1. Suppose that the government decides to issue tradable permits for a certain form of pollution. If the government chooses to distribute the permits, the allocation of permits among firms does not matter for efficiency, but it would affect the distribution of wealth.

a. TRUE

b. FALSE

2. An optimal price of the product is determined by its marginal cost and price elasticity of demand.

a. TRUE

b. FALSE

3. Which is maximized when both parties - sellers and buyers - are satisfied with the fair deal they're getting?

A) consumer surplus

B) producer surplus

C) total welfare

D) none of the above

4. Which of the following is true for a firm operating in a perfectly competitive market?

A) The firm can control neither price nor its output.

B) The firm can control its price but not its output.

C) The firm can control its output but not its price.

D) The firm can control price and output.