Question 1

The invisible hand is mostly guided by ________.

Accepted Answer

A)  the costs of production 
B)  the quantity of goods and services sold 
C)  market prices 
D)  government intervention 
A)  the costs of production 
B)  the quantity of goods and services sold 
C)  market prices 
D)  government intervention C

Question 2

Which of the following statements is true?

Accepted Answer

A)  Command economies do a better job at maximizing social welfare in comparison to market economies. 
B)  The incentive problem and the coordination problem lead to lower efficiency in market economies. 
C)  Central planners in command economies have to make decisions that prices would automatically have made in market economies. 
D)  Bringing economic agents together to trade is easier in command economies than in market economies. 
A)  Command economies do a better job at maximizing social welfare in comparison to market economies. 
B)  The incentive problem and the coordination problem lead to lower efficiency in market economies. 
C)  Central planners in command economies have to make decisions that prices would automatically have made in market economies. 
D)  Bringing economic agents together to trade is easier in command economies than in market economies. C

Question 3

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.The average total cost of Firm A when it produces 100 pens is $3,and the average total cost of Firm B when it produces 50 pens is $7.At these levels of production,which of the following statements is true?

Accepted Answer

A)  Both firms incur losses. 
B)  Firm A incurs a loss, but Firm B makes a profit. 
C)  Firm B incurs a loss, but Firm A makes a profit. 
D)  Both firms make profits. 
A)  Both firms incur losses. 
B)  Firm A incurs a loss, but Firm B makes a profit. 
C)  Firm B incurs a loss, but Firm A makes a profit. 
D)  Both firms make profits. C

Question 4

Scenario: The figure on the left shows the demand for fuel by Lisa and Nick during ordinary times. Assume that Lisa and Nick are the only consumers. In the figure on the right, D₀ is the market demand, and S₀ is the supply in ordinary times in the town. Then a hurricane hits the town. The acute needs for fuel to operate electric generators pushes the demand to D₁. Meanwhile, the supply plummets to S₁ because some of the fuel storage tanks owned by the town seller have been damaged by the storm. This pushes the price up to $5 per liter and only Lisa can afford some fuel. Suppose that fuel sellers outside the affected area have a cost of production such that MC = ATC at $2.50 per liter, which includes the cost of transporting the fuel under hazardous conditions.
  
-Refer to the scenario above.What will likely happen if no law against price gouging is enacted?

Accepted Answer

A)  The price will fall, because outside sellers will increase the supply. 
B)  The price will rise, because outside sellers will engage in price gouging. 
C)  The price will stay the same at $5.00. 
D)  The price will fall to the original level of $1.00. 
A)  The price will fall, because outside sellers will increase the supply. 
B)  The price will rise, because outside sellers will engage in price gouging. 
C)  The price will stay the same at $5.00. 
D)  The price will fall to the original level of $1.00.

Question 5

The following graph represents the market for a certain good.
  
-Refer to the graph above.Which two outcomes create the same social surplus?

Accepted Answer

A)  (Price = 5 and Quantity = 5) and (Price = 5 and Quantity = 6) 
B)  (Price = 4 and Quantity = 4) and (Price = 4 and Quantity = 7) 
C)  (Price = 4 and Quantity = 5) and (Price = 5 and Quantity = 4) 
D)  (Price = 5 and Quantity = 4) and (Price = 5 and Quantity = 6) 
A)  (Price = 5 and Quantity = 5) and (Price = 5 and Quantity = 6) 
B)  (Price = 4 and Quantity = 4) and (Price = 4 and Quantity = 7) 
C)  (Price = 4 and Quantity = 5) and (Price = 5 and Quantity = 4) 
D)  (Price = 5 and Quantity = 4) and (Price = 5 and Quantity = 6)

Question 6

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

Accepted Answer

A)  $4 
B)  $8 
C)  $12 
D)  $18 
A)  $4 
B)  $8 
C)  $12 
D)  $18

Question 7

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.In the graph above,plot the market demand schedule from the willingness to pay of buyers,and graph the market supply schedule from the willingness to accept of sellers.(Hint: Use the stairstep method similar to Exhibits 7.2 and 7.3 in the textbook; over and down for drawing market demand,and up and over for drawing market supply.)

Accepted Answer

The comple

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 initial reaction in the loudspeaker market in Step 1,what is expected to happen in the neodymium market (in Step 2)?

Accepted Answer

A)  Demand will increase, and the equilibrium price will rise. 
B)  Demand will increase, and the equilibrium price will fall. 
C)  Supply will increase, and the equilibrium price will rise. 
D)  Supply will increase, and the equilibrium price will fall. 
A)  Demand will increase, and the equilibrium price will rise. 
B)  Demand will increase, and the equilibrium price will fall. 
C)  Supply will increase, and the equilibrium price will rise. 
D)  Supply will increase, and the equilibrium price will fall.

Question 9

After the imposition of the price controls, consumer surplus is represented in the graph below.
  
-In the graph above,producer surplus for Argentine beef retailers after the imposition of the price control is given by which areas?

Accepted Answer

A)  F 
B)  D + F 
C)  D + E + F 
D)  C + D + E + F 
A)  F 
B)  D + F 
C)  D + E + F 
D)  C + D + E + F

Question 10

Differentiate between the coordination problem and the incentive problem.

Accepted Answer

The coordination problem refers to the p

Question 11

________ relates to the distribution of resources across society.

Accepted Answer

A)  Social surplus 
B)  Equity 
C)  Efficiency 
D)  Utility 
A)  Social surplus 
B)  Equity 
C)  Efficiency 
D)  Utility

Question 12

The following figure illustrates the marginal cost (MC)curves of two firms operating in the same industry.The marginal cost of Firm B is higher than the marginal cost of Firm A.
   
a)What is the optimal output of each firm if the market price is $15?
b)The government decides to shut down Firm B,as it has a higher marginal cost than Firm A.If it does so and asks Firm A to produce the combined output of firms A and B,will production be efficient? Explain your answer.
c)How does the invisible hand work in such an industry?

Accepted Answer

a)The optimal output of each firm is det

Question 13

If a buyer enjoys a consumer surplus of $25 when he purchases a good for $50,his willingness to pay for the good is ________.

Accepted Answer

A)  $2 
B)  $25 
C)  $50 
D)  $75 
A)  $2 
B)  $25 
C)  $50 
D)  $75

Question 14

Are the concepts of equity and efficiency different? Why or why not?

Accepted Answer

Yes,the concepts of equity and efficienc

Question 15

The basic idea behind an auction is that buyers want to buy from sellers with the ________,and sellers want to sell to buyers with the ________.

Accepted Answer

A)  lowest ask prices; highest bid prices 
B)  highest ask prices; highest bid prices 
C)  highest ask prices; lowest bid prices 
D)  lowest ask prices; lowest bid prices 
A)  lowest ask prices; highest bid prices 
B)  highest ask prices; highest bid prices 
C)  highest ask prices; lowest bid prices 
D)  lowest ask prices; lowest bid prices

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.The firm should exit the market if the price per 100 kg falls below ________.

Accepted Answer

A)  $80 
B)  $60 
C)  $50 
D)  $30 
A)  $80 
B)  $60 
C)  $50 
D)  $30

Question 17

If prices are held below the equilibrium price,________.

Accepted Answer

A)  there will be a surplus in the market 
B)  there will be a shortage in the market 
C)  social surplus will be maximized 
D)  all firms will earn positive economic profits 
A)  there will be a surplus in the market 
B)  there will be a shortage in the market 
C)  social surplus will be maximized 
D)  all firms will earn positive economic profits

Question 18

When sellers in a perfectly competitive market attempt to maximize their own profits,they ________.

Accepted Answer

A)  eventually end up minimizing the value of total production 
B)  earn positive economic profits even in the long run 
C)  move scarce resources to their highest-valued use 
D)  eventually divert resources to their lower-valued uses 
A)  eventually end up minimizing the value of total production 
B)  earn positive economic profits even in the long run 
C)  move scarce resources to their highest-valued use 
D)  eventually divert resources to their lower-valued uses

Question 19

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.If the market is perfectly competitive,the equilibrium quantity of hats is ________.

Accepted Answer

A)  6 
B)  5 
C)  10 
D)  4 
A)  6 
B)  5 
C)  10 
D)  4

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 social surplus if the market is in equilibrium?

Accepted Answer

A)  $50 
B)  $75 
C)  $100 
D)  $150 
A)  $50 
B)  $75 
C)  $100 
D)  $150

The invisible hand is mostly guided by ________.

Which of the following statements is true?

The following graph represents the market for a certain good. -Refer to the graph above.Which two outcomes create the same social surplus?

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

After the imposition of the price controls, consumer surplus is represented in the graph below. -In the graph above,producer surplus for Argentine beef retailers after the imposition of the price control is given by which areas?

Differentiate between the coordination problem and the incentive problem.

________ relates to the distribution of resources across society.

If a buyer enjoys a consumer surplus of $25 when he purchases a good for $50,his willingness to pay for the good is ________.

Are the concepts of equity and efficiency different? Why or why not?

The basic idea behind an auction is that buyers want to buy from sellers with the ,and sellers want to sell to buyers with the .

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.The firm should exit the market if the price per 100 kg falls below ________.

If prices are held below the equilibrium price,________.

When sellers in a perfectly competitive market attempt to maximize their own profits,they ________.

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 social surplus if the market is in equilibrium?

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

The invisible hand is mostly guided by ________.

Which of the following statements is true?

The following graph represents the market for a certain good. -Refer to the graph above.Which two outcomes create the same social surplus?

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

After the imposition of the price controls, consumer surplus is represented in the graph below. -In the graph above,producer surplus for Argentine beef retailers after the imposition of the price control is given by which areas?

Differentiate between the coordination problem and the incentive problem.

________ relates to the distribution of resources across society.

If a buyer enjoys a consumer surplus of $25 when he purchases a good for $50,his willingness to pay for the good is ________.

Are the concepts of equity and efficiency different? Why or why not?

The basic idea behind an auction is that buyers want to buy from sellers with the ________,and sellers want to sell to buyers with the ________.

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.The firm should exit the market if the price per 100 kg falls below ________.

If prices are held below the equilibrium price,________.

When sellers in a perfectly competitive market attempt to maximize their own profits,they ________.

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 social surplus if the market is in equilibrium?

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 basic idea behind an auction is that buyers want to buy from sellers with the ,and sellers want to sell to buyers with the .