Exam 7: Perfect Competition and the Invisible Hand

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 equilibrium price after the demand curve shifts to D₂?

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.What is Seller 3's producer surplus?

The following table displays the reservation values of eight buyers and eight sellers, who each want to buy or sell a calculator. -Refer to the table above.If the market is perfectly competitive,the equilibrium price of calculators is ________.

Producer surplus is the ________.

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive industry. -Refer to the figure above.What is the maximum profit that the firm can make?

What is likely to happen to the allocation of resources if there is a sudden increase in the demand for a good produced by a perfectly competitive industry?

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 six highest-value buyers and the six lowest-cost sellers engage in trade,what is the social surplus?

A firm owns two production plants. The following figures depict the cost curves for each plant. One homogenous good is produced in both plants. -Refer to the figure above.In the short run,if the market price is $4,the firm should ________.

The existence of positive profits in a perfectly competitive industry ________.

Efficiency in competitive markets is characterized by ________.

The following figure shows the demand and supply curves for bottled water. -Refer to the figure above.What is the producer surplus in the market?

The following figure illustrates the demand and supply curves for a good. -Refer to the figure above.What is the equilibrium price and quantity of the good?

The following table displays the reservation values of eight buyers and eight sellers, who each want to buy or sell a calculator. You are in charge of deciding which buyer trades (or not) with which seller at what price as you see fit. You could prescribe different prices to each pair of a buyer and a seller. -Refer to the table above.Suppose you want every buyer to be able to get a calculator without paying more than his or her reservation value.Is it possible? If so,what would be the total surplus?

The concept of the invisible hand suggests that ________.

Take a deck of playing cards and remove the aces,jacks,queens,and kings.Imagine that any remaining card in the deck is a single individual,either a seller or a consumer,and all are gathered at a single perfectly competitive market.Red cards are sellers,and black cards are consumers.The number on a card indicates the individual's reservation price.Each seller owns a single unit of an indivisible good.Each consumer can buy at most one unit of the good from a seller.The invisible hand predicts that the market outcome will be ________.

The tables below show reservation values of buyers and sellers in a market. There are three buyers and two sellers. Each buyer's reservation values for the fourth unit and above are negative, and each seller can produce at most four units. -Refer to the tables above.Suppose that the price is $31 per unit.What is the sum of the three buyers' surplus? What is the sum of the two sellers' surplus? What is the social surplus?

The tables below show reservation values of buyers and sellers in a market. There are three buyers and two sellers. Each buyer's reservation values for the fourth unit and above are negative, and each seller can produce at most four units. -Refer to the tables above.How many units does each buyer buy,and how many units does each seller sell at the equilibrium?

The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive market. All of the other firms in this market have a cost structure similar to this firm's. -Refer to the figure above.Suppose the price in this market is $3.We expect ________.

Which of the following statements is true?

Scenario: The figure on the left shows the demand for fuel by Lisa and Nick during ordinary times. Assume that Lisa and Nick are the only consumers. In the figure on the right, D₀ is the market demand, and S₀ is the supply in ordinary times in the town. Then a hurricane hits the town. The acute needs for fuel to operate electric generators pushes the demand to D₁. Meanwhile, the supply plummets to S₁ because some of the fuel storage tanks owned by the town seller have been damaged by the storm. This pushes the price up to $5 per liter and only Lisa can afford some fuel. Suppose that fuel sellers outside the affected area have a cost of production such that MC = ATC at $2.50 per liter, which includes the cost of transporting the fuel under hazardous conditions. -Refer to the scenario above.Suppose that,in addition to an anti price gouging law prohibiting private sellers to sell fuel in town at price above $1.75,the town council decided to buy the fuel from private sellers at $1.75,using the tax revenue,so the council can distribute it to Lisa and Nick.Will this government action alleviate the situation?