Question 1

Consumer surplus is the cumulative difference between:

Accepted Answer

A) consumers' incomes and consumers' expenditures. 
B) the amount consumers are willing to pay and the price they actually pay. 
C) the suggested retail price and the price consumers actually pay. 
D) consumers' savings and consumers' expenditures. 
A) consumers' incomes and consumers' expenditures. 
B) the amount consumers are willing to pay and the price they actually pay. 
C) the suggested retail price and the price consumers actually pay. 
D) consumers' savings and consumers' expenditures.

Question 2

Accounting profit is equal to:

Accepted Answer

A) total revenue minus implicit costs. 
B) total revenue minus explicit costs. 
C) total revenue minus explicit and implicit costs. 
D) economic profit minus implicit costs. 
A) total revenue minus implicit costs. 
B) total revenue minus explicit costs. 
C) total revenue minus explicit and implicit costs. 
D) economic profit minus implicit costs.

Question 3

Which of the following is a characteristic of economic rent?

Accepted Answer

A) It equals economic profit minus accounting profit. 
B) It is driven towards zero by free entry. 
C) It can be positive, zero, or negative. 
D) It can never be negative. 
A) It equals economic profit minus accounting profit. 
B) It is driven towards zero by free entry. 
C) It can be positive, zero, or negative. 
D) It can never be negative.

Question 4

Suppose Lando Calrissian owns a smuggling business whose total revenue is $30,000 per month. The accompanying table shows Lando's monthly expenses. If Lando weren't a smuggler, he would earn $6,000 per month working for the Rebel Alliance. Apart from pay, Lando is indifferent between working as a smuggler and working for the Rebel Alliance. $$\begin{array} { | l | r | } 
\hline \text { Fuel } & \$ 4,000 \
\hline \text { Mairterarce } & \$ 12,000 \
\hline \text { Weapors } & \$ 6,000 \
\hline \text { Bribes } & \$ 3,000
\end{array}$$  
What is Lando's accounting profit each month?

Accepted Answer

A) $1,000 
B) $5,000 
C) −$1,000 
D) −$5,000 
A) $1,000 
B) $5,000 
C) −$1,000 
D) −$5,000

Question 5

Refer to the figure below.   If a price ceiling were imposed at $4, consumer surplus would be:

Accepted Answer

A) $36. 
B) $20. 
C) $24. 
D) $28. 
A) $36. 
B) $20. 
C) $24. 
D) $28.

Question 6

Economic theory assumes that a firm's goal is to:

Accepted Answer

A) earn an accounting profit. 
B) earn an economic profit. 
C) maximize its accounting profit. 
D) maximize its economic profit. 
A) earn an accounting profit. 
B) earn an economic profit. 
C) maximize its accounting profit. 
D) maximize its economic profit.

Question 7

The main problem with price subsidies is that they:

Accepted Answer

A) do not help the poor afford essential goods and services. 
B) are not effective at lowering prices. 
C) lead to a decrease in demand. 
D) lower total economic surplus. 
A) do not help the poor afford essential goods and services. 
B) are not effective at lowering prices. 
C) lead to a decrease in demand. 
D) lower total economic surplus.

Question 8

A firm earns a normal profit when its:

Accepted Answer

A) accounting profit is positive. 
B) economic profit is positive. 
C) economic profit is zero. 
D) accounting profit is zero. 
A) accounting profit is positive. 
B) economic profit is positive. 
C) economic profit is zero. 
D) accounting profit is zero.

Question 9

Which of the following statements about explicit costs is true?

Accepted Answer

A) They are the only costs that matter to business owners. 
B) They usually exceed implicit costs. 
C) They are difficult to measure. 
D) They appear on the firm's balance sheet. 
A) They are the only costs that matter to business owners. 
B) They usually exceed implicit costs. 
C) They are difficult to measure. 
D) They appear on the firm's balance sheet.

Question 10

The phrase "smart for one, but dumb for all" refers to the idea that the individual pursuit of self-interest:

Accepted Answer

A) only leads to an efficient outcome when everyone is well-informed. 
B) always leads to an efficient outcome. 
C) never leads to an efficient outcome. 
D) doesn't always lead to an efficient outcome. 
A) only leads to an efficient outcome when everyone is well-informed. 
B) always leads to an efficient outcome. 
C) never leads to an efficient outcome. 
D) doesn't always lead to an efficient outcome.

Question 11

Refer to the figure below.   If a price ceiling were imposed at point G, then producer surplus would be represented by the area ________.

Accepted Answer

A) DBC 
B) DGF 
C) 0GFQ2 
D) 0DFQ2 
A) DBC 
B) DGF 
C) 0GFQ2 
D) 0DFQ2

Question 12

Free entry and exit of firms is a characteristic of:

Accepted Answer

A) all industries in the U. S. economy. 
B) perfectly competitive industries. 
C) centralized economies. 
D) industries in which firms are earning positive economic profit. 
A) all industries in the U. S. economy. 
B) perfectly competitive industries. 
C) centralized economies. 
D) industries in which firms are earning positive economic profit.

Question 13

Which of the following statements about implicit costs is true?

Accepted Answer

A) They are always fixed. 
B) They measure the forgone opportunities of the firm's owners. 
C) They exceed explicit costs. 
D) They do not enter into the calculation of economic profit. 
A) They are always fixed. 
B) They measure the forgone opportunities of the firm's owners. 
C) They exceed explicit costs. 
D) They do not enter into the calculation of economic profit.

Question 14

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.   In the long run, the equilibrium price will be ________ per gallon, and each firm's profit-maximizing quantity will be ________ gallons per week.

Accepted Answer

A) $20; 400 
B) $15; 6,000 
C) $15; 300 
D) $20; 4,000 
A) $20; 400 
B) $15; 6,000 
C) $15; 300 
D) $20; 4,000

Question 15

Economic rent is:

Accepted Answer

A) the amount people pay for an apartment in a perfectly competitive market. 
B) the payment made to the owner of a factor of production, which is usually equal to the owner's reservation price. 
C) the difference between the payment made to the owner of a factor of production and the owner's reservation price. 
D) sometimes higher and sometimes lower than the owner's reservation price. 
A) the amount people pay for an apartment in a perfectly competitive market. 
B) the payment made to the owner of a factor of production, which is usually equal to the owner's reservation price. 
C) the difference between the payment made to the owner of a factor of production and the owner's reservation price. 
D) sometimes higher and sometimes lower than the owner's reservation price.

Question 16

Which of the following statements is true?

Accepted Answer

A) Accounting profit is always positive. 
B) Economic profit is always positive. 
C) Economic profit is greater than or equal to accounting profit. 
D) Accounting profit is greater than or equal to economic profit. 
A) Accounting profit is always positive. 
B) Economic profit is always positive. 
C) Economic profit is greater than or equal to accounting profit. 
D) Accounting profit is greater than or equal to economic profit.

Question 17

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. Last year, Christine's accounting profit was ________ and her economic profit was ________.

Accepted Answer

A) $100,000; $64,000 
B) $64,000; $49,000 
C) $49,000; $9,000 
D) $9,000; 0 
A) $100,000; $64,000 
B) $64,000; $49,000 
C) $49,000; $9,000 
D) $9,000; 0

Question 18

Generally, ________ motivates firms to enter an industry, while ________ motivates firms to exit an industry.

Accepted Answer

A) economic profit; economic loss 
B) accounting profit; accounting loss 
C) accounting profit; economic loss 
D) economic profit; accounting loss 
A) economic profit; economic loss 
B) accounting profit; accounting loss 
C) accounting profit; economic loss 
D) economic profit; accounting loss

Question 19

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.    If the market supply curve is given by S3, then in the long run firms will:

Accepted Answer

A) exit the market, leading the market supply curve to shift back to S2. 
B) exit the market, leading the market supply curve to shift back to S1. 
C) enter the market, leading the market supply curve to shift back to S2. 
D) neither enter nor exit the market, so the market supply curve will remain at S3. 
A) exit the market, leading the market supply curve to shift back to S2. 
B) exit the market, leading the market supply curve to shift back to S1. 
C) enter the market, leading the market supply curve to shift back to S2. 
D) neither enter nor exit the market, so the market supply curve will remain at S3.

Question 20

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

Accepted Answer

A) a market price that is above the equilibrium price. 
B) a loss in total economic surplus. 
C) no change in total economic surplus. 
D) an increase in consumer surplus. 
A) a market price that is above the equilibrium price. 
B) a loss in total economic surplus. 
C) no change in total economic surplus. 
D) an increase in consumer surplus.

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

Consumer surplus is the cumulative difference between:

Accounting profit is equal to:

Which of the following is a characteristic of economic rent?

Refer to the figure below. If a price ceiling were imposed at $4, consumer surplus would be:

Economic theory assumes that a firm's goal is to:

The main problem with price subsidies is that they:

A firm earns a normal profit when its:

Which of the following statements about explicit costs is true?

The phrase "smart for one, but dumb for all" refers to the idea that the individual pursuit of self-interest:

Refer to the figure below. If a price ceiling were imposed at point G, then producer surplus would be represented by the area ________.

Free entry and exit of firms is a characteristic of:

Which of the following statements about implicit costs is true?

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, the equilibrium price will be ________ per gallon, and each firm's profit-maximizing quantity will be ________ gallons per week.

Economic rent is:

Which of the following statements is true?

Generally, ________ motivates firms to enter an industry, while ________ motivates firms to exit an industry.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S3, then in the long run firms will:

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

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

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, the equilibrium price will be per gallon, and each firm's profit-maximizing quantity will be gallons per week.

Generally, motivates firms to enter an industry, while motivates firms to exit an industry.