Since any market intervention generates a dead weight loss, then there is no reason to impose taxes or regulate markets.

True

False

In a competitive market, the demand and supply curves are Q(p) = 12 - p and S(p) = 5P, respectively. What percentage of the total surplus is lost if the government imposes a sales tax (ad valorem) of 20% collected from the producer?

0.5%

5.8%

22.6%

0.16%

16.3%

Assume that the economic cost of capital in the market (also called return) is 3% a year. Jane is analyzing the prospect of investing in a restaurant in a segment of the market that is competitive and for which there is free entry. She has the option to invest $100,000.00 in the restaurant, and sign a contract that determines her return as follows: she will be paid 2% of interest on her capital contribution, plus a 50% share of the business profit. What will be the return of Janes investment if all other resources used by the restaurant are paid its economic cost?

1.5%

3%

2.5%

2%

1%