SET 1 + Code 1001

1. TRUE. A market-based policy creates an economic incentive for firms to deal with their
externalities at a lower cost to society. In contrast, a command-and-control policy may be more
expensive, as it requires hiring regulators to monitor and enforce compliance with regulations.
(Xem lại Chap. 10, Public Policies to deal with Externalities, xem kĩ ví dụ 2 firms)
2. FALSE. Taxes and subsidies can help cover the deadweight loss created by externalities in
the market, if implemented effectively.
- Tax on goods with negative externalities:
- Subsidize goods with positive externalities:
(Vẽ 2 đồ thị hoặc viết: Taxes on goods with negative externalities can make consumers pay the
full social cost of the good, while subsidies can be used to encourage the consumption of goods
with positive externalities. In both cases, they lead to a socially efficient market consumption.)
3. TRUE. In monopolistic competition, each firm has small market power and sells similar
products to each other, so they compete to differentiate their products through non-price sectors
like advertising, packaging, and design. However, in perfect competition, all firms sell identical
products and have no control over price; in a monopoly, one firm has complete control over
price. Hence, non-price competition is irrelevant in both cases.
4. TRUE. When AVC < P < ATC, this means the firm generates revenue that can cover its
variable costs and will have to continue producing to pay off its fixed costs.
Code 12

a. FALSE. When incomes increase, price of the inferior good decreases; when more sellers
enter the market, with demand remains constant, its price decreases, and its quantity increases.
If both happens at the same time, the price of the inferior good falls, but it is undetermined
whether its quantity decreases or increases, as it depends on the relative magnitudes of the
shifts.

b. TRUE. If each person specializes in producing the good where they have a comparative
advantage, meaning they can produce it at a lower opportunity cost than the other can,
individuals can consume more than what they could produce on their own, outside of their
individual PPF.
c. TRUE. In a bowed outward PPF, as production expands, the opportunity cost of the good
becomes higher, which by definition corresponds to losing comparative advantage in producing
that good, because comparative advantage is the ability of an individual to produce a particular
good at a lower opportunity cost than another.
(Paraphrase lại đề bài tại ko biết giải thích gì thêm)
(Chap 2, Slides 22-23-24)
d. TRUE. Tradable permits create an incentive for firms to reduce their pollution at a lower cost
to society. In contrast, regulations may be more expensive as it requires hiring regulators to
monitor and enforce compliance.
e. FALSE. In monopolistic competition, each firm has small market power and sells similar
products to each other, so they compete to differentiate their products through non-price sectors
like advertising, packaging, and designing. However, in perfect competition, all firms sell
identical products and have no control over price; in a monopoly, one firm has complete control
over price. Hence, non-price competition is irrelevant in both cases.
Code 04 / Code 10

a. FALSE. The change in equilibrium price will depend on the relative magnitudes of the shifts
in demand and supply. The equilibrium price will only decrease when demand decreases more
than supply.

b. FALSE. In a perfectly competitive market, firms are price takers, meaning they must accept
the market price as given and have no influence over price. Price discrimination requires some
degree of market power, which firms in perfectly competitive markets do not have.
(Price discrimination is only applicable to a monopoly, in which the firm charges the price that
is different for each consumer, based on each consumer's willingness to pay.)
c. TRUE. Comparative advantage takes into account opportunity cost differences, in which the
opportunity cost of producing a good of one country is lower than that of another country. If
countries specialize on producing the good that they have a comparative advantage in, they can
trade with each other and benefit from the trade.
d. FALSE. Price ceilings and price floors may remove the socially efficient level of price and
quantity, resulting in a shortage or surplus of goods.
(Chap 6. Slide 19: Price control gây hại nhiều hơn lợi)
e. FALSE. As the firm invests in advertising, its demand curve will shift to the right, which
indicates an increase in demand. However, advertising can make the demand curve more
inelastic, since it tries to make the consumers less sensitive to price changes by creating brand
loyalty and product differentiation.
Code 05

a. FALSE. Comparative advantage takes into account opportunity cost differences, in which the
opportunity cost of producing a good of one country is lower than that of another country. If
countries specialize in producing the good that they have a comparative advantage in, they can
trade with each other and benefit from the trade.
b. FALSE. When incomes fall, the demand for inferior good decreases; when more sellers enter
the inferior good market, price decreases and quantity increases. If both happens at the same
time, the effect on price and quantity will depend on the relative magnitudes of these shifts;
thus, it is undetermined.
(relative magnitudes of these shifts = how much the demand curve and the supply curve shift)
c. FALSE. Imposing per unit tax on a good with lower price elasticity of demand will generate a
larger tax revenue.
(Vẽ sao cho khoảng dọc tax của 2 graphs bằng nhau)
(Không cần vẽ đường D2)

d. FALSE. Raising the minimum wage may lead to additional unemployment in the short run,
but its effects in the long run is unclear.
(Wage raised => Incomes rise => Price rises => Inflation => Unemployment)
e. FALSE. A per unit subsidy can increase both consumers’ and producers’ surplus, but part of
total surplus is lost to deadweight loss, which is the cost of subsidy that the government must
pay for.
(Xem video giải thích)

Bonus: Phân bổ tax

Code 11

a. FALSE. A per unit tax on buyers will make sellers pay a higher price and sellers get a lower
price.
b. FALSE. The average fixed cost is downward sloping, as it decreases when quantity increases
(AFC = FC/Q).
c. TRUE. Imposing per unit tax on a good with higher price elasticity of demand will generate a
smaller tax revenue.
(Vẽ sao cho khoảng dọc tax của 2 graphs bằng nhau)

d. FALSE. Raising the minimum wage may lead to additional unemployment in the short run,
but its effects in the long run is unclear.
e. TRUE. The Coarse theorem assumes that transaction costs are negligible and that property
rights are well defined. If there are many parties involved, the negotiation process may become
complex and costly.
Code 7 – đề nài khó vải

a. TRUE. In perfect competition, firms are price takers and cannot influence the market price;
therefore, they must focus on minimizing costs to maximize profits. In a monopolitically
competitive market, firms have small market power and can influence the price of their
products to increase profits by differentiating their products and charging higher prices.
b. FALSE. In perfect competition, the firm’s supply curve is its marginal cost curve, because
firms are price takers and will produce up to the point where P = MC. Firms can still produce
when P > AVC to pay off its fixed costs. Therefore, the short-run supply curve of a firm in
perfect competition is part of the marginal cost curve above the minimum point of the average
variable cost curve.
c. TRUE. In a monopoly, the price of all units lowers each time a firm increases its output sold,
which causes the firm to face a diminishing marginal revenue. At the inelastic part of the
demand curve, consumers are less sensitive to lower prices, so any attempt to increase quantity
will yield negative marginal revenue.
(Đọc wikipedia bảo thế)
d. FALSE. A perfectly competitive firm will maximize its total revenue when its marginal
revenue equals marginal cost (MR = MC).
e. TRUE. In the long run, the entrance and exit of firms drives economic profit to zero, but
monopolistically competitive firms still charge its products at a price that consumers are willing
to pay.
(Chap. 16 Slide 10)