Self
Test
Perfect Competition
and the Coal Industry
Click on True or False to test your knowledge of the chapter.
Remember
for questions requiring the use of models to answer, it is often helpful to
draw a graph so you can picture what is going on in the market.
1.
True False The fundamental problem in economics is to allocate
scarce resources across competing uses.
2.
True False Allocating goods, services, and resources is only
done by private markets.
3. True False In a perfectly competitive market, producers
have control over the market price but consumers have no control over the
market price.
4.
True False Economists
tend to always prefer the private market for the allocation of goods, services,
and resources.
5.
True False Exxon
Coal U.S.A, Inc. is the largest
6.
True False Lignite
is the coal form with the highest energy content
7.
True False Long
wall mining can be used when a coal seam is narrow and irregular.
8. True False About one third of the world's electricity is
generated by coal.
Use
the following competive model of the coal market to answer the following three
questions.
Qd = 100 - 2Pc + 0.5Psb - 3Pcm
+ 0.1Y
Qs = -10 + 2Pc - 1Pk - 0.2Pl -
0.4Pnr
Where: Pc = the price of coal,
Psb = the price of a substitute
to coal such as natural gas = 15,
Pcm = a complement to gas
consumption such as a gas boiler or gas range = 10,
Y = a measure of economic
activity = 100,
Pk = the price of capital =
2,
Pl = the price of labor = 3,
Pnr = the price of other
natural resources used in production of coal = 5.
9. True False The inverse supply equation at the above
variable values is Pc = 7.3 - 0.5Qs.
10. True False Equilibrium price and quantity in the above
model are Pc= 25.525, Q = 36.450.
11. True False If income increased in this market, it would
increase demand, increase price, and increase supply.
12. True False Suppose the U.S. Fed tightened the money
supply to raise interest rates and choke off inflation. If this raised the cost
of capital, it would decrease supply, raise price, and lower quantity demanded.
13.
True False If the price of capital increased lowering supply and
income increased raising demand, then price would increase but the direction of
the quantity change would be uncertain.
14. True False In a market where Qd = 87.5 - 2Pc and Qs =
-14.6 + 2Pc, there would be excess supply below equilibrium price. This excess
supply would drive prices down further and the market would be unstable.
15.
True False Suppose Qd = 87.5 - 2Pc and Qs = -14.6 + 2Pc, at a
price of 30, there would be excess quantity demanded of 17.9 units.
16.
True False Let Qd = 87.5 - 2P and Qs = -14.6 + 2P. One way to a
minimum price of $30 would be for the government to buy 17.9 units.
17.
True False Quantity of coal demanded is Positively related to the
number of buyers and negatively related to the price of coal.
18.
True False If Qd = 87.5 - 2Pc and Qs = -14.6 + 2Pc, then the
elasticity of supply at equilibrium price is about 1.40.
19.
True False If Qd = 87.5 - 2Pc and Qs = -14.6 + 2Pc, then the
elasticity of demand at equilibrium price is about 1.40.
20.
True False Let Qd = 115 - 2Pc + 0.1 Y, Y = 100, with equilibrium
price and quantity of Pce = 44.274, Qe = 36.45. The income elasticity
of demand at equilibrium price suggests that oil is a luxury good.
21.
True False Let Qd = 80 - 2Pc + 0.5 Psb, Psb =15 with equilibrium
price and quantity of Pce= 25.525, Qe = 36.45 The cross price
elasticity of demand for oil with respect to the price of a substitute at
equilibrium is about 0.21.
22.
True False Suppose the minimum price elasticity of demand for
natural gas is -0.6. If the price of natural gas falls by 10% in
23.
True False Suppose gas consumption in
Use
the following information to answer the next four questions. The consumption of
natural gas in
24.
True False A linear demand for natural gas compatible with the
above information would be Q = 41.8 - 0.03P + 2.375Y.
25.
True False A multiplicative or a log linear demand for natural
gas in
26. True False If your demand equation is Q = 2 - 3lnP + 4Y,
then your own price elasticity of demand is -3/Q.
27. True False You want to analyze a tax and need a demand
equation of the form Qd = a + bP and a supply equation of the form Qs = c +
dP. You have found a study that gives
the price elasticity of demand and supply of coal as -0.5 and +0.6,respectively
. The current consumption of coal in the
28. True False A positive cross price elasticity of demand
implies that goods are complements.
29. True False You
would expect the household cross price demand elasticity between natural gas
and electricity to be positive.