Question 1

In order to maximize profits,a perfectly competitive firm will continue producing until:

Accepted Answer

A) it utilizes its full production capacity. 
B) the marginal cost equals the market price. 
C) the average cost is minimized. 
D) its total sales revenue is maximized. 
E) the profit per-unit is at its highest possible point. 
A) it utilizes its full production capacity. 
B) the marginal cost equals the market price. 
C) the average cost is minimized. 
D) its total sales revenue is maximized. 
E) the profit per-unit is at its highest possible point. B

Question 2

Everything else remaining unchanged,an increase in the supply of a good will lead to:

Accepted Answer

A) a fall in price and an increase in consumption of the good. 
B) an increase in the cost of production of the good. 
C) an increase in the price of the good. 
D) a leftward shift of the supply curve. 
E) an upward movement along the supply curve. 
A) a fall in price and an increase in consumption of the good. 
B) an increase in the cost of production of the good. 
C) an increase in the price of the good. 
D) a leftward shift of the supply curve. 
E) an upward movement along the supply curve. A

Question 3

What is meant by consumer surplus?

Accepted Answer

A) It is the net gain that buyers obtain from purchasing a good. 
B) It is the area enclosed by the demand and supply curves. 
C) It is the difference between the good's price and its cost per unit. 
D) It is the maximum monetary amount that a person would be willing to pay for a good. 
E) It is the total satisfaction from the consumption of a good. 
A) It is the net gain that buyers obtain from purchasing a good. 
B) It is the area enclosed by the demand and supply curves. 
C) It is the difference between the good's price and its cost per unit. 
D) It is the maximum monetary amount that a person would be willing to pay for a good. 
E) It is the total satisfaction from the consumption of a good. A

Question 4

If the price of a good increases and is above the equilibrium price,then:

Accepted Answer

A) suppliers' inventories will build up,they will reduce output,and lower prices. 
B) demand will exceed supply and there will be a shortage in the market. 
C) the demand curve will shift to the left until equilibrium is established at the new higher prices. 
D) the supply curve will shift to the right until equilibrium is established at the new higher price. 
E) consumers will bid down the good's price,but there will be no reduction in output. 
A) suppliers' inventories will build up,they will reduce output,and lower prices. 
B) demand will exceed supply and there will be a shortage in the market. 
C) the demand curve will shift to the left until equilibrium is established at the new higher prices. 
D) the supply curve will shift to the right until equilibrium is established at the new higher price. 
E) consumers will bid down the good's price,but there will be no reduction in output.

Question 5

The following figure shows the domestic demand and supply curves for a good.With free trade,the price of the good in the domestic market is PS1U1B13S1U1B0.The government introduces a 5% tariff in the market which raises the domestic price to PS1U1B12S1U1B0.
Figure 7-1
  
-Refer to Figure 7-1.With the imposition of the tariff,the level of imports to the domestic market is _____.

Accepted Answer

A) CD 
B) AE 
C) 0 
D) AC 
E) BD 
A) CD 
B) AE 
C) 0 
D) AC 
E) BD

Question 6

In some western states in the U.S. ,federal water projects sell water to farmers at a fraction of the total cost to dam and transport the water,and at a fraction of the cost charged to city dwellers who draw from the same water source.Is this likely to result in economic efficiency? Explain why or why not.

Accepted Answer

No.If the price is held below the margin

Question 7

Other things remaining unchanged,the supply curve for eggs will shift downward and to the right if:

Accepted Answer

A) a virus spreads through poultry farms through the country and kills millions of chickens. 
B) new research establishes that cholesterol,found in egg yolks,is found to cause heart disease. 
C) the price of chicken feed falls. 
D) the government introduces a new tax on poultry suppliers. 
E) the average income level in the country falls due to a recession. 
A) a virus spreads through poultry farms through the country and kills millions of chickens. 
B) new research establishes that cholesterol,found in egg yolks,is found to cause heart disease. 
C) the price of chicken feed falls. 
D) the government introduces a new tax on poultry suppliers. 
E) the average income level in the country falls due to a recession.

Question 8

A firm has the following cost function: C = 30 - 14Q + Q2.Derive the firm's supply curve from the total cost function.

Accepted Answer

The firm's supply curve is the portion o

Question 9

The price of fresh fish rose and the quantity sold fell.Other things remaining the same,which of the following is consistent with this observation?

Accepted Answer

A) The number of consumers that have a preference for fish increased. 
B) The price of meat,which is a substitute for fish,rose. 
C) The fishermen learned to fish more efficiently. 
D) The cost of fishing increased. 
E) The supply of fresh fish increased. 
A) The number of consumers that have a preference for fish increased. 
B) The price of meat,which is a substitute for fish,rose. 
C) The fishermen learned to fish more efficiently. 
D) The cost of fishing increased. 
E) The supply of fresh fish increased.

Question 10

Suppose the equilibrium price of bread is $2 per loaf.What would be the efficiency implications of a government policy that prevents the price of bread from rising above $1?

Accepted Answer

A) The outcome would be inefficient since the marginal cost of producing bread is less than the marginal benefit to the consumers. 
B) The outcome would be inefficient since the marginal benefit to consumers is less than the marginal cost of producing the bread. 
C) The outcome would be efficient since the total benefit from consumption would be equal to the total cost of producing bread. 
D) The outcome would be efficient since the total net benefits would be maximized. 
E) The outcome will be efficient since the policy lowers the price of an essential item for consumers. 
A) The outcome would be inefficient since the marginal cost of producing bread is less than the marginal benefit to the consumers. 
B) The outcome would be inefficient since the marginal benefit to consumers is less than the marginal cost of producing the bread. 
C) The outcome would be efficient since the total benefit from consumption would be equal to the total cost of producing bread. 
D) The outcome would be efficient since the total net benefits would be maximized. 
E) The outcome will be efficient since the policy lowers the price of an essential item for consumers.

Question 11

A perfectly competitive market is described by the demand curve QD= 60 - 2P,and the supply curve QS = 5P - 10.A typical firm in the market has the total cost equation: C = 16 + 2QF + QF2.What is the equilibrium price and quantity in the market? Compute the firm's total revenue,total cost,and total profit.

Accepted Answer

To calculate equilibrium price and quant

Question 12

When all trade is prohibited in good X,the equilibrium price in the home country is PX.After free trade is instituted,the domestic country begins to import good X from the rest of the world.As a result of free trade:

Accepted Answer

A) the domestic price of good X will fall. 
B) the domestic price of good X will rise. 
C) the domestic price of good X will exceed the price in foreign countries. 
D) the domestic price of good X will be less than the price in foreign countries. 
E) the domestic producers will gain surplus at the expense of domestic consumers. 
A) the domestic price of good X will fall. 
B) the domestic price of good X will rise. 
C) the domestic price of good X will exceed the price in foreign countries. 
D) the domestic price of good X will be less than the price in foreign countries. 
E) the domestic producers will gain surplus at the expense of domestic consumers.

Question 13

Suppose that demand for and supply of a commodity in a market are shown on a graph with price on the vertical axis and quantity on the horizontal axis.The y-intercept of the demand curve is equal to $30.The equilibrium price and quantity are $20 and 300 units respectively.What is the total consumer surplus in the market?

Accepted Answer

A) $2,000 
B) $1,300 
C) $9,000 
D) $3,000 
E) $1,500 
A) $2,000 
B) $1,300 
C) $9,000 
D) $3,000 
E) $1,500

Question 14

In the long run,firms in a perfectly competitive industry are most likely to:

Accepted Answer

A) earn negative economic profits and exit the market. 
B) have a positively sloped average revenue curve. 
C) suppress innovative products to earn a positive economic profit. 
D) continue to earn positive economic profit because of barriers to entry. 
E) earn zero economic profits and produce at minimum cost. 
A) earn negative economic profits and exit the market. 
B) have a positively sloped average revenue curve. 
C) suppress innovative products to earn a positive economic profit. 
D) continue to earn positive economic profit because of barriers to entry. 
E) earn zero economic profits and produce at minimum cost.

Question 15

How can supply and demand analysis be used to measure consumer surplus? How does consumer surplus change if the market price falls?

Accepted Answer

The following figure shows the consumer

Question 16

In the short-run,the efficient industry outcome under perfect competition occurs at the level of output where _____.

Accepted Answer

A) marginal benefit from the good,price and the marginal cost are equal. 
B) marginal benefit from the good exceeds the price of the good. 
C) price exceeds marginal cost 
D) consumer surplus equals producer surplus 
E) price of the good equals average cost 
A) marginal benefit from the good,price and the marginal cost are equal. 
B) marginal benefit from the good exceeds the price of the good. 
C) price exceeds marginal cost 
D) consumer surplus equals producer surplus 
E) price of the good equals average cost

Question 17

Demand for flower bouquets in a suburban town is described by: QD = 50 - 5P + 2Y,where Q is quantity,P is price per unit,and Y is an index of consumer income.Similarly,supply is described by: QS = -5 + 10P.
(a)If Y = 100,what is equilibrium price and output?

Accepted Answer

Equate the supply and demand e

Question 18

Suppose a severe freeze damages the Florida orange crop.Everything else remaining unchanged,which of the following is most likely to be true?

Accepted Answer

A) Because of the shortage of oranges,consumers will reduce their demand in order to economize. 
B) The supply curve for oranges will shift to the right. 
C) Both the output and the price of oranges will decrease. 
D) Both the supply curve and the demand curve for oranges will shift to the left. 
E) The output of oranges will fall but the price will increase. 
A) Because of the shortage of oranges,consumers will reduce their demand in order to economize. 
B) The supply curve for oranges will shift to the right. 
C) Both the output and the price of oranges will decrease. 
D) Both the supply curve and the demand curve for oranges will shift to the left. 
E) The output of oranges will fall but the price will increase.

Question 19

The following figure shows the domestic demand and supply curves for a good.With free trade,the price of the good in the domestic market is PS1U1B13S1U1B0.The government introduces a 5% tariff in the market which raises the domestic price to PS1U1B12S1U1B0.
Figure 7-1
  
-Refer to Figure 7-1.With the imposition of the tariff,the change in producer surplus is equal to _____.

Accepted Answer

A) -P1FGP2 
B) P1FJP3 
C) P2GJP3 
D) -P3JA0 
E) P1FC0 
A) -P1FGP2 
B) P1FJP3 
C) P2GJP3 
D) -P3JA0 
E) P1FC0

Question 20

The following figure shows the domestic demand and supply curves for a good.With free trade,the price of the good in the domestic market is PS1U1B13S1U1B0.The government introduces a 5% tariff in the market which raises the domestic price to PS1U1B12S1U1B0.
Figure 7-1
  
-Refer to Figure 7-1.With the imposition of the tariff,the change in consumer surplus is equal to _____.

Accepted Answer

A) -P2GLP3 
B) P2GJP3 
C) -P2HKP3 
D) P1FJP3 
E) -P1FGP2 
A) -P2GLP3 
B) P2GJP3 
C) -P2HKP3 
D) P1FJP3 
E) -P1FGP2

In order to maximize profits,a perfectly competitive firm will continue producing until:

Everything else remaining unchanged,an increase in the supply of a good will lead to:

What is meant by consumer surplus?

If the price of a good increases and is above the equilibrium price,then:

Other things remaining unchanged,the supply curve for eggs will shift downward and to the right if:

A firm has the following cost function: C = 30 - 14Q + Q2.Derive the firm's supply curve from the total cost function.

The price of fresh fish rose and the quantity sold fell.Other things remaining the same,which of the following is consistent with this observation?

Suppose the equilibrium price of bread is $2 per loaf.What would be the efficiency implications of a government policy that prevents the price of bread from rising above $1?

When all trade is prohibited in good X,the equilibrium price in the home country is PX.After free trade is instituted,the domestic country begins to import good X from the rest of the world.As a result of free trade:

In the long run,firms in a perfectly competitive industry are most likely to:

How can supply and demand analysis be used to measure consumer surplus? How does consumer surplus change if the market price falls?

In the short-run,the efficient industry outcome under perfect competition occurs at the level of output where _____.

Demand for flower bouquets in a suburban town is described by: QD = 50 - 5P + 2Y,where Q is quantity,P is price per unit,and Y is an index of consumer income.Similarly,supply is described by: QS = -5 + 10P. (a)If Y = 100,what is equilibrium price and output?

Suppose a severe freeze damages the Florida orange crop.Everything else remaining unchanged,which of the following is most likely to be true?

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters

Exam 7: Perfect Competition

In order to maximize profits,a perfectly competitive firm will continue producing until:

Everything else remaining unchanged,an increase in the supply of a good will lead to:

What is meant by consumer surplus?

If the price of a good increases and is above the equilibrium price,then:

Other things remaining unchanged,the supply curve for eggs will shift downward and to the right if:

A firm has the following cost function: C = 30 - 14Q + Q2.Derive the firm's supply curve from the total cost function.

The price of fresh fish rose and the quantity sold fell.Other things remaining the same,which of the following is consistent with this observation?

Suppose the equilibrium price of bread is $2 per loaf.What would be the efficiency implications of a government policy that prevents the price of bread from rising above $1?

When all trade is prohibited in good X,the equilibrium price in the home country is PX.After free trade is instituted,the domestic country begins to import good X from the rest of the world.As a result of free trade:

In the long run,firms in a perfectly competitive industry are most likely to:

How can supply and demand analysis be used to measure consumer surplus? How does consumer surplus change if the market price falls?

In the short-run,the efficient industry outcome under perfect competition occurs at the level of output where _____.

Demand for flower bouquets in a suburban town is described by: QD = 50 - 5P + 2Y,where Q is quantity,P is price per unit,and Y is an index of consumer income.Similarly,supply is described by: QS = -5 + 10P. (a)If Y = 100,what is equilibrium price and output?

Suppose a severe freeze damages the Florida orange crop.Everything else remaining unchanged,which of the following is most likely to be true?

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters