Question 1

If a new entrant (or an established firm) wants to leave a contestable market,

Accepted Answer

A)  all, or nearly all of, the invested capital values can be recovered. 
B)  another firm will always enter to take its place. 
C)  it must accept large losses in its capital investment, so it is unlikely to exit. 
D)  its leaving will be contested by regulators in the market who seek to prevent exit. 
A)  all, or nearly all of, the invested capital values can be recovered. 
B)  another firm will always enter to take its place. 
C)  it must accept large losses in its capital investment, so it is unlikely to exit. 
D)  its leaving will be contested by regulators in the market who seek to prevent exit.

Question 2

"If China and India continue their economic expansion, the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement.

Accepted Answer

A)  True, increased demand from developing countries will swamp the existing supply of resources. 
B)  True, increased demand from China and India will lead to large shortages in the North America and Europe. 
C)  False, the shortage will be limited to China and India. 
D)  False, increasing scarcity will result in higher prices and the deployment of new technologies that increase the efficiency of production, and together these markets forces will help to balance demand and supply worldwide. 
A)  True, increased demand from developing countries will swamp the existing supply of resources. 
B)  True, increased demand from China and India will lead to large shortages in the North America and Europe. 
C)  False, the shortage will be limited to China and India. 
D)  False, increasing scarcity will result in higher prices and the deployment of new technologies that increase the efficiency of production, and together these markets forces will help to balance demand and supply worldwide.

Question 3

Which of the following statements about price discrimination is correct?

Accepted Answer

A)  Price discrimination is always more profitable than charging a single price. 
B)  A price discriminator would want to charge the highest price to those customers with the most elastic demand for his product. 
C)  To be successful, a price discriminator must assure that items can be resold between high- and low-price groups. 
D)  To maximize profit, a price discriminator distinguishes groups with different demands and charges higher prices to those with the more inelastic demand. 
A)  Price discrimination is always more profitable than charging a single price. 
B)  A price discriminator would want to charge the highest price to those customers with the most elastic demand for his product. 
C)  To be successful, a price discriminator must assure that items can be resold between high- and low-price groups. 
D)  To maximize profit, a price discriminator distinguishes groups with different demands and charges higher prices to those with the more inelastic demand.

Question 4

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

Accepted Answer

A)  New firms will enter the industry. 
B)  Customers of firms that leave the industry will switch to remaining firms. 
C)  Firms that remain in the industry will face reduced demand. 
D)  Firms will continue to incur losses. 
A)  New firms will enter the industry. 
B)  Customers of firms that leave the industry will switch to remaining firms. 
C)  Firms that remain in the industry will face reduced demand. 
D)  Firms will continue to incur losses.

Question 5

Supply and demand analysis suggests that a sharp increase in the price of gasoline will cause the

Accepted Answer

A)  price of fuel-efficient compact cars to decrease. 
B)  supply of gasoline to decrease. 
C)  demand for large luxury cars to increase. 
D)  demand for fuel-efficient cars to increase. 
A)  price of fuel-efficient compact cars to decrease. 
B)  supply of gasoline to decrease. 
C)  demand for large luxury cars to increase. 
D)  demand for fuel-efficient cars to increase.

Question 6

When a competitive price-searcher market is in long-run equilibrium, the firms in the market will earn

Accepted Answer

A)  substantial economic profits. 
B)  zero economic profits. 
C)  significant economic losses. 
D)  an above-normal accounting rate of return. 
A)  substantial economic profits. 
B)  zero economic profits. 
C)  significant economic losses. 
D)  an above-normal accounting rate of return.

Question 7

Proved reserves of natural gas and oil

Accepted Answer

A)  will last only another five years at the current worldwide consumption rate. 
B)  reveal little about whether the world is about to run out of these resources since they are calculated at present levels of price and technology. 
C)  are just another way of measuring how many years civilization will continue. 
D)  indicate that the supply of petroleum will be depleted by the year 2020 unless governments adopt price controls and energy rationing. 
A)  will last only another five years at the current worldwide consumption rate. 
B)  reveal little about whether the world is about to run out of these resources since they are calculated at present levels of price and technology. 
C)  are just another way of measuring how many years civilization will continue. 
D)  indicate that the supply of petroleum will be depleted by the year 2020 unless governments adopt price controls and energy rationing.

Question 8

Researcher Terry Anderson claims that with respect to the supply of water, trading it would be

Accepted Answer

A)  wrong and counter-productive. 
B)  essentially impossible due to lack of technologies to move the water. 
C)  highly productive and bring cooperation among the traders. 
D)  a problem, since monopolists would come to own too much. 
A)  wrong and counter-productive. 
B)  essentially impossible due to lack of technologies to move the water. 
C)  highly productive and bring cooperation among the traders. 
D)  a problem, since monopolists would come to own too much.

Question 9

When private ownership rights are clearly defined and well enforced, owners of resources

Accepted Answer

A)  have no incentive to consider the desires of others or the potential future value of the resource. 
B)  have an incentive to develop and expand resources that are expected to be valuable in the future. 
C)  have an incentive to consume the resource as quickly as possible before others seize it. 
D)  have little incentive to take care of the resource or conserve it for the future. 
A)  have no incentive to consider the desires of others or the potential future value of the resource. 
B)  have an incentive to develop and expand resources that are expected to be valuable in the future. 
C)  have an incentive to consume the resource as quickly as possible before others seize it. 
D)  have little incentive to take care of the resource or conserve it for the future.

Question 10

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

Accepted Answer

A)  marginal revenue. 
B)  average total cost. 
C)  average variable cost. 
D)  average fixed cost. 
A)  marginal revenue. 
B)  average total cost. 
C)  average variable cost. 
D)  average fixed cost.

Question 11

Use the figure to answer the following question(s).
Figure 10-10  
-Given the cost and demand conditions depicted in Figure 10-10 for the competitive price-searcher firm, what is the price that the firm should charge if it wants to maximize its profit?

Accepted Answer

A)  20 
B)  30 
C)  40 
D)  50 
A)  20 
B)  30 
C)  40 
D)  50

Question 12

When water cannot be traded among current and potential users, then

Accepted Answer

A)  each user will take more care to conserve, because added water cannot be obtained. 
B)  users have a strong incentive to conserve because they are now protected from price increases imposed by greedy entrepreneurs. 
C)  efficiency improves, as dry years can be better anticipated and planned for, and every user knows the quantity that will be available. 
D)  water will not flow to its highest valued uses, and some users will use water for relatively low-valued uses, because they cannot gain by selling it to others. 
A)  each user will take more care to conserve, because added water cannot be obtained. 
B)  users have a strong incentive to conserve because they are now protected from price increases imposed by greedy entrepreneurs. 
C)  efficiency improves, as dry years can be better anticipated and planned for, and every user knows the quantity that will be available. 
D)  water will not flow to its highest valued uses, and some users will use water for relatively low-valued uses, because they cannot gain by selling it to others.

Question 13

As new firms enter a competitive price-searcher market, profits of existing firms

Accepted Answer

A)  rise and product diversity in the market increases. 
B)  rise and product diversity in the market decreases. 
C)  decline and product diversity in the market increases. 
D)  decline and product diversity in the market decreases. 
A)  rise and product diversity in the market increases. 
B)  rise and product diversity in the market decreases. 
C)  decline and product diversity in the market increases. 
D)  decline and product diversity in the market decreases.

Question 14

In order to prosper, entrepreneurs must

Accepted Answer

A)  have their own wealth with which to finance projects that they want to undertake. 
B)  slow technological change and development of new products in their industry. 
C)  undertake projects that create wealth and increase the value of resources. 
D)  undertake projects that use resources that are more valuable than the output they produce. 
A)  have their own wealth with which to finance projects that they want to undertake. 
B)  slow technological change and development of new products in their industry. 
C)  undertake projects that create wealth and increase the value of resources. 
D)  undertake projects that use resources that are more valuable than the output they produce.

Question 15

As firms exit a competitive price-searcher market, profits of remaining firms

Accepted Answer

A)  decline and product diversity in the market decreases. 
B)  decline and product diversity in the market increases. 
C)  rise and product diversity in the market decreases. 
D)  rise and product diversity in the market increases. 
A)  decline and product diversity in the market decreases. 
B)  decline and product diversity in the market increases. 
C)  rise and product diversity in the market decreases. 
D)  rise and product diversity in the market increases.

Question 16

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

Accepted Answer

A)  low entry barriers. 
B)  a perfectly elastic market demand. 
C)  the small number of firms in the market. 
D)  product differentiation. 
A)  low entry barriers. 
B)  a perfectly elastic market demand. 
C)  the small number of firms in the market. 
D)  product differentiation.

Question 17

Predictions that natural resources such as oil will be essentially used up in the next few decades

Accepted Answer

A)  have been frequently made for the past century but have always proven to be false. 
B)  have usually been based on the quantity of proved reserves. 
C)  have ignored the role of price in governing the quantities demanded and supplied. 
D)  All of the above are correct. 
A)  have been frequently made for the past century but have always proven to be false. 
B)  have usually been based on the quantity of proved reserves. 
C)  have ignored the role of price in governing the quantities demanded and supplied. 
D)  All of the above are correct.

Question 18

Use the figure to answer the following question(s).
Figure 10-3  
-If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-3 are representative of the market, what will happen in the future?

Accepted Answer

A)  Firms will go out of business, and the market price will rise. 
B)  The current market price will tend to persist into the future. 
C)  New firms will enter the market, and the market price will decline. 
D)  The firms in this industry probably will collude in order to increase their profitability. 
A)  Firms will go out of business, and the market price will rise. 
B)  The current market price will tend to persist into the future. 
C)  New firms will enter the market, and the market price will decline. 
D)  The firms in this industry probably will collude in order to increase their profitability.

Question 19

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Accepted Answer

A)  an inelastic market demand for the product 
B)  a small number of firms, even though competitors are free to enter the industry 
C)  a differentiated product 
D)  restrictions that limit the entry of potential competitors into the industry 
A)  an inelastic market demand for the product 
B)  a small number of firms, even though competitors are free to enter the industry 
C)  a differentiated product 
D)  restrictions that limit the entry of potential competitors into the industry

Question 20

Even when there are only a few firms in a market, the market can still be competitive as long as barriers to entry are low. Markets of this type are called

Accepted Answer

A)  monopolistic markets. 
B)  price-taker markets. 
C)  contestable markets. 
D)  convertible markets. 
A)  monopolistic markets. 
B)  price-taker markets. 
C)  contestable markets. 
D)  convertible markets.

If a new entrant (or an established firm) wants to leave a contestable market,

"If China and India continue their economic expansion, the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement.

Which of the following statements about price discrimination is correct?

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

Supply and demand analysis suggests that a sharp increase in the price of gasoline will cause the

When a competitive price-searcher market is in long-run equilibrium, the firms in the market will earn

Proved reserves of natural gas and oil

Researcher Terry Anderson claims that with respect to the supply of water, trading it would be

When private ownership rights are clearly defined and well enforced, owners of resources

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

Use the figure to answer the following question(s). Figure 10-10 -Given the cost and demand conditions depicted in Figure 10-10 for the competitive price-searcher firm, what is the price that the firm should charge if it wants to maximize its profit?

When water cannot be traded among current and potential users, then

As new firms enter a competitive price-searcher market, profits of existing firms

In order to prosper, entrepreneurs must

As firms exit a competitive price-searcher market, profits of remaining firms

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

Predictions that natural resources such as oil will be essentially used up in the next few decades

Use the figure to answer the following question(s). Figure 10-3 -If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-3 are representative of the market, what will happen in the future?

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Even when there are only a few firms in a market, the market can still be competitive as long as barriers to entry are low. Markets of this type are called

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters

Exam 10: Price-Searcher Markets With Low Entry Barriers

If a new entrant (or an established firm) wants to leave a contestable market,

"If China and India continue their economic expansion, the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement.

Which of the following statements about price discrimination is correct?

If the firms in a competitive price-searcher market are suffering short-run losses, which of the following will occur in the long run?

Supply and demand analysis suggests that a sharp increase in the price of gasoline will cause the

When a competitive price-searcher market is in long-run equilibrium, the firms in the market will earn

Proved reserves of natural gas and oil

Researcher Terry Anderson claims that with respect to the supply of water, trading it would be

When private ownership rights are clearly defined and well enforced, owners of resources

Because barriers to entry are low in competitive price-searcher markets, in the long run, a firm's price will be equal to

Use the figure to answer the following question(s). Figure 10-10 -Given the cost and demand conditions depicted in Figure 10-10 for the competitive price-searcher firm, what is the price that the firm should charge if it wants to maximize its profit?

When water cannot be traded among current and potential users, then

As new firms enter a competitive price-searcher market, profits of existing firms

In order to prosper, entrepreneurs must

As firms exit a competitive price-searcher market, profits of remaining firms

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of

Predictions that natural resources such as oil will be essentially used up in the next few decades

Use the figure to answer the following question(s). Figure 10-3 -If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-3 are representative of the market, what will happen in the future?

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

Even when there are only a few firms in a market, the market can still be competitive as long as barriers to entry are low. Markets of this type are called

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters