Question 1

Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by:

Accepted Answer

A) reducing economic inequality. 
B) government intervention in the market. 
C) collective action. 
D) the actions of independent, self-interested buyers and sellers. 
A) reducing economic inequality. 
B) government intervention in the market. 
C) collective action. 
D) the actions of independent, self-interested buyers and sellers. D

Question 2

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

Accepted Answer

A) The overtime wages paid to workers. 
B) The income the owner could have earned in his or her next best employment opportunity. 
C) The salaries paid to the managers who help run the business. 
D) The rent the owner pays each month to lease office space. 
A) The overtime wages paid to workers. 
B) The income the owner could have earned in his or her next best employment opportunity. 
C) The salaries paid to the managers who help run the business. 
D) The rent the owner pays each month to lease office space. B

Question 3

A price ceiling that is set below the equilibrium price will cause:

Accepted Answer

A) producer surplus to fall. 
B) total economic surplus to rise. 
C) quantity supplied to exceed quantity demanded. 
D) an increase in demand. 
A) producer surplus to fall. 
B) total economic surplus to rise. 
C) quantity supplied to exceed quantity demanded. 
D) an increase in demand. A

Question 4

The No-Cash-on-the-Table Principle states that there are:

Accepted Answer

A) never unexploited opportunities available to individuals. 
B) never unexploited opportunities available to individuals in equilibrium. 
C) sometimes unexploited opportunities available to individuals in equilibrium. 
D) always unexploited opportunities available to individuals. 
A) never unexploited opportunities available to individuals. 
B) never unexploited opportunities available to individuals in equilibrium. 
C) sometimes unexploited opportunities available to individuals in equilibrium. 
D) always unexploited opportunities available to individuals.

Question 5

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 6

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:

Accepted Answer

A) be evenly split between Duke and the law firm to maximize surplus. 
B) all go to the law firm because the firm bears the risk of running the business. 
C) all go to Duke because, if it didn't, another firm could hire Duke away. 
D) be split between Duke and the law firm, but how it will be split cannot be determined without more information. 
A) be evenly split between Duke and the law firm to maximize surplus. 
B) all go to the law firm because the firm bears the risk of running the business. 
C) all go to Duke because, if it didn't, another firm could hire Duke away. 
D) be split between Duke and the law firm, but how it will be split cannot be determined without more information.

Question 7

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 8

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.
$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:

Accepted Answer

A) you do not have any implicit costs. 
B) your implicit costs are $200 per month. 
C) your implicit costs are $1,000 per month. 
D) the rent you pay on your equipment is an implicit cost. 
A) you do not have any implicit costs. 
B) your implicit costs are $200 per month. 
C) your implicit costs are $1,000 per month. 
D) the rent you pay on your equipment is an implicit cost.

Question 9

Refer to the table below. An output level of 25 units, this firm's accounting profit is ______, and its economic profit is ______. $$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \text { Total Revenue } & \text { Explicit Costs } & \text { Implicit Costs } \
\hline 10 & 50 & 36 & 5 \
\hline 15 & 75 & 63 & 6 \
\hline 20 & 100 & 93 & 7 \
\hline 25 & 125 & 125 & 8 \
\hline 30 & 150 & 161 & 9 \
\hline
\end{array}$$

Accepted Answer

A) zero; $8 
B) $125; $113 
C) $125; zero 
D) zero; -$8 
A) zero; $8 
B) $125; $113 
C) $125; zero 
D) zero; -$8

Question 10

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 11

Which of the following is NOT necessarily true in a market equilibrium?

Accepted Answer

A) Price represents the value of an extra unit of consumption. 
B) Both rich and poor have adequate access to the good. 
C) Price represents the cost of an extra unit of production. 
D) All mutually beneficial trades have been made. 
A) Price represents the value of an extra unit of consumption. 
B) Both rich and poor have adequate access to the good. 
C) Price represents the cost of an extra unit of production. 
D) All mutually beneficial trades have been made.

Question 12

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 ______.

Accepted Answer

A) FEC 
B) DAC 
C) GJEF 
D) JAE + DGF 
A) FEC 
B) DAC 
C) GJEF 
D) JAE + DGF

Question 13

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.   Given that the current equilibrium price is $8, what will happen to the number of firms in this market in the long run?

Accepted Answer

A) The number of firms in the market will not change unless there is a change in either demand or in the cost of production. 
B) The number of firms in the market will fall as firms exit the market in response to negative economic profit. 
C) It is impossible to determine whether the number of firms in this market will rise or fall. 
D) The number of firms in the market will rise as firms enter the market in response to positive economic profit. 
A) The number of firms in the market will not change unless there is a change in either demand or in the cost of production. 
B) The number of firms in the market will fall as firms exit the market in response to negative economic profit. 
C) It is impossible to determine whether the number of firms in this market will rise or fall. 
D) The number of firms in the market will rise as firms enter the market in response to positive economic profit.

Question 14

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.

Accepted Answer

A) allocative 
B) multiplicative 
C) equilibrium 
D) rationing 
A) allocative 
B) multiplicative 
C) equilibrium 
D) rationing

Question 15

The allocative function of price is to:

Accepted Answer

A) distribute scarce goods and services to those consumers who value them the most highly. 
B) ensure that firms in perfectly competitive markets earn an economic profit. 
C) direct resources away from markets that are overcrowded and toward markets that are underserved. 
D) provide subsidies to low-income families so they can purchase essential goods and services. 
A) distribute scarce goods and services to those consumers who value them the most highly. 
B) ensure that firms in perfectly competitive markets earn an economic profit. 
C) direct resources away from markets that are overcrowded and toward markets that are underserved. 
D) provide subsidies to low-income families so they can purchase essential goods and services.

Question 16

If all firms in a perfectly competitive industry are earning a normal profit, then:

Accepted Answer

A) new firms will enter the industry. 
B) existing firms will exit the industry. 
C) there is no incentive for firms to enter or exit the industry. 
D) the market supply curve will shift to the left. 
A) new firms will enter the industry. 
B) existing firms will exit the industry. 
C) there is no incentive for firms to enter or exit the industry. 
D) the market supply curve will shift to the left.

Question 17

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:

Accepted Answer

A) firms must earn positive economic profits in the long run. 
B) firms will produce the quantity that minimizes average variable costs in the short run. 
C) firms will produce the quantity that minimizes average total costs in the long run. 
D) market demand is completely elastic. 
A) firms must earn positive economic profits in the long run. 
B) firms will produce the quantity that minimizes average variable costs in the short run. 
C) firms will produce the quantity that minimizes average total costs in the long run. 
D) market demand is completely elastic.

Question 18

The role that prices play in directing resources away from overcrowded markets and towards markets that are underserved is known as the ______ function of price.

Accepted Answer

A) allocative 
B) market 
C) rationing 
D) transitive 
A) allocative 
B) market 
C) rationing 
D) transitive

Question 19

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.   In the long run, there will be ______ firms in this market.

Accepted Answer

A) 10 
B) 15 
C) 25 
D) 50 
A) 10 
B) 15 
C) 25 
D) 50

Question 20

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.

Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by:

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

A price ceiling that is set below the equilibrium price will cause:

The No-Cash-on-the-Table Principle states that there are:

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

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 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:

Refer to the table below. An output level of 25 units, this firm's accounting profit is , and its economic profit is . Quantity Total Revenue Explicit Costs Implicit Costs 10 50 36 5 15 75 63 6 20 100 93 7 25 125 125 8 30 150 161 9

Which of the following statements about explicit costs is true?

Which of the following is NOT necessarily true in a market equilibrium?

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 ______.

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.

The allocative function of price is to:

If all firms in a perfectly competitive industry are earning a normal profit, then:

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:

The role that prices play in directing resources away from overcrowded markets and towards markets that are underserved is known as the ______ function of price.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, there will be ______ firms in this market.

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:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

Externalities and Property Rights

The Economics of Information

Labor Markets, Poverty, and Income Distribution

The Environment, Health, and Safety

Public Goods and Tax Policy

Filters

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

Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by:

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

A price ceiling that is set below the equilibrium price will cause:

The No-Cash-on-the-Table Principle states that there are:

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

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 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:

Refer to the table below. An output level of 25 units, this firm's accounting profit is ______, and its economic profit is ______. Quantity Total Revenue Explicit Costs Implicit Costs 10 50 36 5 15 75 63 6 20 100 93 7 25 125 125 8 30 150 161 9

Which of the following statements about explicit costs is true?

Which of the following is NOT necessarily true in a market equilibrium?

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 ______.

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.

The allocative function of price is to:

If all firms in a perfectly competitive industry are earning a normal profit, then:

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:

The role that prices play in directing resources away from overcrowded markets and towards markets that are underserved is known as the ______ function of price.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, there will be ______ firms in this market.

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:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

Externalities and Property Rights

The Economics of Information

Labor Markets, Poverty, and Income Distribution

The Environment, Health, and Safety

Public Goods and Tax Policy

Filters

Refer to the table below. An output level of 25 units, this firm's accounting profit is , and its economic profit is . Quantity Total Revenue Explicit Costs Implicit Costs 10 50 36 5 15 75 63 6 20 100 93 7 25 125 125 8 30 150 161 9