Question 1

If PX = MCX, society gains by ________ X.

Accepted Answer

A)  producing more 
B)  producing less 
C)  raising the price of 
D)  none of the above 
A)  producing more 
B)  producing less 
C)  raising the price of 
D)  none of the above

Question 2

Relating to the Economics in Practice on page 253: Subsidies for ethanol, a fuel produced from corn, have affected the market for

Accepted Answer

A)  corn. 
B)  wheat. 
C)  farm land. 
D)  All of the above are correct. 
A)  corn. 
B)  wheat. 
C)  farm land. 
D)  All of the above are correct.

Question 3

A freely functioning market

Accepted Answer

A)  will always be efficient. 
B)  will fairly reward talent and punish the lazy. 
C)  cannot be made more efficient with government intervention. 
D)  maximizes freedom of choice. 
A)  will always be efficient. 
B)  will fairly reward talent and punish the lazy. 
C)  cannot be made more efficient with government intervention. 
D)  maximizes freedom of choice.

Question 4

________ occurs when the economy is producing what people want at least possible cost.

Accepted Answer

A)  Efficiency 
B)  Equity 
C)  Stability 
D)  Maximum profit 
A)  Efficiency 
B)  Equity 
C)  Stability 
D)  Maximum profit

Question 5

An economist estimates that the maintenance of a public recreation center costs $80,000 a year and that the recreation center generates $65,000 a year in revenue from usage fees. From society's point of view, the maintenance of this recreation center is

Accepted Answer

A)  inefficient, because everyone in the community pays taxes to support it, but only those who pay fees to use the recreation center benefit. 
B)  efficient because the revenues generated by the recreation center benefit the entire public. 
C)  potentially efficient because the value of the gains exceed the value of the losses. 
D)  potentially efficient because no one would be made worse off as a result of maintaining the recreation center. 
A)  inefficient, because everyone in the community pays taxes to support it, but only those who pay fees to use the recreation center benefit. 
B)  efficient because the revenues generated by the recreation center benefit the entire public. 
C)  potentially efficient because the value of the gains exceed the value of the losses. 
D)  potentially efficient because no one would be made worse off as a result of maintaining the recreation center.

Question 6

When all markets are in simultaneous equilibrium, the general equilibrium condition has been satisfied.

Accepted Answer

A) True 
 B)False

Question 7

A person who chooses not to be in the labor force reveals that

Accepted Answer

A)  his potential product in the market is zero. 
B)  either leisure or the value of nonpaid labor is worth more to him than the value that society places on his potential product in the market. 
C)  either leisure or the value of nonpaid labor is worth less to him than the value that society places on his potential product in the market. 
D)  either leisure or the value of nonpaid labor is worth zero to him. 
A)  his potential product in the market is zero. 
B)  either leisure or the value of nonpaid labor is worth more to him than the value that society places on his potential product in the market. 
C)  either leisure or the value of nonpaid labor is worth less to him than the value that society places on his potential product in the market. 
D)  either leisure or the value of nonpaid labor is worth zero to him.

Question 8

Firms stop producing DVDs and start producing Blu-ray discs because people prefer Blu-ray discs discs to DVDs. This will

Accepted Answer

A)  make the distribution of outcome more equitable. 
B)  make the economy more stable. 
C)  improve efficiency. 
D)  make the economy less stable. 
A)  make the distribution of outcome more equitable. 
B)  make the economy more stable. 
C)  improve efficiency. 
D)  make the economy less stable.

Question 9

Your upstairs neighbor is the first-chair violinist in the local symphony orchestra. Because you are very fond of violin music, you sit on your balcony each night to listen to her rehearse. In this case, your violin-playing neighbor is an example of a

Accepted Answer

A)  public good. 
B)  good that imposes an external cost. 
C)  good that provides an external benefit. 
D)  Pareto good. 
A)  public good. 
B)  good that imposes an external cost. 
C)  good that provides an external benefit. 
D)  Pareto good.

Question 10

________ is a good measure of what society gives up by using resources to produce more of a good or service.

Accepted Answer

A)  Marginal revenue 
B)  Marginal revenue product 
C)  Marginal cost 
D)  Total cost of production 
A)  Marginal revenue 
B)  Marginal revenue product 
C)  Marginal cost 
D)  Total cost of production

Question 11

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. Assume consumer preference changes toward X and away from Y. Ceteris paribus, the equilibrium price of X will ________ and the equilibrium price of Y will ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 12

Suppose there is a permanent shift of consumer preferences away from pretzels and toward potato chips. The most likely result would be

Accepted Answer

A)  in the short run, economic losses in the potato chip market. 
B)  in the long run, a fall in the supply of potato chips. 
C)  in the short run, a rise in the price of pretzels. 
D)  short-run profits in the potato chip market increase. 
A)  in the short run, economic losses in the potato chip market. 
B)  in the long run, a fall in the supply of potato chips. 
C)  in the short run, a rise in the price of pretzels. 
D)  short-run profits in the potato chip market increase.

Question 13

The used-car market is an example of an market with imperfect information.

Accepted Answer

A) True 
 B)False

Question 14

In making labor supply decisions, ________ weigh the market wage against the value of leisure and time spent in unpaid household production.

Accepted Answer

A)  businesses 
B)  financial markets 
C)  households 
D)  None of the above is correct. 
A)  businesses 
B)  financial markets 
C)  households 
D)  None of the above is correct.

Question 15

In perfect competition, P = MC is the condition that

Accepted Answer

A)  guarantees that firms will make an economic profit. 
B)  ensures that firms produce the right things. 
C)  encourages firms to enter an industry. 
D)  holds only in the long run. 
A)  guarantees that firms will make an economic profit. 
B)  ensures that firms produce the right things. 
C)  encourages firms to enter an industry. 
D)  holds only in the long run.

Question 16

A person who chooses ________ the labor force reveals that either leisure or the value of nonpaid labor is worth ________ to him or her than the value that society places on his or her potential product in the market.

Accepted Answer

A)  to stay in; more 
B)  not to be in; more 
C)  to exit; less 
D)  to enter; more 
A)  to stay in; more 
B)  not to be in; more 
C)  to exit; less 
D)  to enter; more

Question 17

Partial equilibrium analysis is the process of examining the equilibrium conditions for households and firms combined for more than one but not all individual markets.

Accepted Answer

A) True 
 B)False

Question 18

Assume that the marginal cost of growing pine trees does not include the benefit to the environment as a result of carbon dioxide reduction. By producing where P = MC, the grower will be producing ________ the efficient amount of pine trees.

Accepted Answer

A)  less than 
B)  more than 
C)  exactly 
D)  sometimes more and sometimes less than 
A)  less than 
B)  more than 
C)  exactly 
D)  sometimes more and sometimes less than

Question 19

The result of market failure is waste or lost surplus.

Accepted Answer

A) True 
 B)False

Question 20

Equity is the condition in which the economy is producing what people want at the least possible cost.

Accepted Answer

A) True 
 B)False

Exam 12: General Equilibrium and the Efficiency of Perfect Competition

If PX = MCX, society gains by ________ X.

Relating to the Economics in Practice on page 253: Subsidies for ethanol, a fuel produced from corn, have affected the market for

A freely functioning market

________ occurs when the economy is producing what people want at least possible cost.

An economist estimates that the maintenance of a public recreation center costs $80,000 a year and that the recreation center generates $65,000 a year in revenue from usage fees. From society's point of view, the maintenance of this recreation center is

When all markets are in simultaneous equilibrium, the general equilibrium condition has been satisfied.

A person who chooses not to be in the labor force reveals that

Firms stop producing DVDs and start producing Blu-ray discs because people prefer Blu-ray discs discs to DVDs. This will

Your upstairs neighbor is the first-chair violinist in the local symphony orchestra. Because you are very fond of violin music, you sit on your balcony each night to listen to her rehearse. In this case, your violin-playing neighbor is an example of a

________ is a good measure of what society gives up by using resources to produce more of a good or service.

Suppose there is a permanent shift of consumer preferences away from pretzels and toward potato chips. The most likely result would be

The used-car market is an example of an market with imperfect information.

In making labor supply decisions, ________ weigh the market wage against the value of leisure and time spent in unpaid household production.

In perfect competition, P = MC is the condition that

A person who chooses ________ the labor force reveals that either leisure or the value of nonpaid labor is worth ________ to him or her than the value that society places on his or her potential product in the market.

Partial equilibrium analysis is the process of examining the equilibrium conditions for households and firms combined for more than one but not all individual markets.

Assume that the marginal cost of growing pine trees does not include the benefit to the environment as a result of carbon dioxide reduction. By producing where P = MC, the grower will be producing ________ the efficient amount of pine trees.

The result of market failure is waste or lost surplus.

Equity is the condition in which the economy is producing what people want at the least possible cost.

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

If P_X = MC_X, society gains by ________ X.

A person who chooses the labor force reveals that either leisure or the value of nonpaid labor is worth to him or her than the value that society places on his or her potential product in the market.