Question 1

Which of the following statements differentiates between a shortage and a surplus?

Accepted Answer

A)  A shortage occurs when price is held at the equilibrium price, but a surplus occurs when price is held above the equilibrium price. 
B)  A shortage occurs when price is held below the equilibrium price, but a surplus occurs when price is held at the equilibrium price. 
C)  A shortage occurs when quantity supplied exceeds quantity demanded, whereas a surplus occurs when quantity demanded exceeds quantity supplied. 
D)  A shortage occurs when quantity demanded exceeds quantity supplied, whereas a surplus occurs when quantity supplied exceeds quantity demanded. 
A)  A shortage occurs when price is held at the equilibrium price, but a surplus occurs when price is held above the equilibrium price. 
B)  A shortage occurs when price is held below the equilibrium price, but a surplus occurs when price is held at the equilibrium price. 
C)  A shortage occurs when quantity supplied exceeds quantity demanded, whereas a surplus occurs when quantity demanded exceeds quantity supplied. 
D)  A shortage occurs when quantity demanded exceeds quantity supplied, whereas a surplus occurs when quantity supplied exceeds quantity demanded.

Question 2

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.Which of the following statements is true?

Accepted Answer

A)  If the production of both firms is equal, social surplus increases. 
B)  No government intervention is required to reach the optimal outcome. 
C)  At the optimal level of production, total costs of production are maximized. 
D)  Even though both firms have different marginal costs, the optimal quantity produced will be the same for both firms. 
A)  If the production of both firms is equal, social surplus increases. 
B)  No government intervention is required to reach the optimal outcome. 
C)  At the optimal level of production, total costs of production are maximized. 
D)  Even though both firms have different marginal costs, the optimal quantity produced will be the same for both firms.

Question 3

Which of the following statements is true?

Accepted Answer

A)  In cases of auctions and bilateral negotiations, prices tend to approach the competitive equilibrium. 
B)  Bilateral negotiations allow a single buyer and a single seller to privately negotiate with bids and asks. 
C)  In auctions, buyers prefer buying from sellers with the highest ask prices. 
D)  In auctions, sellers prefer selling to buyers with the lowest bid prices. 
A)  In cases of auctions and bilateral negotiations, prices tend to approach the competitive equilibrium. 
B)  Bilateral negotiations allow a single buyer and a single seller to privately negotiate with bids and asks. 
C)  In auctions, buyers prefer buying from sellers with the highest ask prices. 
D)  In auctions, sellers prefer selling to buyers with the lowest bid prices.

Question 4

The following figure shows the supply and demand for Uber rides in downtown Miami. On New Year's Eve the demand for Uber rides in downtown increases significantly.
  
-Refer to the figure above.Which statement is true?

Accepted Answer

A)  The line D₁ represents the demand on ordinary days, and the the line D₂ represents demand on New Year's Eve. 
B)  The Uber fare on New Year's Eve is kept lower than its equilibrium amount. 
C)  There will be a shortage of Uber rides in downtown Miami if this market is left unregulated. 
D)  There will be a surplus of Uber rides in downtown Miami on New Year's Eve. 
A)  The line D₁ represents the demand on ordinary days, and the the line D₂ represents demand on New Year's Eve. 
B)  The Uber fare on New Year's Eve is kept lower than its equilibrium amount. 
C)  There will be a shortage of Uber rides in downtown Miami if this market is left unregulated. 
D)  There will be a surplus of Uber rides in downtown Miami on New Year's Eve.

Question 5

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market.
  
-Refer to the graph above.If the equilibrium price in this market is $5,Firm 1's producer surplus is equal ________,and Firm 2's producer surplus is equal ________.

Accepted Answer

A)  $24; $16 
B)  $24; $40 
C)  $12; $24 
D)  $14; $8 
A)  $24; $16 
B)  $24; $40 
C)  $12; $24 
D)  $14; $8

Question 6

If a firm faces an average total cost of $100 and sells its product for $115,how much profit does it make when it sells 20 units of the product?

Accepted Answer

A)  $200 
B)  $115 
C)  $300 
D)  $800 
A)  $200 
B)  $115 
C)  $300 
D)  $800

Question 7

Scenario: A small firm manufactures maple baseball bats in two small production facilities, with the following marginal cost and average total cost equations:
Plant 1: Marginal cost: MC₁ = 10 + 2Q,
Plant 1: Average total cost: ATC₁ = 10 + Q.
Plant 2: Marginal cost: MC₂ = 10 + 2Q,
Plant 2: Average total cost: ATC₂ = 10 + Q.
  
-The owner of this firm insists that each bat-manufacturing facility produce the same number of bats.Under this requirement,how many bats are produced at each facility? Explain your answer.

Accepted Answer

A)  40 
B)  45 
C)  80 
D)  90 
A)  40 
B)  45 
C)  80 
D)  90

Question 8

When one individual holds all the wealth of a country,this situation is ________.

Accepted Answer

A)  Pareto efficient but not equitable 
B)  not Pareto efficient but equitable 
C)  not Pareto efficient and not equitable 
D)  Pareto efficient and equitable 
A)  Pareto efficient but not equitable 
B)  not Pareto efficient but equitable 
C)  not Pareto efficient and not equitable 
D)  Pareto efficient and equitable

Question 9

Which of the following statements is true?

Accepted Answer

A)  imposes taxes only on goods with elastic demand curves 
B)  eliminates the excess burden of taxation 
C)  minimizes the excess burden for any given amount of tax revenue 
D)  does not redistribute wealth 
A)  imposes taxes only on goods with elastic demand curves 
B)  eliminates the excess burden of taxation 
C)  minimizes the excess burden for any given amount of tax revenue 
D)  does not redistribute wealth

Question 10

The following figure illustrates the demand and supply curves in the market for watches.Calculate the shortage or surplus in the market when the price is first held at $20 and then at $40.

Accepted Answer

The equilibrium price in the figure is $

Question 11

Which of the following statements is true?

Accepted Answer

A)  Social planners are only concerned with efficiency and not equity. 
B)  Social planners are only concerned with equity and not efficiency. 
C)  For some, efficiency means an even distribution of goods across society. 
D)  For some, equity means an even distribution of goods across society. 
A)  Social planners are only concerned with efficiency and not equity. 
B)  Social planners are only concerned with equity and not efficiency. 
C)  For some, efficiency means an even distribution of goods across society. 
D)  For some, equity means an even distribution of goods across society.

Question 12

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 decided that Buyer 1 and Seller 1 trade at the price that is exactly halfway between their reservation values.Also Buyer 2 and Seller 2,Buyer 3 and Seller 3,Buyer 4 and Seller 4,and Buyer 5 and Seller 5 do the same.The outcome will be ________.Buyer ________ has the largest net benefit of ________.Buyer ________ has the smallest net benefit of ________.

Accepted Answer

A)  efficient; 1; $9; 5; $0 
B)  efficient; 1; $18; 5; $0 
C)  efficient; 1; $18; 5; $12 
D)  inefficient; 1; $12; 5; $12 
A)  efficient; 1; $9; 5; $0 
B)  efficient; 1; $18; 5; $0 
C)  efficient; 1; $18; 5; $12 
D)  inefficient; 1; $12; 5; $12

Question 13

When positive economic profits exist in an industry,________.

Accepted Answer

A)  the market price of the good produced by the industry is less than the average total cost of the industry 
B)  resources flow from less productive uses to that particular industry 
C)  there is an exit of firms from the industry 
D)  the market price of the good produced by the industry is less than the marginal cost faced by the industry 
A)  the market price of the good produced by the industry is less than the average total cost of the industry 
B)  resources flow from less productive uses to that particular industry 
C)  there is an exit of firms from the industry 
D)  the market price of the good produced by the industry is less than the marginal cost faced by the industry

Question 14

Scenario: A manufacturing firm operates three plants with the marginal cost curves shown in the figure and the average total costs summarized in the table below.

-Refer to the scenario above.If the market price of the firm's product is $50 per 100 kg,which plant(s)should be used to produce the good?

Accepted Answer

A)  Plants 1 and 2 
B)  Plant 1 only 
C)  Plant 2 only 
D)  No plant. The firm should exit the market. 
A)  Plants 1 and 2 
B)  Plant 1 only 
C)  Plant 2 only 
D)  No plant. The firm should exit the market.

Question 15

Which of the following statements is true of competitive market equilibrium?

Accepted Answer

A)  The determination of equilibrium price and quantity is independent of the demand for goods. 
B)  Social surplus is minimized at the competitive equilibrium. 
C)  At the competitive equilibrium, there are no unexploited gains from trade. 
D)  A competitive equilibrium is determined only by a few large sellers in the market. 
A)  The determination of equilibrium price and quantity is independent of the demand for goods. 
B)  Social surplus is minimized at the competitive equilibrium. 
C)  At the competitive equilibrium, there are no unexploited gains from trade. 
D)  A competitive equilibrium is determined only by a few large sellers in the market.

Question 16

The decrease in social surplus from a market distortion is referred to as ________.

Accepted Answer

A)  deadweight loss 
B)  market loss 
C)  revenue loss 
D)  Pareto loss 
A)  deadweight loss 
B)  market loss 
C)  revenue loss 
D)  Pareto loss

Question 17

The reservation value of a seller reflects her ________.

Accepted Answer

A)  willingness to pay for using a resource 
B)  marginal cost 
C)  marginal revenue 
D)  total cost 
A)  willingness to pay for using a resource 
B)  marginal cost 
C)  marginal revenue 
D)  total cost

Question 18

If firms in a perfectly competitive industry are earning positive economic profits in the short run,we would expect firms to enter 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 19

The following graph represents the market for a certain good.
  
-Refer to the graph above.What is the price when the market outcome is Pareto efficient?

Accepted Answer

A)  7 
B)  5 
C)  3 
D)  1 
A)  7 
B)  5 
C)  3 
D)  1

Question 20

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.Assuming a market price of $140 per card,consumer surplus in this market is ________.

Accepted Answer

A)  $100 
B)  $125 
C)  $150 
D)  $250 
A)  $100 
B)  $125 
C)  $150 
D)  $250

Which of the following statements differentiates between a shortage and a surplus?

Which of the following statements is true?

The following figure shows the supply and demand for Uber rides in downtown Miami. On New Year's Eve the demand for Uber rides in downtown increases significantly. -Refer to the figure above.Which statement is true?

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market. -Refer to the graph above.If the equilibrium price in this market is $5,Firm 1's producer surplus is equal ,and Firm 2's producer surplus is equal .

If a firm faces an average total cost of $100 and sells its product for $115,how much profit does it make when it sells 20 units of the product?

When one individual holds all the wealth of a country,this situation is ________.

Which of the following statements is true?

The following figure illustrates the demand and supply curves in the market for watches.Calculate the shortage or surplus in the market when the price is first held at $20 and then at $40.

Which of the following statements is true?

When positive economic profits exist in an industry,________.

Scenario: A manufacturing firm operates three plants with the marginal cost curves shown in the figure and the average total costs summarized in the table below. -Refer to the scenario above.If the market price of the firm's product is $50 per 100 kg,which plant(s)should be used to produce the good?

Which of the following statements is true of competitive market equilibrium?

The decrease in social surplus from a market distortion is referred to as ________.

The reservation value of a seller reflects her ________.

If firms in a perfectly competitive industry are earning positive economic profits in the short run,we would expect firms to enter this industry and cause the market supply curve to ________.

The following graph represents the market for a certain good. -Refer to the graph above.What is the price when the market outcome is Pareto efficient?

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 differentiates between a shortage and a surplus?

Which of the following statements is true?

The following figure shows the supply and demand for Uber rides in downtown Miami. On New Year's Eve the demand for Uber rides in downtown increases significantly. -Refer to the figure above.Which statement is true?

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market. -Refer to the graph above.If the equilibrium price in this market is $5,Firm 1's producer surplus is equal ________,and Firm 2's producer surplus is equal ________.

If a firm faces an average total cost of $100 and sells its product for $115,how much profit does it make when it sells 20 units of the product?

When one individual holds all the wealth of a country,this situation is ________.

Which of the following statements is true?

The following figure illustrates the demand and supply curves in the market for watches.Calculate the shortage or surplus in the market when the price is first held at $20 and then at $40.

Which of the following statements is true?

When positive economic profits exist in an industry,________.

Which of the following statements is true of competitive market equilibrium?

The decrease in social surplus from a market distortion is referred to as ________.

The reservation value of a seller reflects her ________.

If firms in a perfectly competitive industry are earning positive economic profits in the short run,we would expect firms to enter this industry and cause the market supply curve to ________.

The following graph represents the market for a certain good. -Refer to the graph above.What is the price when the market outcome is Pareto efficient?

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

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market. -Refer to the graph above.If the equilibrium price in this market is $5,Firm 1's producer surplus is equal ,and Firm 2's producer surplus is equal .