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Multiple Choice 1.Markets are usually the best way to organize economic activity. Governments are not important in economic activities. A. both statements are true B. both statements are false C. statement 1 is true, statement 2 is false D. statement 1 is false, statement 2 is true

2.If an allocation maximizes total surplus, then it means that it is an efficient allocation of resources. Total surplus means a combination of consumer and producer surplus. A. both statements are true B. both statements are false C. statement 1 is true, statement 2 is false D. statement 1 is false, statement 2 is true

3. Free markets produce the quantity of goods that minimizes the sum of consumer and producer surplus. It also allocates the demand for goods to the sellers who can produce them at the best cost.

A. both statements are true B. both statements are false C. statement 1 is true, statement 2 is false D. statement 1 is false, statement 2 is true

4.A social planner must always rely on market forces to effectively allocate resources. A social planner can resort to government interventions to allocate resources.

A. both statements are true B. both statements are false C. statement 1 is true, statement 2 is false D. statement 1 is false, statement 2 is true

5.Tax burden is the pay sellers receive and the consumers pay. Buyers and sellers share the tax burden regardless of whom tax is imposed.

A. both statements are true B. both statements are false C. statement 1 is true, statement 2 is false D. statement 1 is false, statement 2 is true

6. Any fall in total surplus that results from a market distortion is called a deadweight loss. Tax is an example of market distortion.

A. both statements are true B. both statements are false C. statement 1 is true, statement 2 is false D. statement 1 is false, statement 2 is true

Problem Solving 1 Assume that the government intends to increase entertainment taxes specifically for Korean pop acts. They are so popular while Filipinos are eager to buy concert tickets regardless of cost, so government thinks we can earn a lot from this revenue measure. The revenue generated from increased taxes would support funding for independent Filipino films and cultural acts. Korean pop acts would serve as your supply, and it is relatively price elastic. Filipino consumption for Korean pop content is your demand, and currently, it is relatively price inelastic. Answer the following questions based on this problem. 7.Who bears the larger tax burden for this measure? 8.As soon as the measure stabilizes, the demand and supply for Kpop acts would both become relatively elastic. What then is the size of the deadweight loss? 9.Based on the problem, what factor determines the size of deadweight loss?

Problem Solving 2 Assume that the market for guns have a perfect competition. This means all guns sold in the market have the same feature and technology, and prices are all the same. 10.If firms can only sell their guns at the same level and they have no control on market prices, what do we call them? 11. A gun firm would only then maximize profit at which point? 12. The gun firm is unable to sell as much guns in the market as its competitors. Their total revenues are now less than their variable costs. What should the firm do in the short run? 13. At what condition should the gun firm exit the market? Use only the formula.