Part 1 (20 Points) Matriple Choice. Please select the best answer (2 points for each question) 1. The price elasticity of demand for a downward sloping straight line demand curve is: a. constant as the price changes along the curve b. a number ranging from negative infinity to positive infinity C. given by the ratio of price and quantity d. higher in absolute value as the price increases along the curve 2. Consider the market for gasoline in the United States. If there is an increase in the price of gasoline. then this could be consistent with: a a shill of only the demand curve to the left be shifts of the demand curve to the right and the supply curve to the right c. a shift of only the supply curve to the right J. shifts of the demand curve to the left and the supply curve to the right 3. If the marginal cost curve of a monopoly shills to the right, the firm should: a. increase output and charge a lower price be decrease output and change a higher price c. decrease output and charge a lower price d. increase output and charge a higher price 4. Economists agree that an externality does not call for policy intervention if it is a: a positive externality b. negative externalily C- pecuniary externality d. non-pecuniary externality 5. It takes considerable time to increase production by oil refineries. This implies that: a:"a change in demand for oil will not affect its price in the short run b. a rise in the demand for oil will elicit a larger supply response in the short run c. long run supply curve for oil is less elastic than the short run supply curve d. long run supply curve for oil is more elastic than the short run supply curve6. Harrick's Rule: a. describes market allocation of nonrenewable resources over time when new discoveries occur due lo exploration b. determines how to allocate nonrenewable resources over time while meeting a criterion for intergenerational equity describes market allocation nonrenewable resources over time if the discount rate is variable i. determines the time to depletion of a nonrenewable resource under perfect competition 7. The country with currently the largest oil reserves in the world is: Saudi Arabia b. . United States C.. Venezuela d. Canada B. During the period 2000 - 2020, the world's proved reserves of coul have: decreased over each decade b. increased over cach decade C. remained stable d. decreased over the first decade and increased over the second decade 9. An important factor that explains reduced U.S consumption of coal during the last decade is: decreases in the cost of natural gas b. increases in the cost of imported coal c. rapid depletion of the known reserves of coal d. greater reliance on nuclear energy 10. Consider a perfectly competitive market for a nonrenewable fossil fuel that operates over several time periods. The market equilibrium price of this resource should always: equal its marginal cost of extraction b. equal the sum its marginal cost of extraction and marginal user cost c. equal its marginal user cost d. remain constant over timePart II (80 Points) Short Answers. Your answers should be brief but as coogivue wa possible. Pleaps use the back of the page if more writing space is needed 1. (@) Define the following terms: (D) marker failure (b) Explain the Cases themrem and its wipthewhens in a couple of short paragraphs. Your unswer should discuss the relationship of the theorem in externalities the key assumptions under which the theorem holds wwl its relevance for policy purposes [12 points]Assume that the market for gasoline in a country is perfectly competitive. The demand for gasoline is P - 20 - 40 and the industry supply (marginal cost) curve is P = Q + 5, where P is price and Q is quantity. There are no imports or exports. (a) Depict the above demand and supply curves in a clearly labeled diagram and use algebra to calealate the market couilibrium price. P , and quantity, 0*. [ 10 points] (b) Suppose that a policy of putting a ceiling on the price of gasoline at P - 6 is being considered, Depict this price ceiling in your diagram for 2(2). Also calculate the quantity demanded Q" and Quantity supplied O' of gasoline that would result from implementation of the policy- (c) Provide a critical assessment of this price ceiling policy based on your answers to 2(b). Is its implementation likely to increase social welfare? Explain using your diagram for 2(a) and Z (b).3. (a) Provide a mathematical statement and an economic interpretation of Hotelling's Rule for a perfectly competitive non-renewable resource market wist operates over two time periods, ( - 1 and 1 = [10 points] (b) Suppose that X units of a scarce fossil fuel are to be extracted by a perfectly competitive industry over two time periods, t - I and :- 2. Dernand curves for the fuel are given by Pen - how and P2 = a - MD. where 'n' and "b' are positive parameters, while I' and Pa and Q1 and Or denote the respective market prices and quantities sold in periods 1 and 2. For bath time periods, the marginal cost of extracting the fuel is constant at a positive value 'c' and the rate of discount has a positive value 'r'. What does Hotelling's Rule imply about the expected behavior of market equilibrium prices I' and Fx in this model? What can you say about the expected behavior of corresponding market equilibrium quantities Q, and Q2? Also provide explanations for your answers. [10 points] (c) In the context of the two-period model in 3(b), use a set of diagrams to depict the likely effects of a decrease in the total amount available X on the market equilibrium quantity and price in each time period. Also provide economic reasoning for expecting these results. [10 points]ARE 444-QUIZ #1 Please select the best answer for each of the following ten multiple choice questions (10 points for each question). The world's largest producer of oil is: China United States Russia Saudi Arabia 2. The theory of peak oil: a) Correctly predicted the peaking of world oil production in 2005 b) Was proposed by Hubbert in the 1950's c) Predicts that oil production peaks every 30 years d) None of the above 3. Which of the following resource use or activity results in the most carbon dioxide emissions from China? Coal Gas Dil Cement production 4. Consider the market for gasoline. Other things being the same, a rise in consumer incomes will typically cause: Both the supply curve and the demand curve for gasoline to shift to the right The supply curve for gasoline to shift to the left, thus creating a rise in the equilibrium price gage The demand curve for gasoline to shift to the left, thus creating a fall in the equilibrium price The demand curve for gasoline to shift to the right, thus creating a rise in the equilibrium price 5. Which of the following statements about perfect competition is false? Costs of production remain the same over time All firms in the industry produce a standardized product Market price equals a firm's marginal cost at equilibrium Individual firms have no control over market price 6. If a rightwards shift in the supply curve of a product results in a lower price, but causes no change in the quantity bought and sold, then: Price elasticity of supply is 0 Price elasticity of supply is less than 1 but greater than () Price elasticity of demand is zero Price elasticity of demand is greater than 1 (in absolute value)Mary charges $10 per pound for her handmade chocolate. The price elasticity of denan chocolate in her town is - 2.5. If Mary wants to increase her total revenue, what advice would you her? Lower the price of chocolate Reduce the quantity of chocolate produced Raise the price of chocolate dj Lower the costs of production by using cheaper inputs B. For a straight-line supply curve passing through the quantity-axis at a positive value, price elasticity of supply is: Greater than I everywhere Equal to 1 everywhere Less than I everywhere Greater, equal to, or less than 1, depending on values of price and quantity 9. Consider the case of a monopoly. You would expect this firm to produce where: a) Price equals marginal cost b) Absolute value of price elasticity of demand is less than one Social welfare is maximized None of the above 10. Use the diagram below to determine which of the following statements is true. Consumer surplus under monopoly is area BCE b) Producer surplus under monopoly is area HFMA Social welfare loss due to monopoly is area HFMJ Producer surplus under perfect competition is area OECL S/unit Marginal Cost Curve 3- Demand Curve Marginal Revenue Curve K L FrantinyFactors that contributed to the California electricity crisis included: a) Ceilings on retail prices of electricity by High prices for natural gas c) Weather related shortfalls from hydroelectric power d) All of the above 5. Which of the following energy sources currently generates the most electricity in the U.S.? a. Natural gas b. Coal c. Nuclear energy d. Petroleum 6. Which of the following statements is correct; a. In the U.S., industry currently produces more greenhouse gas emissions than transportation b. More than 20% of worldwide electricity is currently generated using coal c. Electricity generation and heat production contribute the most to global annual greenhouse emissions d. Hydropower provides more than 20%% of electricity generated in the U.S. 7. Which of the following would be classified as a prevention type sediment management option for dams? a. Upstream watershed management b. Hydrosuction Removal System (HSRS) c. Dredging d. Flushing Dams and nuclear power plants share the following characteristics: a. Electricity generation is their only purpose b. Waste disposal is not a concern c. They have high set-up and removal costs d. All of the above 9. The country that generates the highest percentage of its own electricity from nuclear energy is: a. China b. France c. United States 10. Nuclear reactors used for electricity generation in the U.S. are: a. Major sources of air pollution that contributes to global warming b. Located mostly in the Western part of the country c. Currently producing more than half of the country's electricity d. Reliant heavily on imported uranium as fuel