Question 1

Input and output markets operate independently and thus should be analyzed as separate entities.

Accepted Answer

A) True 
 B)False

Question 2

Even if a market outcome is efficient, it may not be equitable.

Accepted Answer

A) True 
 B)False

Question 3

Relating to the Economics in Practice on page 253: Ethanol subsidies have increased the supply of corn, and ethanol is a fuel produced from corn. As a result, ________ farm land has increased. Further, supply of ________ has decreased.

Accepted Answer

A)  demand for; corn 
B)  supply of; other grains 
C)  demand for; other grains 
D)  supply of; corn 
A)  demand for; corn 
B)  supply of; other grains 
C)  demand for; other grains 
D)  supply of; corn

Question 4

Assume some gain and some lose as the result of a change. If we can demonstrate the value of the gains are less than the value of the losses, then we say the change is

Accepted Answer

A)  potentially efficient. 
B)  inefficient. 
C)  unequivocally Pareto optimal. 
D)  technically efficient. 
A)  potentially efficient. 
B)  inefficient. 
C)  unequivocally Pareto optimal. 
D)  technically efficient.

Question 5

Society will produce the efficient mix of output if all firms equate

Accepted Answer

A)  price and marginal cost. 
B)  price and average total cost. 
C)  marginal cost and average total cost. 
D)  price and marginal revenue. 
A)  price and marginal cost. 
B)  price and average total cost. 
C)  marginal cost and average total cost. 
D)  price and marginal revenue.

Question 6

A condition in which no change is possible that will make some members of society better off without making some other members of society worse off is called

Accepted Answer

A)  Pareto optimality. 
B)  partial equilibrium. 
C)  general equilibrium. 
D)  market failure. 
A)  Pareto optimality. 
B)  partial equilibrium. 
C)  general equilibrium. 
D)  market failure.

Question 7

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow.   Figure 12.4
There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of SS1U1P10 and S1S1P0S1U1P1DS1S1P0S1U1P10.S1S1P0
-Refer to Figure 12.4. Currently in sector Y, price is

Accepted Answer

A)  greater than average cost. 
B)  less than average cost. 
C)  equal to average cost. 
D)  More information is needed to answer the question. 
A)  greater than average cost. 
B)  less than average cost. 
C)  equal to average cost. 
D)  More information is needed to answer the question.

Question 8

Refer to the information provided in Figure 12.2 below to answer the question(s) that follow.   Figure 12.2
-Refer to Figure 12.2. The graph of this situation represents a partial equilibrium analysis because it

Accepted Answer

A)  only shows a change in supply. 
B)  considers only the personal computer industry. 
C)  shows changes to both price and quantity. 
D)  only shows two possible equilibrium points. 
A)  only shows a change in supply. 
B)  considers only the personal computer industry. 
C)  shows changes to both price and quantity. 
D)  only shows two possible equilibrium points.

Question 9

Refer to the information provided in Figure 12.5 below to answer the question(s) that follow.   Figure 12.5
-Refer to Figure 12.5. Hula hoops are produced in a perfectly competitive market. This hula hoop firm is currently producing and selling 100 hula hoops per week. Which of the following is true?

Accepted Answer

A)  Society would be better off if more hula hoops were produced because at the current level of production price is greater than marginal cost. 
B)  Society would be better off if fewer hula hoops were produced because if this firm reduced its production, its profits would increase. 
C)  Hula hoop production is at the efficient level because ATC is minimized. 
D)  Fewer resources should be devoted to hula hoop production because ATC is less than price. 
A)  Society would be better off if more hula hoops were produced because at the current level of production price is greater than marginal cost. 
B)  Society would be better off if fewer hula hoops were produced because if this firm reduced its production, its profits would increase. 
C)  Hula hoop production is at the efficient level because ATC is minimized. 
D)  Fewer resources should be devoted to hula hoop production because ATC is less than price.

Question 10

Which of the following would be classified as an external cost?

Accepted Answer

A)  As more firms began hiring computer programmers, the salaries of computer programmers increased, and therefore the firm's cost of production increased. 
B)  A private firm will not provide national defense, as it is impossible to confine the benefits to only those individuals who have paid for it. 
C)  You are not able to study at night because there is so much noise coming from the dorm room next to yours. 
D)  When you purchase a prescription drug, you are not made fully aware of all the possible side effects that may result from taking the drug. 
A)  As more firms began hiring computer programmers, the salaries of computer programmers increased, and therefore the firm's cost of production increased. 
B)  A private firm will not provide national defense, as it is impossible to confine the benefits to only those individuals who have paid for it. 
C)  You are not able to study at night because there is so much noise coming from the dorm room next to yours. 
D)  When you purchase a prescription drug, you are not made fully aware of all the possible side effects that may result from taking the drug.

Question 11

If at the current output of X the PX > MCX, then society gains by

Accepted Answer

A)  producing more X. 
B)  producing less X. 
C)  raising the price of X. 
D)  increasing the cost of producing X. 
A)  producing more X. 
B)  producing less X. 
C)  raising the price of X. 
D)  increasing the cost of producing X.

Question 12

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow.   Figure 12.4
There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of SS1U1P10 and S1S1P0S1U1P1DS1S1P0S1U1P10.S1S1P0
-Refer to Figure 12.4. Currently in sector X, price is

Accepted Answer

A)  greater than average cost. 
B)  less than average cost. 
C)  equal to average cost. 
D)  More information is needed to answer the question. 
A)  greater than average cost. 
B)  less than average cost. 
C)  equal to average cost. 
D)  More information is needed to answer the question.

Question 13

Freely functioning markets in the real world always result in efficient allocations of resources.

Accepted Answer

A) True 
 B)False

Question 14

Government involvement in a market may generate more inefficiency than it cures.

Accepted Answer

A) True 
 B)False

Question 15

Social goods are goods and services that bestow collective benefits on members of society.

Accepted Answer

A) True 
 B)False

Question 16

If a restaurant runs a special and sells a lobster dinner for $4.50, Amy buys one lobster dinner a week. If lobster dinners are not on special and the price is $16.00, Amy buys zero lobster dinners per week. Which of the following is true?

Accepted Answer

A)  Amy's demand for lobster is inelastic. 
B)  Amy's marginal utility from a lobster dinner is less than $4.50. 
C)  The value of Amy's marginal utility from a lobster dinner is at least $4.50 and less than $16.00. 
D)  Amy's marginal utility from a lobster dinner is greater than $16.00. 
A)  Amy's demand for lobster is inelastic. 
B)  Amy's marginal utility from a lobster dinner is less than $4.50. 
C)  The value of Amy's marginal utility from a lobster dinner is at least $4.50 and less than $16.00. 
D)  Amy's marginal utility from a lobster dinner is greater than $16.00.

Question 17

Under perfect competition the person that ends up with the ________ unit is the person that values it exactly at its price.

Accepted Answer

A)  first 
B)  last 
C)  marginal 
D)  only 
A)  first 
B)  last 
C)  marginal 
D)  only

Question 18

Relating to the Economics in Practice on page 253: Which of the following would be an expected result of increased government subsidies for ethanol, a fuel produced from corn?

Accepted Answer

A)  an increase in the price of gasoline made in part from ethanol 
B)  an increase in the price of land used to farm corn 
C)  decreases in the price of land used to farm grains other than corn 
D)  a decrease in the production of corn relative to other grains 
A)  an increase in the price of gasoline made in part from ethanol 
B)  an increase in the price of land used to farm corn 
C)  decreases in the price of land used to farm grains other than corn 
D)  a decrease in the production of corn relative to other grains

Question 19

Initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. If you are a cattle rancher, the best profit-maximizing strategy is to

Accepted Answer

A)  shut down. 
B)  increase output so as to increase your market share. 
C)  shift some of your ranching capacity into cattle raising. 
D)  decrease output so as to minimize short run losses. 
A)  shut down. 
B)  increase output so as to increase your market share. 
C)  shift some of your ranching capacity into cattle raising. 
D)  decrease output so as to minimize short run losses.

Question 20

A household will buy a good as long as the

Accepted Answer

A)  good's price is greater than the maximum a consumer would be willing to pay for it. 
B)  marginal utility from its consumption is greater than or equal to its market price. 
C)  good still provides the consumer with average utility. 
D)  good's use value is less than the price being charged for the good. 
A)  good's price is greater than the maximum a consumer would be willing to pay for it. 
B)  marginal utility from its consumption is greater than or equal to its market price. 
C)  good still provides the consumer with average utility. 
D)  good's use value is less than the price being charged for the good.

Exam 12: General Equilibrium and the Efficiency of Perfect Competition

Input and output markets operate independently and thus should be analyzed as separate entities.

Even if a market outcome is efficient, it may not be equitable.

Relating to the Economics in Practice on page 253: Ethanol subsidies have increased the supply of corn, and ethanol is a fuel produced from corn. As a result, ________ farm land has increased. Further, supply of ________ has decreased.

Assume some gain and some lose as the result of a change. If we can demonstrate the value of the gains are less than the value of the losses, then we say the change is

Society will produce the efficient mix of output if all firms equate

A condition in which no change is possible that will make some members of society better off without making some other members of society worse off is called

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow. Figure 12.4 There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S0 and D0. -Refer to Figure 12.4. Currently in sector Y, price is

Refer to the information provided in Figure 12.2 below to answer the question(s) that follow. Figure 12.2 -Refer to Figure 12.2. The graph of this situation represents a partial equilibrium analysis because it

Refer to the information provided in Figure 12.5 below to answer the question(s) that follow. Figure 12.5 -Refer to Figure 12.5. Hula hoops are produced in a perfectly competitive market. This hula hoop firm is currently producing and selling 100 hula hoops per week. Which of the following is true?

Which of the following would be classified as an external cost?

If at the current output of X the PX > MCX, then society gains by

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow. Figure 12.4 There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S0 and D0. -Refer to Figure 12.4. Currently in sector X, price is

Freely functioning markets in the real world always result in efficient allocations of resources.

Government involvement in a market may generate more inefficiency than it cures.

Social goods are goods and services that bestow collective benefits on members of society.

If a restaurant runs a special and sells a lobster dinner for $4.50, Amy buys one lobster dinner a week. If lobster dinners are not on special and the price is $16.00, Amy buys zero lobster dinners per week. Which of the following is true?

Under perfect competition the person that ends up with the ________ unit is the person that values it exactly at its price.

Relating to the Economics in Practice on page 253: Which of the following would be an expected result of increased government subsidies for ethanol, a fuel produced from corn?

Initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. If you are a cattle rancher, the best profit-maximizing strategy is to

A household will buy a good as long as the

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Relating to the Economics in Practice on page 253: Ethanol subsidies have increased the supply of corn, and ethanol is a fuel produced from corn. As a result, farm land has increased. Further, supply of has decreased.

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow. Figure 12.4 There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S^{0 and}^D^0. -Refer to Figure 12.4. Currently in sector Y, price is

If at the current output of X the P_X > MC_X, then society gains by

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow. Figure 12.4 There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S^{0 and}^D^0. -Refer to Figure 12.4. Currently in sector X, price is