefollowingdiagramshowsthedemandandsupplycurvesforgoodZ. Thesupplycurveis basedonlyonmarginalprivate costs.But eachunitof Z producedincursan externalcostof$4intheformofpollution.
P($)
12
11
10
9
8
7
6
5
4
3
45678910
MillionunitsofZpermonth
(d) Onthebasisofthediagramandinformationabove,draw asketchdiagramtoindicate
(i) thesociallyoptimaloutputandpriceof Z whenthemarginalsocialcostsaretakenintoaccountbysuppliers;and
(ii) society’slossduetotheexternalcostsifproductionofZisentirelydeterminedbytheprivatemarket.Alsocalculate theamountofthisloss;showyourcalculations.
(e) Discussmeasuresthegovernmentcouldtaketoeliminatethelosstosocietyshown inpart (d).
2.Supposethedemandand supplycurvesforleather shoesareas follows:QD = 60– 5P
QS =0+10P
whereP ispricemeasuredindollars,and
Qisquantitymeasuredin'000s ofpairs
(a) Drawthedemandandsupplycurvesforleathershoesanddeterminethe equilibrium priceandquantity.
(b) Supposetheproductionoftheleathershoesgeneratesanexternal cost (or external diseconomy)dueto chemicalpollution.Withtheaidofademandandsupplydiagram, explainhowsocietysuffersalossduetothisexternalcost.
(c) Withtheaidofadiagram,explainhowtheimpositionofataxonproducerscouldbring aboutthesociallyoptimallevelofoutputinthemarket.Will producersbearthefull burden ofthistax? Explain.
3.“Educationisnotapublicgood.” Discuss.
4.Explainwhythereislittleincentiveforfirmstobecomeinvolvedinthesupplyofpublicgoods.