1. Assume your marginal rate of substitution between goods 1 and 2 is −1. If your consumption choice is optimal,

(a) the price of good 1 must exceed the price of good 2.

(b) the price of good 2 must exceed the price of good 1.

(c) the prices of the two must be equal.

(d) There is not enough information to determine.

2. A generic good is taxed. Who bears more of the burden of the tax, producers or consumers? (a) It depends on whether supply or demand is more elastic.

(b) Producers.

(c) Consumers.

(d) Producers and consumers split the tax evenly.

(e) None of the above.

3. Use a basic supply and demand framework to predict what will happen if the government imposes a binding price ceiling.

(a) A shortage/deficit would occur.

(b) All consumers will be made better off.

(c) All producers will be made better off.

(d) Poor people will be made better off.

4. The Ruritanian Pencil Company (RPC) has the monopoly on pencil production in Ruritania. The inverse demand for pencils P = 60 − Q and the marginal revenue from the sale of pencils is MR = 60 − 2Q, where Q is the quantity of pencils. The firm’s total costs are T C = 20 + Q2 , and its marginal cost is MC = 2Q. What are the RPC’s profit-maximizing quantity and price? What profits does it make

(a) 15, 45, 430

(b) 1, 40, 19

(c) 20, 40, 380

(d) 10, 50, 380

(e) None of the above.