Question 1

Efficiency is achieved in competitive markets because ________.

Accepted Answer

A)  producer surplus is maximized 
B)  consumer surplus is maximized 
C)  social surplus is maximized (the economic pie is made as large as possible) 
D)  deadweight loss is maximized 
A)  producer surplus is maximized 
B)  consumer surplus is maximized 
C)  social surplus is maximized (the economic pie is made as large as possible) 
D)  deadweight loss is maximized

Question 2

Equity refers to ________.

Accepted Answer

A)  Minimizing deadweight loss 
B)  Ensuring that all producer surplus is transferred to consumers 
C)  Making the economic pie as large as possible 
D)  Distributing resources across society (how the economic pie is divided) 
A)  Minimizing deadweight loss 
B)  Ensuring that all producer surplus is transferred to consumers 
C)  Making the economic pie as large as possible 
D)  Distributing resources across society (how the economic pie is divided)

Question 3

The following figure depicts the short-run cost curves of a perfectly competitive firm.
  
-Refer to the figure above.Should the market price fall to $4,this film will ________.

Accepted Answer

A)  shut down immediately and make zero profit 
B)  shut down immediately and suffer a loss equal to its fixed costs 
C)  continue operating in the short run and suffer a loss that is less than its fixed costs 
D)  produce 60 units and cover exactly its variable cost 
A)  shut down immediately and make zero profit 
B)  shut down immediately and suffer a loss equal to its fixed costs 
C)  continue operating in the short run and suffer a loss that is less than its fixed costs 
D)  produce 60 units and cover exactly its variable cost

Question 4

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 revenue of the firm when it sells the profit-maximizing level of output?

Accepted Answer

A)  $40 
B)  $160 
C)  $180 
D)  $240 
A)  $40 
B)  $160 
C)  $180 
D)  $240

Question 5

A market economy produces the optimal amount of each good at least cost when ________.

Accepted Answer

A)  P > ATC 
B)  P = ATC 
C)  P > AVC 
D)  P = MR 
A)  P > ATC 
B)  P = ATC 
C)  P > AVC 
D)  P = MR

Question 6

When existing firms leave a perfectly competitive industry,________.

Accepted Answer

A)  the equilibrium price decreases, and the equilibrium quantity increases 
B)  the equilibrium price increases, and the equilibrium quantity decreases 
C)  both the equilibrium price and quantity increase 
D)  both the equilibrium price and quantity decrease 
A)  the equilibrium price decreases, and the equilibrium quantity increases 
B)  the equilibrium price increases, and the equilibrium quantity decreases 
C)  both the equilibrium price and quantity increase 
D)  both the equilibrium price and quantity decrease

Question 7

Scenario: The retail market for beef in Argentina is given by the following demand and supply schedules, where the price is in Argentine pesos per kilo and the quantity is millions of kilos per year.
Demand: QD = 220 P,
Supply: QS = 20 + P.
  
-Refer to the scenario above.The market equilibrium quantity is ________ million kilos of beef per year and the market equilibrium price is ________ pesos per kilo.

Accepted Answer

A)  80; 140 
B)  100; 120 
C)  60; 80 
D)  None of the above 
A)  80; 140 
B)  100; 120 
C)  60; 80 
D)  None of the above

Question 8

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 computer hard drive 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 fall, and there will be an increase in supply due to entry. 
D)  The cost will rise, and there will be a decrease in supply 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 fall, and there will be an increase in supply due to entry. 
D)  The cost will rise, and there will be a decrease in supply due to exit.

Question 9

The following table displays the reservation values of 10 sellers and 10 buyers in a market for cameras where each individual wants to buy or sell one camera.
   
a)What is the equilibrium price and quantity of cameras?
b)What is the social surplus when four highest-value buyers trade with four lowest-cost sellers?
c)What is the social surplus when eight highest-value buyers trade with eight lowest-cost sellers?
d)What is the highest possible social surplus in the market? At what quantity does it occur?

Accepted Answer

a)The equilibrium price is determined at

Question 10

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.The market equilibrium quantity is ________.

Accepted Answer

A)  4 
B)  5 
C)  6 
D)  7 
A)  4 
B)  5 
C)  6 
D)  7

Question 11

Social surplus is the consumer surplus ________.

Accepted Answer

A)  multiplied by the producer surplus 
B)  minus the producer surplus 
C)  divided by the producer surplus 
D)  plus the producer surplus 
A)  multiplied by the producer surplus 
B)  minus the producer surplus 
C)  divided by the producer surplus 
D)  plus the producer surplus

Question 12

Which of the following is likely to happen if the government imposes a price control at $60,when the demand curve shifts to D₂?

Accepted Answer

A)  There will be a shortage of 15 units of the good in the market. 
B)  There will be a surplus of 15 units of the good in the market. 
C)  There will be a shortage of 10 units of the good in the market. 
D)  There will be a surplus of 10 units of the good in the market. 
A)  There will be a shortage of 15 units of the good in the market. 
B)  There will be a surplus of 15 units of the good in the market. 
C)  There will be a shortage of 10 units of the good in the market. 
D)  There will be a surplus of 10 units of the good in the market.

Question 13

What are the key functions of the equilibrium price in a perfectly competitive market?

Accepted Answer

There are three key functions of equilib

Question 14

Positive economic profits in a perfectly competitive market imply that ________.

Accepted Answer

A)  producers are earning more than their opportunity cost 
B)  existing firms are likely to leave the market 
C)  the cost of production is equalized across producers 
D)  government intervention is required to stabilize the market 
A)  producers are earning more than their opportunity cost 
B)  existing firms are likely to leave the market 
C)  the cost of production is equalized across producers 
D)  government intervention is required to stabilize the market

Question 15

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.,but only 2 hats are allowed to be exchanged in this market.What is the amount of social surplus in this market under this restriction?

Accepted Answer

A)  $20 
B)  $10 
C)  $26 
D)  $29 
A)  $20 
B)  $10 
C)  $26 
D)  $29

Question 16

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 $80 per 100 kg,which plants should be used to produce the good?

Accepted Answer

A)  Plants 1 and 2 
B)  Plants 2 and 3 
C)  Plants 1 and 3 
D)  All plants 
A)  Plants 1 and 2 
B)  Plants 2 and 3 
C)  Plants 1 and 3 
D)  All plants

Question 17

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 a price floor of $12 is imposed on this market.,which does not allow the price of hats drop below $12.Under this restriction,________ hats are exchanged in this market,and the social surplus will be ________.

Accepted Answer

A)  4; $41 
B)  6; $38 
C)  6; $29 
D)  2; $40 
A)  4; $41 
B)  6; $38 
C)  6; $29 
D)  2; $40

Question 18

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 loss in producer surplus?

Accepted Answer

A)  $30 
B)  $60 
C)  $90 
D)  $120 
A)  $30 
B)  $60 
C)  $90 
D)  $120

Question 19

Suppose that,recognizing that an efficient market outcome may not be equitable,a central planner announces that each agent's net benefit (the difference between the reservation value and the price paid)beyond a certain amount will be taken away and redistributed to other agents whose net benefit is below the specified level.This policy is expected to produce ________.

Accepted Answer

A)  an efficient outcome where every agent has the same net benefit 
B)  an efficient outcome where every agent has 0 net benefit 
C)  an inefficient outcome where no trade will occur 
D)  an inefficient outcome where trades will occur at the higher price than at the equilibrium 
A)  an efficient outcome where every agent has the same net benefit 
B)  an efficient outcome where every agent has 0 net benefit 
C)  an inefficient outcome where no trade will occur 
D)  an inefficient outcome where trades will occur at the higher price than at the equilibrium

Question 20

The following figure illustrates the demand and supply of decorative light bulbs in a perfectly competitive market.
  
-Refer to the figure above.What is the consumer surplus in the market?

Accepted Answer

A)  $50 
B)  $75 
C)  $100 
D)  $225 
A)  $50 
B)  $75 
C)  $100 
D)  $225

Efficiency is achieved in competitive markets because ________.

Equity refers to ________.

The following figure depicts the short-run cost curves of a perfectly competitive firm. -Refer to the figure above.Should the market price fall to $4,this film will ________.

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 revenue of the firm when it sells the profit-maximizing level of output?

A market economy produces the optimal amount of each good at least cost when ________.

When existing firms leave a perfectly competitive industry,________.

Social surplus is the consumer surplus ________.

Which of the following is likely to happen if the government imposes a price control at $60,when the demand curve shifts to D₂?

What are the key functions of the equilibrium price in a perfectly competitive market?

Positive economic profits in a perfectly competitive market imply that ________.

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 $80 per 100 kg,which plants should be used to produce the good?

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 loss in producer surplus?

The following figure illustrates the demand and supply of decorative light bulbs in a perfectly competitive market. -Refer to the figure above.What is the consumer surplus in the market?

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

Efficiency is achieved in competitive markets because ________.

Equity refers to ________.

The following figure depicts the short-run cost curves of a perfectly competitive firm. -Refer to the figure above.Should the market price fall to $4,this film will ________.

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 revenue of the firm when it sells the profit-maximizing level of output?

A market economy produces the optimal amount of each good at least cost when ________.

When existing firms leave a perfectly competitive industry,________.

Social surplus is the consumer surplus ________.

Which of the following is likely to happen if the government imposes a price control at $60,when the demand curve shifts to D₂?

What are the key functions of the equilibrium price in a perfectly competitive market?

Positive economic profits in a perfectly competitive market imply that ________.

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 $80 per 100 kg,which plants should be used to produce the good?

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 loss in producer surplus?

The following figure illustrates the demand and supply of decorative light bulbs in a perfectly competitive market. -Refer to the figure above.What is the consumer surplus in the market?

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