Question 1

Which of the following statements is true of perfect competition?

Accepted Answer

A)  The outcome in a perfectly competitive market is Pareto inefficient. 
B)  The total value of production across a perfectly competitive industry is maximized. 
C)  Firms under perfect competition produce at a point where price is greater than marginal cost. 
D)  Consumers in a competitive market purchase at a point where marginal utility is greater than price. 
A)  The outcome in a perfectly competitive market is Pareto inefficient. 
B)  The total value of production across a perfectly competitive industry is maximized. 
C)  Firms under perfect competition produce at a point where price is greater than marginal cost. 
D)  Consumers in a competitive market purchase at a point where marginal utility is greater than price.

Question 2

Scenario: The rare earth element neodymium is one of the essential ingredients in the magnets used in computer hard drives and loudspeakers, among many other devices. The figures below shows a hypothetical pictures of supply and demand for neodymium, loudspeakers, and computer hard drives. The latter two are accompanied by the pictures of cost curves for a typical firm in those markets. Initially, all markets are in the long-run equilibrium at the prices shown. Then a surge in demand for loudspeakers takes place due to a rapidly increasing popularity of hi-fidelity audio equipment in China. This will cause a change in the loudspeaker market (Step 1), which in turn causes a change in the neodymium market (Step 2), which will cause a change in the hard drive market and the loudspeaker market (Step 3), and so on.
  
-Refer to the scenario above.Taking into account the reaction of the neodymium market in Step 2,what is expected to happen in the loudspeaker market (in Step 3)?

Accepted Answer

A)  The cost will rise, but the market will remain at the initial equilibrium. 
B)  The cost will fall, and there will be an increase in the quantity supplied due to higher price. 
C)  The cost will rise, but the supply may increase due to entry. 
D)  The cost will fall, but the supply may decrease due to exit. 
A)  The cost will rise, but the market will remain at the initial equilibrium. 
B)  The cost will fall, and there will be an increase in the quantity supplied due to higher price. 
C)  The cost will rise, but the supply may increase due to entry. 
D)  The cost will fall, but the supply may decrease due to exit.

Question 3

The following figure shows the marginal cost curves of two profit-maximizing firms-Firm A and Firm B-in a perfectly competitive market.
  
-Refer to the figure above.Which of the following statements is true?

Accepted Answer

A)  Firm A produces at a lower marginal cost. 
B)  For a particular market price, Firm A will enjoy a greater producer surplus. 
C)  Firm B will have a higher reservation value than Firm A. 
D)  The profit-maximizing level of output of Firm B will be greater than that of Firm A at all prices. 
A)  Firm A produces at a lower marginal cost. 
B)  For a particular market price, Firm A will enjoy a greater producer surplus. 
C)  Firm B will have a higher reservation value than Firm A. 
D)  The profit-maximizing level of output of Firm B will be greater than that of Firm A at all prices.

Question 4

Scenario: There are two firms producing ballpoint pens in a perfectly competitive industry. The market price of one pen is $5. Firm A has a lower marginal cost than Firm B. The following graphs illustrate the marginal cost curves of both firms.
  
-Refer to the scenario above.If the government enforces a ban on Firm B and asks Firm A to carry out all production,________.

Accepted Answer

A)  Firm A's marginal cost is likely to decrease, but its average cost is likely to increase 
B)  Firm A's marginal cost and average cost are likely to decrease 
C)  Firm A's marginal cost is likely to increase, but its average cost is likely to decrease 
D)  Firm A's marginal cost and average cost are likely to increase 
A)  Firm A's marginal cost is likely to decrease, but its average cost is likely to increase 
B)  Firm A's marginal cost and average cost are likely to decrease 
C)  Firm A's marginal cost is likely to increase, but its average cost is likely to decrease 
D)  Firm A's marginal cost and average cost are likely to increase

Question 5

The entry of new firms into a perfectly competitive market will cause a(n)________.

Accepted Answer

A)  increase in the profitability of existing firms 
B)  decrease in the profitability of existing firms 
C)  leftward shift of the demand curve of the good being produced by the firms 
D)  rightward shift of the demand curve of the good being produced by the firms 
A)  increase in the profitability of existing firms 
B)  decrease in the profitability of existing firms 
C)  leftward shift of the demand curve of the good being produced by the firms 
D)  rightward shift of the demand curve of the good being produced by the firms

Question 6

If firms in a perfectly competitive industry are experiencing losses in the short run,we would expect firms to exit this industry and cause the market supply curve to ________.

Accepted Answer

A)  shift left until Price = Minimum average total cost 
B)  shift left until Price = Minimum average variable cost 
C)  shift right until Price = Minimum average total cost 
D)  shift right until Price = Minimum average variable cost 
A)  shift left until Price = Minimum average total cost 
B)  shift left until Price = Minimum average variable cost 
C)  shift right until Price = Minimum average total cost 
D)  shift right until Price = Minimum average variable cost

Question 7

Imagine that the economy resembles a pie.In this analogy,________ concerns with growing the size of the pie,while ________ concerns with how the pie if distributed among the people.

Accepted Answer

A)  equity; efficiency 
B)  equity; optimization 
C)  efficiency; optimization 
D)  efficiency; equity 
A)  equity; efficiency 
B)  equity; optimization 
C)  efficiency; optimization 
D)  efficiency; equity

Question 8

If a new production process is developed that allows firms to produce the same output with fewer inputs,then the prices of the inputs ________.

Accepted Answer

A)  will rise due to increased supply of the inputs 
B)  may rise due to increased production by existing firms and new firms' entry 
C)  will fall due to increased demand for the inputs 
D)  may fall due to decreased production by existing firms and/or exit 
A)  will rise due to increased supply of the inputs 
B)  may rise due to increased production by existing firms and new firms' entry 
C)  will fall due to increased demand for the inputs 
D)  may fall due to decreased production by existing firms and/or exit

Question 9

Suppose you are a seller in a a double oral auction,and your reservation value is $10.What should you do?

Accepted Answer

A)  You should accept a "bid" for $12. 
B)  You should accept an "ask" for $12. 
C)  You should accept a "bid" for $8. 
D)  You should accept an "ask" for $8. 
A)  You should accept a "bid" for $12. 
B)  You should accept an "ask" for $12. 
C)  You should accept a "bid" for $8. 
D)  You should accept an "ask" for $8.

Question 10

Differentiate between double oral auctions and bilateral negotiations.

Accepted Answer

A double oral auction is an auction mech

Question 11

Imagine an economy where the government allocates resources among its citizens.Recently,the government divided $1,000 among ten citizens.The amount each citizen received is displayed in the following table.
   
a)The government claims that this is an efficient allocation.Do you agree?
b)Social workers in the economy criticized the government on the basis of this allocation.What could be the grounds for such criticism?

Accepted Answer

a)Yes,the allocation made by the governm

Question 12

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market.
  
-Refer to the figure above.How low can the price in this market go for this firm to still be able to operate in the long run?

Accepted Answer

A)  $3 
B)  $4 
C)  $5 
D)  $0 
A)  $3 
B)  $4 
C)  $5 
D)  $0

Question 13

If a seller's marginal cost is $25 and the price at which the good is sold is $15,the producer surplus is ________.

Accepted Answer

A)  −$10 
B)  $10 
C)  $15 
D)  $25 
A)  −$10 
B)  $10 
C)  $15 
D)  $25

Question 14

Define a Pareto efficient outcome.Does it ensure equity? Explain with an example.

Accepted Answer

An outcome is said to be Pareto efficien

Question 15

The following figure shows the demand and supply curves for bottled water.
  
-Refer to the figure above.If a price control is imposed at $8,what is the deadweight loss?

Accepted Answer

A)  $10 
B)  $50 
C)  $65 
D)  $85 
A)  $10 
B)  $50 
C)  $65 
D)  $85

Question 16

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market.
  
-Refer to the graph above.At the competitive equilibrium price in this market,Firm 1 produces ________ compared to Firm 2,and will get ________ in producer surplus.

Accepted Answer

A)  more; more 
B)  more; less 
C)  less; more 
D)  less; less 
A)  more; more 
B)  more; less 
C)  less; more 
D)  less; less

Question 17

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook.
  
-Refer to the table above.If the market is perfectly competitive,what is Buyer 3's consumer surplus?

Accepted Answer

A)  $0 
B)  −$1 
C)  $1 
D)  $2 
A)  $0 
B)  −$1 
C)  $1 
D)  $2

Question 18

Scenario: The table below lists the willingness to pay for ten potential buyers of a Walter Payton rookie card and the willingness to accept for ten potential sellers of the card. (Walter Payton was a running back for the NFL's Chicago Bears from 1985 to 1987 and was elected into the NFL's Hall of Fame in 1993.) The graph below the table can be used to display the demand and supply schedules.

-Refer to the scenario above.In the completed graph,what is the equilibrium price for Walter Payton rookie cards in this market? Explain your choice.

Accepted Answer

A)  $120 
B)  $130 
C)  Either $140 or $150 
D)  $160 
A)  $120 
B)  $130 
C)  Either $140 or $150 
D)  $160

Question 19

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook.
  
-Refer to the table above.When the price is ________ and the quantity is ________,social surplus is maximized.

Accepted Answer

A)  $8; 5 units 
B)  $6; 4 units 
C)  $4; 4 units 
D)  $2; 8 units 
A)  $8; 5 units 
B)  $6; 4 units 
C)  $4; 4 units 
D)  $2; 8 units

Question 20

The following figure shows the demand and supply curves for a good. The initial demand curve is D₁ and the supply curve is S. Later, due to an external shock, the demand curve shifts to D₂.
  
-Refer to the figure above.What is the initial equilibrium quantity of the good?

Accepted Answer

A)  20 units 
B)  30 units 
C)  35 units 
D)  50 units 
A)  20 units 
B)  30 units 
C)  35 units 
D)  50 units

Which of the following statements is true of perfect competition?

The following figure shows the marginal cost curves of two profit-maximizing firms-Firm A and Firm B-in a perfectly competitive market. -Refer to the figure above.Which of the following statements is true?

The entry of new firms into a perfectly competitive market will cause a(n)________.

If firms in a perfectly competitive industry are experiencing losses in the short run,we would expect firms to exit this industry and cause the market supply curve to ________.

Imagine that the economy resembles a pie.In this analogy, concerns with growing the size of the pie,while concerns with how the pie if distributed among the people.

If a new production process is developed that allows firms to produce the same output with fewer inputs,then the prices of the inputs ________.

Suppose you are a seller in a a double oral auction,and your reservation value is $10.What should you do?

Differentiate between double oral auctions and bilateral negotiations.

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market. -Refer to the figure above.How low can the price in this market go for this firm to still be able to operate in the long run?

If a seller's marginal cost is $25 and the price at which the good is sold is $15,the producer surplus is ________.

Define a Pareto efficient outcome.Does it ensure equity? Explain with an example.

The following figure shows the demand and supply curves for bottled water. -Refer to the figure above.If a price control is imposed at $8,what is the deadweight loss?

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market. -Refer to the graph above.At the competitive equilibrium price in this market,Firm 1 produces compared to Firm 2,and will get in producer surplus.

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook. -Refer to the table above.If the market is perfectly competitive,what is Buyer 3's consumer surplus?

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook. -Refer to the table above.When the price is and the quantity is ,social surplus is maximized.

The following figure shows the demand and supply curves for a good. The initial demand curve is D₁ and the supply curve is S. Later, due to an external shock, the demand curve shifts to D₂. -Refer to the figure above.What is the initial equilibrium quantity of the good?

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

Filters

Exam 7: Perfect Competition and the Invisible Hand

Which of the following statements is true of perfect competition?

The following figure shows the marginal cost curves of two profit-maximizing firms-Firm A and Firm B-in a perfectly competitive market. -Refer to the figure above.Which of the following statements is true?

The entry of new firms into a perfectly competitive market will cause a(n)________.

If firms in a perfectly competitive industry are experiencing losses in the short run,we would expect firms to exit this industry and cause the market supply curve to ________.

Imagine that the economy resembles a pie.In this analogy,________ concerns with growing the size of the pie,while ________ concerns with how the pie if distributed among the people.

If a new production process is developed that allows firms to produce the same output with fewer inputs,then the prices of the inputs ________.

Suppose you are a seller in a a double oral auction,and your reservation value is $10.What should you do?

Differentiate between double oral auctions and bilateral negotiations.

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market. -Refer to the figure above.How low can the price in this market go for this firm to still be able to operate in the long run?

If a seller's marginal cost is $25 and the price at which the good is sold is $15,the producer surplus is ________.

Define a Pareto efficient outcome.Does it ensure equity? Explain with an example.

The following figure shows the demand and supply curves for bottled water. -Refer to the figure above.If a price control is imposed at $8,what is the deadweight loss?

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market. -Refer to the graph above.At the competitive equilibrium price in this market,Firm 1 produces ________ compared to Firm 2,and will get ________ in producer surplus.

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook. -Refer to the table above.If the market is perfectly competitive,what is Buyer 3's consumer surplus?

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook. -Refer to the table above.When the price is ________ and the quantity is ________,social surplus is maximized.

The following figure shows the demand and supply curves for a good. The initial demand curve is D₁ and the supply curve is S. Later, due to an external shock, the demand curve shifts to D₂. -Refer to the figure above.What is the initial equilibrium quantity of the good?

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

Filters

Imagine that the economy resembles a pie.In this analogy, concerns with growing the size of the pie,while concerns with how the pie if distributed among the people.

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market. -Refer to the graph above.At the competitive equilibrium price in this market,Firm 1 produces compared to Firm 2,and will get in producer surplus.

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook. -Refer to the table above.When the price is and the quantity is ,social surplus is maximized.