Question 1

Under perfect competition, the efficient level of output is produced because

Accepted Answer

A)  government regulates the output level that must be produced. 
B)  firms earn only a normal profit in the long run. 
C)  firms can earn an economic profit in the long run. 
D)  price equals marginal cost. 
A)  government regulates the output level that must be produced. 
B)  firms earn only a normal profit in the long run. 
C)  firms can earn an economic profit in the long run. 
D)  price equals marginal cost.

Question 2

Suppose a policy change generates $90,000 of benefits for low-income families and $150,000 of costs for high-income families. We can best describe the change as

Accepted Answer

A)  Pareto efficient. 
B)  inefficient. 
C)  potentially efficient. 
D)  equitable. 
A)  Pareto efficient. 
B)  inefficient. 
C)  potentially efficient. 
D)  equitable.

Question 3

Society will produce ________ if price and marginal cost are equated for all firms.

Accepted Answer

A)  the efficient mix of output 
B)  the maximum output 
C)  the minimum output 
D)  no output 
A)  the efficient mix of output 
B)  the maximum output 
C)  the minimum output 
D)  no output

Question 4

When resources are misallocated, or allocated inefficiently,

Accepted Answer

A)  market failure occurs. 
B)  then there must be external costs or benefits in production. 
C)  then it must be the case that there is imperfect information in the market. 
D)  then it must be the case that the good is a public good. 
A)  market failure occurs. 
B)  then there must be external costs or benefits in production. 
C)  then it must be the case that there is imperfect information in the market. 
D)  then it must be the case that the good is a public good.

Question 5

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

Accepted Answer

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

Question 6

A perfectly competitive system results in an efficient allocation of resources among firms and an equal distribution of final products among households.

Accepted Answer

A) True 
 B)False

Question 7

The outcome of any free market is ultimately ________ because some people become very rich while others remain very poor.

Accepted Answer

A)  efficient 
B)  inequitable 
C)  equitable 
D)  market failure 
A)  efficient 
B)  inequitable 
C)  equitable 
D)  market failure

Question 8

Public goods are generally produced by

Accepted Answer

A)  the government. 
B)  monopolies. 
C)  perfectly competitive industries. 
D)  freely functioning markets. 
A)  the government. 
B)  monopolies. 
C)  perfectly competitive industries. 
D)  freely functioning markets.

Question 9

Examining the equilibrium conditions of individual markets and for households and firms separately is referred to as

Accepted Answer

A)  partial equilibrium analysis. 
B)  general equilibrium analysis. 
C)  comparative statics. 
D)  efficiency analysis. 
A)  partial equilibrium analysis. 
B)  general equilibrium analysis. 
C)  comparative statics. 
D)  efficiency analysis.

Question 10

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, firms in sector X are now ________ and firms in sector Y are now ________.

Accepted Answer

A)  breaking even; suffering losses 
B)  earning profits; breaking even 
C)  earning profits; suffering losses 
D)  breaking even; breaking even 
A)  breaking even; suffering losses 
B)  earning profits; breaking even 
C)  earning profits; suffering losses 
D)  breaking even; breaking even

Question 11

Which of the following is not an example of Pareto optimality?

Accepted Answer

A)  Timmy tricks Jonathan into trading a genuine Brooks Robinson baseball card for a fake Pete Rose baseball card. 
B)  The Beauregard twins eagerly switch cell phone cases with each other. 
C)  Despite complaints from members, Harmony Industries builds a sewage treatment plant next to a country club. 
D)  The city council approves a tax increase on all residents in order to make repairs to one remote residential street. 
A)  Timmy tricks Jonathan into trading a genuine Brooks Robinson baseball card for a fake Pete Rose baseball card. 
B)  The Beauregard twins eagerly switch cell phone cases with each other. 
C)  Despite complaints from members, Harmony Industries builds a sewage treatment plant next to a country club. 
D)  The city council approves a tax increase on all residents in order to make repairs to one remote residential street.

Question 12

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. A technological advance causes the supply of personal computers to increase. The graph of this situation represents a

Accepted Answer

A)  general equilibrium analysis because it identifies what happens to both equilibrium price and quantity of personal computers. 
B)  partial equilibrium analysis because it considers only this one industry. 
C)  firm-specific analysis because only one firm would be affected by the technological advance. 
D)  technological analysis because the change resulted from a technological advance. 
A)  general equilibrium analysis because it identifies what happens to both equilibrium price and quantity of personal computers. 
B)  partial equilibrium analysis because it considers only this one industry. 
C)  firm-specific analysis because only one firm would be affected by the technological advance. 
D)  technological analysis because the change resulted from a technological advance.

Question 13

Sources of market failure include

Accepted Answer

A)  external benefits. 
B)  external costs. 
C)  public goods. 
D)  All of the above are correct. 
A)  external benefits. 
B)  external costs. 
C)  public goods. 
D)  All of the above are correct.

Question 14

When one market reaches a new equilibrium, the general equilibrium condition has been satisfied.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the price overestimates the value that society places on the flu vaccine. If firms produce where P = MC, firms will be producing ________ the socially efficient amount of flu vaccine.

Accepted Answer

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

Question 16

Which of the following statements about public goods is not true?

Accepted Answer

A)  They bestow collective benefits on members of society. 
B)  They are non-excludable since those who do not pay for them cannot be excluded from enjoying them. 
C)  They will be under supplied by the private sector. 
D)  They are only produced by government agencies. 
A)  They bestow collective benefits on members of society. 
B)  They are non-excludable since those who do not pay for them cannot be excluded from enjoying them. 
C)  They will be under supplied by the private sector. 
D)  They are only produced by government agencies.

Question 17

________ reflects household willingness to pay, and ________ reflects the opportunity cost of the resources needed to produce a good.

Accepted Answer

A)  Marginal utility; price 
B)  Price; marginal cost 
C)  Price; average total cost 
D)  Demand; price 
A)  Marginal utility; price 
B)  Price; marginal cost 
C)  Price; average total cost 
D)  Demand; price

Question 18

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow.   Figure 12.1
-Refer to Figure 12.1. This competitive firm is currently at Point A on the ATC curve. The firm's move toward an output where ATC will be at point B will make the economy

Accepted Answer

A)  more fair and the distribution of outcome more equitable. 
B)  more stable. 
C)  less efficient. 
D)  less stable. 
A)  more fair and the distribution of outcome more equitable. 
B)  more stable. 
C)  less efficient. 
D)  less stable.

Question 19

Market failure results in

Accepted Answer

A)  lost surplus. 
B)  no goods being produced. 
C)  Pareto efficiency. 
D)  economic collapse. 
A)  lost surplus. 
B)  no goods being produced. 
C)  Pareto efficiency. 
D)  economic collapse.

Question 20

Resources are allocated efficiently when

Accepted Answer

A)  everyone can afford what they want. 
B)  production occurs at least cost. 
C)  output is fairly distributed. 
D)  profits are maximized. 
A)  everyone can afford what they want. 
B)  production occurs at least cost. 
C)  output is fairly distributed. 
D)  profits are maximized.

Exam 12: General Equilibrium and the Efficiency of Perfect Competition

Under perfect competition, the efficient level of output is produced because

Suppose a policy change generates $90,000 of benefits for low-income families and $150,000 of costs for high-income families. We can best describe the change as

Society will produce ________ if price and marginal cost are equated for all firms.

When resources are misallocated, or allocated inefficiently,

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

A perfectly competitive system results in an efficient allocation of resources among firms and an equal distribution of final products among households.

The outcome of any free market is ultimately ________ because some people become very rich while others remain very poor.

Public goods are generally produced by

Examining the equilibrium conditions of individual markets and for households and firms separately is referred to as

Which of the following is not an example of Pareto optimality?

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. A technological advance causes the supply of personal computers to increase. The graph of this situation represents a

Sources of market failure include

When one market reaches a new equilibrium, the general equilibrium condition has been satisfied.

Assume that the price overestimates the value that society places on the flu vaccine. If firms produce where P = MC, firms will be producing ________ the socially efficient amount of flu vaccine.

Which of the following statements about public goods is not true?

________ reflects household willingness to pay, and ________ reflects the opportunity cost of the resources needed to produce a good.

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow. Figure 12.1 -Refer to Figure 12.1. This competitive firm is currently at Point A on the ATC curve. The firm's move toward an output where ATC will be at point B will make the economy

Market failure results in

Resources are allocated efficiently when

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

reflects household willingness to pay, and reflects the opportunity cost of the resources needed to produce a good.