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

Economic profit is equal to:

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 accounting profit each month?

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. Pat's explicit costs are ________, and Pat's implicit costs are ________.

Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If S3 is the market supply curve, then in the short run, the profit-maximizing level of output for a single firm in this market is ________ gallons per week.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the short run, firms in this market will shut down if the market price is:

Which of the following describes a surplus-enhancing transaction?

Suppose farmers in a given market can either grow soy beans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. All else equal, an increase in the price of corn creates an incentive for farmers to:

Suppose that in an effort to help single parents, the government decides to pay part of the cost of childcare. This measure would increase ________ in the market for childcare.

The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then:

Refer to the table below. An output level of 15 units, this firm's accounting profit is ________, and its economic profit is ________. 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

Refer to the figure below. If a price ceiling were imposed at point G, then excess demand would be measured by the distance between points:

Efficiency is an important goal because when markets are efficient:

Duke is a highly skilled negotiator who could work for many law firms. The law firm that hires Duke is able to collect twice as much revenue per hour of Duke's time than it can for any other negotiator in town. The increased revenue will:

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 producer surplus will be ________ per day.

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included)for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. For Christine to earn a normal profit as a consultant, her accounting profit would have to be ________.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. The firm depicted in the graph on the right faces a demand curve that is:

In a perfectly competitive market, if supply and demand fully reflect all of the costs and benefits associated with production and consumption, then total economic surplus is maximized when:

Refer to the figure below. If a price ceiling were imposed at point G, the loss in total economic surplus would be represented by the area ________.

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. Economists would consider the environmental damage that results from the production of cotton to be a(n):