Economics Quiz!

Q.1. When a market is in equilibrium with no external influences and no external effects, it is said to be in a state of _____________ optimality.

Q.2. When examining the topic of market failure, the supply curve can be referred to as the:

When are, profits maximized?

A demerit good may be characterized by:

A good is non-rivalrous when:

1. Draw the graph of Negative Production Externality. (Open paint app, draw the graph, save the file in your computer and attach it here)

2. Draw the graph of Consumer & Producer surplus

3. Draw the graph of Positive production externality

4. Draw the graph of specific tax

A UK doctor has suggested that chocolate should be taxed like alcohol and cigarettes if the UK is to deal with its obesity epidemic. Excessive consumption of chocolate is leading to very high rates of heart disease and diabetes. Some people eat their entire daily calorie requirement in chocolate. A chocolate tax would make people healthier. Revenues from the chocolate tax could be used to help pay for the treatment of diseases resulting from obesity. There is a lot of negative publicity about other junk food, but an exception is made for chocolate, which has not been identified as responsible for a big part of poor health and additional health care costs that burden society. Opponents to the tax say there is no evidence that such ‘fat taxes’ would work in practice. Some people point to the health benefits of eating chocolate. A Cadbury spokesperson said, ‘We’ve known for a long time that there’s good stuff in chocolate.’ (SAVE THIS TEXT IN A NOTEPAD FOR FUTURE REFERENCE IN NEXT QUESTION) Q1) 1. Explain what kind of externality the article is referring to

Q2) Explain how a tax on chocolate might correct the externality. (Refer to case study which you previously saved)

Q3) Evaluate the desirability of a tax on chocolate.

Q4) Draw a graph for the following externality