Question 1

Which of the following statements best expresses why economic efficiency should be society's first goal?

Accepted Answer

A) Efficiency gives the poor an incentive to improve their economic status. 
B) Since the consensus on what is a fair distribution of goods is impossible, efficiency is the next best goal. 
C) People are not really concerned about the problems of the poor, so government must address them instead. 
D) Efficiency maximizes total economic surplus and thereby allows other goals to be more easily achieved. 
A) Efficiency gives the poor an incentive to improve their economic status. 
B) Since the consensus on what is a fair distribution of goods is impossible, efficiency is the next best goal. 
C) People are not really concerned about the problems of the poor, so government must address them instead. 
D) Efficiency maximizes total economic surplus and thereby allows other goals to be more easily achieved.

Question 2

Which of the following would not be included in the calculation of accounting profit?

Accepted Answer

A) The wages paid to the company's workers. 
B) The salary the owner could have earned working elsewhere. 
C) The rent paid by the owner for the use of a building. 
D) The medical insurance coverage for the company's workers. 
A) The wages paid to the company's workers. 
B) The salary the owner could have earned working elsewhere. 
C) The rent paid by the owner for the use of a building. 
D) The medical insurance coverage for the company's workers.

Question 3

Factors of production are the most likely to earn economic rent when they:

Accepted Answer

A) are used by many different firms. 
B) cannot easily be duplicated. 
C) are fixed in the short run. 
D) have high reservation prices. 
A) are used by many different firms. 
B) cannot easily be duplicated. 
C) are fixed in the short run. 
D) have high reservation prices.

Question 4

Refer to the figure below.    When the market is unregulated, producer surplus is represented by the area:

Accepted Answer

A) ABC 
B) DGF 
C) DBC 
D) FHC 
A) ABC 
B) DGF 
C) DBC 
D) FHC

Question 5

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.   In the long run, how much profit will each firm in this industry earn each week?

Accepted Answer

A) $0 
B) $1,000 
C) $1,500 
D) $2,000 
A) $0 
B) $1,000 
C) $1,500 
D) $2,000

Question 6

Refer to the figure below.   If this market is unregulated, total economic surplus is:

Accepted Answer

A) $20. 
B) $32. 
C) $48. 
D) $84. 
A) $20. 
B) $32. 
C) $48. 
D) $84.

Question 7

The figure below shows the supply and demand curves for oranges in Smallville.   What is the marginal cost of producing the tenth pound of oranges?

Accepted Answer

A) $2 
B) $3 
C) $4 
D) $5 
A) $2 
B) $3 
C) $4 
D) $5

Question 8

The figure below shows the supply and demand curves for jeans in Smallville.   Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then total economic surplus will increase by ________ per day.

Accepted Answer

A) $160 
B) $80 
C) $40 
D) $20 
A) $160 
B) $80 
C) $40 
D) $20

Question 9

The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.   A starting assumption about this industry was that all of the firms in the market had identical cost curves. This assumption is:

Accepted Answer

A) unrealistic because each firm is unique. 
B) realistic because any cost-saving innovation adopted by one firm will be quickly adopted by others. 
C) unrealistic because firms closely guard the details of their production processes. 
D) realistic because firms rarely seek out cost-saving innovations. 
A) unrealistic because each firm is unique. 
B) realistic because any cost-saving innovation adopted by one firm will be quickly adopted by others. 
C) unrealistic because firms closely guard the details of their production processes. 
D) realistic because firms rarely seek out cost-saving innovations.

Question 10

The figure below shows the supply and demand curves for jeans in Smallville.   At a price of $60 per pair, there will be an excess ________ of ________ pairs of jeans per day.

Accepted Answer

A) supply; 24 
B) supply; 16 
C) demand; 16 
D) demand; 8 
A) supply; 24 
B) supply; 16 
C) demand; 16 
D) demand; 8

Question 11

The figure below shows the supply and demand curves for jeans in Smallville.   The equilibrium price will NOT lead to the largest possible total economic surplus if:

Accepted Answer

A) jeans are purchased by consumers with reservation prices greater than $40. 
B) the market for jeans is perfectly competitive. 
C) the production of jeans generates air pollution. 
D) there are diminishing returns in the production of jeans. 
A) jeans are purchased by consumers with reservation prices greater than $40. 
B) the market for jeans is perfectly competitive. 
C) the production of jeans generates air pollution. 
D) there are diminishing returns in the production of jeans.

Question 12

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. As a result of the increase in the price of corn, farmers who were already growing corn will earn an:

Accepted Answer

A) economic loss in the short run. 
B) economic profit in the long run. 
C) economic profit in the short run. 
D) economic loss in the long run. 
A) economic loss in the short run. 
B) economic profit in the long run. 
C) economic profit in the short run. 
D) economic loss in the long run.

Question 13

If a firm is earning zero economic profit, then:

Accepted Answer

A) the firm's revenues are sufficient to pay its explicit costs, but not its implicit costs. 
B) the owner will not be able to pay himself or herself a salary. 
C) the firm will shut down in the long run, but will continue to operate in the short run. 
D) the firm's accounting profit is equal to the firm's implicit costs. 
A) the firm's revenues are sufficient to pay its explicit costs, but not its implicit costs. 
B) the owner will not be able to pay himself or herself a salary. 
C) the firm will shut down in the long run, but will continue to operate in the short run. 
D) the firm's accounting profit is equal to the firm's implicit costs.

Question 14

Refer to the figure below.   If this market is unregulated, the economic surplus received by producers is:

Accepted Answer

A) $16. 
B) $24. 
C) $32. 
D) $48. 
A) $16. 
B) $24. 
C) $32. 
D) $48.

Question 15

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, the equilibrium price of sugar is ________ per ton, and the equilibrium quantity is ________ tons per day.

Accepted Answer

A) $1,000; 12 
B) $1,000; 8 
C) $1,500; 12 
D) $1,500; 8 
A) $1,000; 12 
B) $1,000; 8 
C) $1,500; 12 
D) $1,500; 8

Question 16

Entry into a perfectly competitive industry occurs whenever:

Accepted Answer

A) accounting profit is equal to zero. 
B) accounting profit is greater than zero. 
C) economic profit is greater than zero. 
D) economic profit is equal to zero. 
A) accounting profit is equal to zero. 
B) accounting profit is greater than zero. 
C) economic profit is greater than zero. 
D) economic profit is equal to zero.

Question 17

A price ceiling that is set below the equilibrium price will result in:

Accepted Answer

A) higher total economic surplus. 
B) a shortage of the good. 
C) a surplus of the good. 
D) higher producer surplus. 
A) higher total economic surplus. 
B) a shortage of the good. 
C) a surplus of the good. 
D) higher producer surplus.

Question 18

If it is possible to make a change that will help some people without harming others, then the situation is:

Accepted Answer

A) efficient. 
B) inefficient. 
C) fair. 
D) unfair. 
A) efficient. 
B) inefficient. 
C) fair. 
D) unfair.

Question 19

According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be:

Accepted Answer

A) an incomplete allocation of resources. 
B) the exploitation of productive resources. 
C) an equitable allocation of resources. 
D) an efficient allocation of resources. 
A) an incomplete allocation of resources. 
B) the exploitation of productive resources. 
C) an equitable allocation of resources. 
D) an efficient allocation of resources.

Question 20

If an individual producer is willing to produce one unit of a good for $2.50 but is able to sell it for $7.50, then his or her producer surplus from the sale of that unit would be:

Accepted Answer

A) $10 
B) $7.50 
C) $5 
D) $6.25 
A) $10 
B) $7.50 
C) $5 
D) $6.25

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

Which of the following statements best expresses why economic efficiency should be society's first goal?

Which of the following would not be included in the calculation of accounting profit?

Factors of production are the most likely to earn economic rent when they:

Refer to the figure below. When the market is unregulated, producer surplus is represented by the area:

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, how much profit will each firm in this industry earn each week?

Refer to the figure below. If this market is unregulated, total economic surplus is:

The figure below shows the supply and demand curves for oranges in Smallville. What is the marginal cost of producing the tenth pound of oranges?

The figure below shows the supply and demand curves for jeans in Smallville. Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then total economic surplus will increase by ________ per day.

The figure below shows the supply and demand curves for jeans in Smallville. At a price of $60 per pair, there will be an excess ________ of ________ pairs of jeans per day.

The figure below shows the supply and demand curves for jeans in Smallville. The equilibrium price will NOT lead to the largest possible total economic surplus if:

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. As a result of the increase in the price of corn, farmers who were already growing corn will earn an:

If a firm is earning zero economic profit, then:

Refer to the figure below. If this market is unregulated, the economic surplus received by producers is:

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, the equilibrium price of sugar is ________ per ton, and the equilibrium quantity is ________ tons per day.

Entry into a perfectly competitive industry occurs whenever:

A price ceiling that is set below the equilibrium price will result in:

If it is possible to make a change that will help some people without harming others, then the situation is:

According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be:

If an individual producer is willing to produce one unit of a good for $2.50 but is able to sell it for $7.50, then his or her producer surplus from the sale of that unit would be:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

The figure below shows the supply and demand curves for jeans in Smallville. At a price of $60 per pair, there will be an excess of pairs of jeans per day.

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, the equilibrium price of sugar is per ton, and the equilibrium quantity is tons per day.