Suppose that X and Y are substitute goods. If the price of good X increases, we can expect

	a.	a downward movement along the demand curve for good Y
	b.	an upward movement along the demand curve for good Y
	c.	the demand curve for good Y to shift to the left
	d.	the demand curve for good Y to shift to the right
	e.	the demand for good X to shift to the left

10 points

Which of the following represents a way that a government can help the private market to internalize an externality?

	a.	taxing goods that have negative externalities
	b.	subsidizing goods that have positive externalities
	c.	Both answers are correct

10 points

A positive externality arises when a person engages in an activity that has

	a.	a beneficial effect on a bystander who pays the person who causes the effect
	b.	an adverse effect on a bystander who is not compensated by the person who causes the effect
	c.	an adverse effect on a bystander who is compensated by the person who causes the effect
	d.	a beneficial effect on a bystander who does not pay the person who causes the effect

10 points

 

15. If the price of trombones rises by 15 % while the quantity supplied rises by 3 %:

	a.	a) The price elasticity of demand for trombones is 0.2
	b.	a) The price elasticity of demand for trombones is 5
	c.	a) The income elasticity of demand for trombones is 0.2
	d.	a) The price elasticity of supply for trombones is 5
	e.	a) The price elasticity of supply for trombones is 0.2

10 points

In accordance with the law of supply, both individual and market supply curves are drawn

	a.	vertical
	b.	upward-sloping
	c.	downward-sloping
	d.	horizontal