8. Suppose initially the car market is a competitive equilibrium. Suppose then government gives a price subsidy to encourage the production of cars. What will be the result? (a) Output decreases and the total surplus is smaller than that in competitive equilibrium without subsidy. (b) Output decreases and the total surplus is larger than that in competitive equilibrium without subsidy. (c) Output increases and the total surplus is smaller than that in competitive equilibrium without subsidy. (d) Output increases and the total surplus is larger than that in competitive equilibrium without subsidy. 9. We learnt from other reliable sources that Frank's preference is strictly convex. We observe two purchases of the same consumer Frank. When the prices are (p1, pg) 2 (10,10). Frank's chooses .r = (331,12) = (2,3). What can we learn? Page 3 out of 6 (a) (2,3)RD(3,2.5). (b) (2.3)RD(2.5.2.5). (c) (2.5,2.5)RD(2,3). (d) All above are wrong. 10. An effective price ceiling causes a loss of (a) producer surplus for certain and possibly consumer surplus as well. (1)) consumer surplus only. (c) producer surplus ollly. (:1) consumer surplus for certnun and possibly producer surplus as well. (e) neither producer nor consumer surplus. 11. Which of the following cases is NOT an example of cxternality? (a) A factory pour pollutant into the river, which kills shes in a downstream fishing farm. (1)) A rm rmluces its own output prices and it affects its competitors prot. (c) You smoke. ill our classroom and it affects other students' health. (d) A nn invested in MD and made some innovations, which is reported in the newspaper. Other firms benet from these innovations by reading the report in the newpaper. 12. The marginal benefit and marginal private cost curves for aphrodisiacs are given as follows: MB = 200 Q, MPG = Q. in addition to private costs, there is a marginal external cost of $10 per unit of output. What is the efcient level of output? (a) 0 (b) 55 (c) 95 (d) 100 (e) none of the above