Determine whether each of the following statements is True or False. Carefully explain your answer. (a) “When a demand-side policy such as a subsidy to homebuyers is applied in a housing market, the demand for housing shifts to the right. This increases the equilibrium price of housing and leads to an increase in supply. As a result, the supply curve shifts to the right, and the equilibrium price of housing falls.” (b) “When a firm production process generates negative externalities (e.g. industrial pollution) imposing an appropriately chosen tax per unit of output is going to increase the firm’s marginal cost. This will in turn cause the firm to produce at the point where the marginal benefit of the last unit of output is equal to the social marginal cost. The resulting quantity of output will be efficient from the social point of view.” (c) “A monopoly firm is in the short-run equilibrium making a positive economic profit. An increase in the Fixed Cost of production is going to lead to a higher price in this market because monopoly will want to compensate for the increase in its fixed cost by reducing the output and increasing the market price.”
Determine whether each of the following statements is True or False. Carefully explain your answer.
(a) “When a demand-side policy such as a subsidy to homebuyers is applied in a housing market, the demand for housing shifts to the right. This increases the
(b) “When a firm production process generates negative externalities (e.g. industrial pollution) imposing an appropriately chosen tax per unit of output is going to increase the firm’s marginal cost. This will in turn cause the firm to produce at the point where the marginal benefit of the last unit of output is equal to the
(c) “A
(d) “A competitive market is in the long-run equilibrium with each firm making zero economic profit. This means that eventually, firms will start exiting this industry because they cannot make any money staying in this business.”
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