Question 1

A shortage or a surplus always exists in the competitive equilibrium model.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 7-13  
-Refer to Exhibit 7-13. Calculate the producer surplus when the market price is $30.

Accepted Answer

Producer surplus is

Question 3

Deadweight loss is a measure of waste from inefficient production.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 7-13  
-Refer to Exhibit 7-13. Calculate the deadweight loss that results from the government imposing a minimum price of $50 in the market.

Accepted Answer

$2,000
Consumers buy 300 units

Question 5

Pareto efficiency is achieved when

Accepted Answer

A) consumers maximize their utility. 
B) markets achieve equilibrium. 
C) producers price below marginal cost. 
D) consumers behave altruistically. 
E) producers produce at least cost. 
A) consumers maximize their utility. 
B) markets achieve equilibrium. 
C) producers price below marginal cost. 
D) consumers behave altruistically. 
E) producers produce at least cost.

Question 6

Draw a supply and demand diagram and identify (1) equilibrium price and equilibrium quantity and (2) producer surplus and consumer surplus. Can you identify a place in the diagram where the sum of producer surplus and consumer surplus is greater than at equilibrium?

Accepted Answer

Refer to the diagram below. @#IMG-DLM& @#IMG-DLM&

Question 7

Competitive markets lead to Pareto efficiency but not necessarily income equality.

Accepted Answer

A) True 
 B)False

Question 8

The deadweight loss from a tax on a good equals

Accepted Answer

A) government tax revenues. 
B) the difference between the loss in consumer surplus and the gain in producer surplus. 
C) the difference between the gain in consumer surplus and the loss in producer surplus. 
D) the total gain in consumer surplus and producer surplus. 
E) the total loss in consumer surplus and producer surplus. 
A) government tax revenues. 
B) the difference between the loss in consumer surplus and the gain in producer surplus. 
C) the difference between the gain in consumer surplus and the loss in producer surplus. 
D) the total gain in consumer surplus and producer surplus. 
E) the total loss in consumer surplus and producer surplus.

Question 9

Exhibit 7-1  
-Refer to Exhibit 7-1. If it is somehow determined in the market that 5 units of the output should be produced, Firm A will produce 1 unit whereas Firm B will produce 4 because

Accepted Answer

A) neither firm knows what the other's costs are, making it impossible for them to coordinate their activities properly. 
B) Firm B will undercut Firm A's price, willingly sacrificing short-term profit to eliminate the competition. 
C) market planners will examine the data and conclude that it is efficient for the firms to share production in this way. 
D) Firm A will not have as good a reputation as Firm B, which has been in business longer. 
E) Firm A will not be able to produce a second unit and sell it at a lower price than Firm B is willing to do. 
A) neither firm knows what the other's costs are, making it impossible for them to coordinate their activities properly. 
B) Firm B will undercut Firm A's price, willingly sacrificing short-term profit to eliminate the competition. 
C) market planners will examine the data and conclude that it is efficient for the firms to share production in this way. 
D) Firm A will not have as good a reputation as Firm B, which has been in business longer. 
E) Firm A will not be able to produce a second unit and sell it at a lower price than Firm B is willing to do.

Question 10

Which of the following is an example of a specific tax?

Accepted Answer

A) A yearly tax of 1 percent of the value of property owned by a citizen 
B) A 5 percent tax on total purchases by a consumer 
C) A tax of $1,000 on every man, woman, and child in the country 
D) A tax of $.15 per gallon of gasoline purchased 
E) A tax of 2 percent of the cost of placing a newspaper ad 
A) A yearly tax of 1 percent of the value of property owned by a citizen 
B) A 5 percent tax on total purchases by a consumer 
C) A tax of $1,000 on every man, woman, and child in the country 
D) A tax of $.15 per gallon of gasoline purchased 
E) A tax of 2 percent of the cost of placing a newspaper ad

Question 11

Suppose a storm destroys 30 percent of the orange crop in the United States, which results in lower supply.

Accepted Answer

The answer of Suppose a storm destroys 30 percent of...

Question 12

Exhibit 7-1  
-Refer to Exhibit 7-1. If it is determined that output should be 3 units and Firm B produces the first 2 units, for efficiency it does not matter if the third unit is produced by Firm A or Firm B.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 7-9  
-Exhibit 7-9 shows the effect of a tax on a market. The government's tax revenue equals the combined area of

Accepted Answer

A) C and D. 
B) A and B. 
C) E and F. 
D) C, D, E, and F. 
E) A, B, C, D, E, and F. 
A) C and D. 
B) A and B. 
C) E and F. 
D) C, D, E, and F. 
E) A, B, C, D, E, and F.

Question 14

Exhibit 7-1  
-Efficiency is achieved when marginal benefit is equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 7-9  
-Exhibit 7-9 shows the effect of a tax on a market. Which of the following is true?

Accepted Answer

A) An increase in consumer surplus by area C and a decrease in producer surplus by area D 
B) A decrease in consumer surplus by area E and an increase in producer surplus by area F 
C) A decrease in consumer surplus by the total area of C and E, and a decrease in producer surplus by the total area of D and F 
D) A decrease in consumer surplus by area B and an increase in producer surplus by area A 
E) A decrease in consumer surplus by area A and a decrease in producer surplus by area B 
A) An increase in consumer surplus by area C and a decrease in producer surplus by area D 
B) A decrease in consumer surplus by area E and an increase in producer surplus by area F 
C) A decrease in consumer surplus by the total area of C and E, and a decrease in producer surplus by the total area of D and F 
D) A decrease in consumer surplus by area B and an increase in producer surplus by area A 
E) A decrease in consumer surplus by area A and a decrease in producer surplus by area B

Question 16

In a competitive equilibrium model, prices are determined freely by market supply and demand.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 7-11  
-Refer to Exhibit 7-11. If the government establishes a tax of $4 per bushel of wheat, the deadweight loss that results is represented by area

Accepted Answer

A) D. 
B) A. 
C) C. 
D) F. 
E) B. 
A) D. 
B) A. 
C) C. 
D) F. 
E) B.

Question 18

A tax on producers reduces producer surplus while consumer surplus remains the same.

Accepted Answer

A) True 
 B)False

Question 19

Does the minimum wage result in a deadweight loss? Illustrate graphically.

Accepted Answer

@#IMG-DLM& Yes, the minimum wage results in deadwe

Question 20

Exhibit 7-3  
-Refer to Exhibit 7-3. The sum of producer surplus and consumer surplus is at the maximum when price equals

Accepted Answer

A) $0. 
B) $2.5. 
C) $5. 
D) $7.5. 
E) $10. 
A) $0. 
B) $2.5. 
C) $5. 
D) $7.5. 
E) $10.

Exam 7: The Efficiency of Markets

A shortage or a surplus always exists in the competitive equilibrium model.

Exhibit 7-13 -Refer to Exhibit 7-13. Calculate the producer surplus when the market price is $30.

Deadweight loss is a measure of waste from inefficient production.

Exhibit 7-13 -Refer to Exhibit 7-13. Calculate the deadweight loss that results from the government imposing a minimum price of $50 in the market.

Pareto efficiency is achieved when

Draw a supply and demand diagram and identify (1) equilibrium price and equilibrium quantity and (2) producer surplus and consumer surplus. Can you identify a place in the diagram where the sum of producer surplus and consumer surplus is greater than at equilibrium?

Competitive markets lead to Pareto efficiency but not necessarily income equality.

The deadweight loss from a tax on a good equals

Exhibit 7-1 -Refer to Exhibit 7-1. If it is somehow determined in the market that 5 units of the output should be produced, Firm A will produce 1 unit whereas Firm B will produce 4 because

Which of the following is an example of a specific tax?

Suppose a storm destroys 30 percent of the orange crop in the United States, which results in lower supply.

Exhibit 7-1 -Refer to Exhibit 7-1. If it is determined that output should be 3 units and Firm B produces the first 2 units, for efficiency it does not matter if the third unit is produced by Firm A or Firm B.

Exhibit 7-9 -Exhibit 7-9 shows the effect of a tax on a market. The government's tax revenue equals the combined area of

Exhibit 7-1 -Efficiency is achieved when marginal benefit is equal to marginal cost.

Exhibit 7-9 -Exhibit 7-9 shows the effect of a tax on a market. Which of the following is true?

In a competitive equilibrium model, prices are determined freely by market supply and demand.

Exhibit 7-11 -Refer to Exhibit 7-11. If the government establishes a tax of $4 per bushel of wheat, the deadweight loss that results is represented by area

A tax on producers reduces producer surplus while consumer surplus remains the same.

Does the minimum wage result in a deadweight loss? Illustrate graphically.

Exhibit 7-3 -Refer to Exhibit 7-3. The sum of producer surplus and consumer surplus is at the maximum when price equals

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

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Economic Growth Around the World

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