Exam 7: Efficiency, Exchange, and the Invisible Hand in Action

Suppose your economics professor has an extra copy of textbook that he or she would like to give to a student in the class. Which of the following schemes is the most likely to result in an efficient outcome?

Suppose you own a small business. Last month, your total revenue was $6,000. In addition, you paid:   $1,000 in monthly rent for office space, $200 in monthly rent for equipment, $3,000 to your workers in wages for the month, and $1,000 for the supplies you used that month.   If you correctly determine that your economic profit last month was negative $200, then it must be true that:

The role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the ________ function of price.

Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's economic profit each month?

Refer to the table below. At what output level or levels are this firm's owners doing as well as or better than they could do with the next best use of their resources? \ Quantity Total Revenue Explicit Casts Implicit Casts 10 50 36 5 15 75 63 6 20 100 93 7 25 125 125 8 30 150 161 9

Some people have argued that the government should provide free medical care to everyone. Under this system:

In the long run, in a perfectly competitive industry:

Suppose all firms in a perfectly competitive industry are earning an economic profit. One would expect that, over time, the number of firms in the industry will ________ and the market price will ________.

Subsidies are most likely to:

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. With no subsidy, what is producer surplus?

The figure below shows the supply and demand curves for oranges in Smallville. The marginal buyer values the tenth pound of oranges at ________.

Professor Plum, who earns $100,000 per year, read in the paper today that the university pays its basketball coach one million dollars per year in exchange for his agreement to remain at the university for at least three more years. The coach earns more than Professor Plum because:

Adam Smith's theory of the invisible hand posits the actions of independent, self-interested buyers and sellers will ________ lead to the most efficient allocation of resources.

Which of the following is NOT an example of an explicit cost?

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. For Pat to earn normal profit, Pat's accounting profit would have to be ________.

If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:

Superstar professional athletes can sustain their economic rents because:

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. If the government provides a subsidy of $500 per ton, then relative to before the subsidy, total economic surplus will ________ by ________ per day.

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called: