Exam 7: Perfect Competition and the Invisible Hand

Using bilateral negotiation auctions,economist John List found that ________.

The following graph represents the market for a certain good. -Refer to the graph above.Which of the following is true?

$100 is to be divided among two individuals-Mary and Jenna.Which of the following allocations is Pareto efficient?

Suppose a market has only one seller and only one buyer of a good.The buyer has a reservation value of $25 and the seller has a reservation value of $15.The market price of the good is determined to be $20.If they trade,the social surplus will be ________.

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. -Refer to the scenario above.Given the quantity of bats each facility produces under the new owner's advice to maximize profits by producing until Marginal Cost = Price at each facility,what are the firm's profits? Compare your answer to the profits made under the old owner.

Scenario: The scenario above changes, because an increase in the wages of workers at Plant 2 causes marginal costs and average total costs at Plant 2 to rise: Plant 2: New marginal cost: MC₂ = 20 + 2Q, Plant 2: Average total cost: ATC₂ = 20 + Q. Costs at Plant 1 do not change. -Refer to the scenario above.Given costs have changed at Plant 2,what are the firm's total profits now that is maximizing profits but facing different costs at each facility? Explain your answer.

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.What is expected to happen in the loudspeaker market after the surge in demand for loudspeakers (in Step 1)?

Scenario: Keeping beef prices low makes the Argentine government popular among lower income urban voters, whose food costs use up a substantial portion of their incomes. So the Argentine government imposes a price ceiling of 60 pesos per kilo on retail beef. -Refer to the scenario above.At this price control price,consumers demand ________ million kilos of beef,but suppliers are willing to supply only ________ million kilos,so there is ________ of ________ million kilos of beef.

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.Maximum social surplus is ________.

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

If a buyer's reservation value for a good is $15 and the price at which he purchases the good is $8,his consumer surplus is ________.

Which of the following statements is true?

The following figure shows the demand and supply curves for bottled water. -Refer to the figure above.What is the equilibrium quantity of bottled water?

The following figure depicts the short-run cost curves of a perfectly competitive firm. -Refer to the figure above.A firm could choose to produce a quantity of 60 in the long run if ________.

In a competitive market,a binding price ceiling causes ________ by ________.

Scenario: Suppose a competitive market has ten buyers and ten sellers. The product exchanged in this market is beach hats, which are indivisible. The following table shows the reservation values for both buyers and sellers. -Refer to the scenario above.Suppose the equilibrium price in this market is $10.What is the amount of producer surplus in this market?

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. -Under the owner's demand to equalize profit at each facility,total profits across the two plants are such that the firm ________.Explain your answer.

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 both firms operate without government intervention,________.

The following figure depicts the market for a certain good. -Refer to the figure above.For what price would a price floor policy create a deadweight loss of $10?

For social surplus to be maximized,the ________ buyers are actually making a purchase and the ________ sellers are selling the products.