Title: Problem Set 2

MC common resource

Q: A common resource is:
- Not rival but excludable
- Both rival and excludable
- Rival but not excludable (correct)
- Neither rival nor excludable

MC public good

Q: A public good is:
- Not rival but excludable (correct)
- Both rival and excludable
- Rival but not excludable
- Neither rival nor excludable

MC common resource

Q: Common resources are
- efficiently provided by market forces.
- underprovided in the absence of government.
- overused in the absence of government. (correct)
- a type of natural monopoly.

Examples of market failure

Q: Please select the description(s) that are market failures (multiple answers can be correct):
- Positive externalities (correct)
- Private good
- Monopolistic competition (correct)
- Incomplete information (correct)

Characteristics of a competitive market

Q: Please, indicate the characteristics of a competitive market (multiple answers can be correct).
- Several producers and consumers (correct)
- The product or service must be heterogeneous (They must be homogenous.)
- Economic actors have access to all information (correct)
- Economic actors are rational (correct)

MC oligopoly output level

Q: When an oligopolist individually chooses its level of production to maximize its profits, it produces an output that is:
- More than the level produced by a monopoly and less than the level produced by a competitive market (correct)
- Less than the level produced by a monopoly and more than the level produced by a competitive market
- Less than the level produce by either monopoly or a competitive market
- More than the level produced by either monopoly or a competitive market

MC natural monopoly

Q: A good produced by a natural monopoly is:
- Rival but not excludable
- Neither rival nor excludable
- Not rival but excludable (correct)
- Both rival and excludable

Market forms in the energy sector

- The following table describes market forms in the energy sector. Please assign to each description of the market forms the best matching energy source.
- Oil
- Gas
- Electricity
- Coal
Q: Oil
A: Oil
Q: Gas
A: Gas
Q: Electricity
A: Electricity
Q: Coal
A: Coal

MC equilibrium V

Q: The market demand curve for a perfectly competitive industry is \(Q_D=12-2P\). The market supply curve is \(Q_S=3+P\). The market will be in equilibrium if:
- \(P=6\) and \(Q=9\)
- \(P=5\) and \(Q=2\)
- \(P=4\) and \(Q=4\)
- \(P=3\) and \(Q=6\) (correct)

Market with tax

The market demand curve for a perfectly competitive industry is \(Q_D=12−2P\). The existing market supply curve is \(Q_S=3+P\). The government implements now an environmental tax that the suppliers have to pay in order to account for negative externalities. The tax equals \(T=3\) per unit sold. Please, calculate the new equilibrium quantity \(Q^*\).

Q: [...]
A: 4

MC negative externality

Q: A negative externality (that has not been internalized) causes the:
- Optimal quantity to exceed the equilibrium quantity
- Equilibrium quantity to be either above or below the optimal quantity
- Equilibrium quantity to equal the optimal quantity
- Equilibrium quantity to exceed the optimal quantity (correct)

Negative Externality

- equilibrium quantity (private market)
- The graph shows the supply and demand curve for oil. One supply curve is based only on private costs and one supply curve is based on social and private costs including also the cost of pollution. Drag the following descriptions to the graph:
- equilibrium quantity (social optimum)
- equilibrium price (social optimum)
- equilibrium price (private market)
- welfare loss in market outcome
- cost of pollution
Q: cost of pollution
A: cost of pollution
Q: welfore loss
A: welfare loss in market outcome
Q: price (social)
A: equilibrium price (social optimum)
Q: price (private)
A: equilibrium price (private market)
Q: quantity (social)
A: equilibrium quantity (social optimum)
Q: quantity (private)
A: equilibrium quantity (private market)

MC positive externality

Q: A positive externality (that has not been internalized) causes the:
- Equilibrium quantity to exceed the optimal quantity
- Equilibrium quantity to equal the optimal quantity
- Optimal quantity to exceed the equilibrium quantity (correct)
- Equilibrium quantity to be either above or below the optimal quantity

Graph positive externalities

- The following graph describes demand and supply for a given good. The x-axis refers to the quantity and the y-axis to the price of the good. The good is associated with a positive externality. Please drag the corresponding labels to the graph.
- social marginal benefit
- private marginal benefit
- private cost
- Q
- Q*
- welfare loss
- welfare gain
Q: Q
A: Q
Q: Q*
A: Q*
Q: welfare loss
A: welfare loss
Q: private cost
A: private cost
Q: social marginal benefit
A: social marginal benefit
Q: private marginal benefit
A: private marginal benefit

Calculus positive externality

The market demand curve for solar panels (assume a perfectly competitive industry) is \( Q_D=34-3P \). The market supply curve considering only private costs is \( Q_S= 2 + P \). Calculate the market equilibrium quantity.

Q: [...]
A: 10

Calulus on positive externality

Q: Imagine that solar panels produce positive externalities that are not considered in the equilibrium above. Consider that each solar panel sold should be subsidized with a subsidy S = 8 in order to reach the equilibrium from a social planers point of view.

By how much would the equilibrium quantity change:
- Same quantity
- \( \Delta Q^* \) = - 8
- \( \Delta Q^* \) = + 8
- \( \Delta Q^* \) = + 6 (correct)
- \( \Delta Q^* \) = - 6

Behavioral anomalies

- Complete the table.
- Loss aversion
- Consumer has a tendency to keep old durable instead of replacing it.
- Myopia in intertemporal choices
- Consumers compare their energy use with other households.
- Bounded willpower
- Bounded selfishness
Q: loss aversion
A: Loss aversion
Q: myopia
A: Myopia in intertemporal choices
Q: willpower
A: Bounded willpower
Q: consumers compare
A: Consumers compare their energy use with other households.
Q: tendency to keep old
A: Consumer has a tendency to keep old durable instead of replacing it.
Q: selfishness
A: Bounded selfishness

Behavioural anomalies

Q: “An individual might prefer to receive USD 100 today compared to receiving USD 110 tomorrow, but then if she had to make the same choice in the future, these preferences may reverse, i.e. she may prefer to receive USD 110 in 31 days compared to the prospect of receiving USD 100 in 30 days.”

Which behavioral anomaly is described by this text?:
- Myopia (correct)
- X-inefficiency
- Principal-agent problem
- Adaptation good

Market failure T/F (1)

Q: Please, indicate whether the following statement is true or false.

According to neoclassical assumptions in economics, people take rational decisions.
A: true

Market failure T/F (2)

Q: Please, indicate whether the following statement is true or false.

Learning-by-using spillovers are an example of positive externality.
A: true

Market failure T/F (3)

Q: Please, indicate whether the following statement is true or false.

Principal-agent problems are both an externality and an asymmetric information market failure.
A: true

Market failure T/F (1)

Q: Please, indicate whether the following statement is true or false.

X-inefficiency is an example of an asymmetric and incomplete information market failure.
A: false
If wrong: It describes behavioural anomalies

Sustainability (1)

Q: Please, indicate whether the following statement about sustainability is true or false.

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
A: true

Sustainability (2)

Q: Please, indicate whether the following statement about sustainability is true or false.

For a sustainable development, we need an equilibrium between law, economy and society.
A: false

Sustainability (3)

Q: Please, indicate whether the following statement about sustainability is true or false.

Weak sustainability believes that natural and physical capital are not substitutable.
A: false

Sustainability (4)

Q: Please, indicate whether the following statement about sustainability is true or false.

Weak sustainability believers are technological optimists.
A: true

Energy and Climate Policy

- The following graph describes energy policy and climate policy goals. Please drag the corresponding label to the graph.
- Energy Policy
- Climate Policy
- Economic and affordable supply
- Reduction of GHG and local air pollution
- Adaption
- Security of supply
Q: energy policy
A: Energy Policy
Q: climate policy
A: Climate Policy
Q: security of supply
A: Security of supply
Q: economic supply
A: Economic and affordable supply
Q: adaption
A: Adaption
Q: reduction of GHG
A: Reduction of GHG and local air pollution