Hey there! Sign in to join this conversationNew here? Join for free
    • Thread Starter
    Offline

    1
    ReputationRep:
    Hi.

    There are a few Micro multiple choice questions where I can't figure out why the answer is correct.

    1. A free good has which one of the following characteristics? (Answer: A)
      1. A It has no opportunity cost in supply.
      2. B It is generally supplied by the government because its consumption is considered tobe socially desirable.
      3. C It has no externalities associated with its consumption or production.
      4. D It is in perfectly inelastic supply.

    Surely it does have opportunity cost in supply? If more free goods are supplied then there will be less resources to make other goods?
    A government imposes an indirect tax on a product. The price of the product is likely torise by the full amount of the tax if the price elasticity of (Answer: A)
    1. A supply is perfectly elastic.
    2. B supply is perfectly inelastic.
    3. C demand is unit elastic.
    4. D demand is perfectly elastic.

      If supply is perfect elastic, then any change in price would cause demand to fall to 0. No producer would increase the price if there is going to be no demand?

      Thanks.
    Offline

    0
    ReputationRep:
    About the first question: if the good has no opportunity cost, that means that it doesn't use any resources whatsoever, so supplying an infinite amount of them would theoretically have no effect on the resources for other goods. As for the second question, think about the supply curve shifting, not the price. The supply curve of a perfectly elastic good (talking about price elasticity of supply here) would be horizontal, so if it were to be shifted upward, the entirety of the tax would be added to the price.
 
 
 
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • Poll
    What's your favourite Christmas sweets?
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

    Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

    Quick reply
    Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.