Question 1

If all firms in a perfectly competitive industry are experiencing economic losses,then firms will:

Accepted Answer

A) exit the industry,until economic profits are positive. 
B) exit the industry,until accounting profits equal zero. 
C) continue in the industry,hoping for better times. 
D) exit the industry,until economic profits equal zero. 
A) exit the industry,until economic profits are positive. 
B) exit the industry,until accounting profits equal zero. 
C) continue in the industry,hoping for better times. 
D) exit the industry,until economic profits equal zero. D

Question 2

An example of an implicit cost is:

Accepted Answer

A) interest paid on a bank loan. 
B) wages paid to a family member. 
C) the value of a spare bedroom turned into a home office. 
D) operating costs of a company-owned car. 
A) interest paid on a bank loan. 
B) wages paid to a family member. 
C) the value of a spare bedroom turned into a home office. 
D) operating costs of a company-owned car. C

Question 3

Suppose that a firm is located along a river.The firm uses water from the river to cool its machinery and returns the water to the river several degrees warmer,which has led to a decline in the fish population downstream of the firm.
If the firm does not have to pay for the damage to the downstream fish,the market equilibrium price will be ________ and the market equilibrium quantity will be _____.

Accepted Answer

A) inefficiently high;inefficiently low 
B) inefficiently high;efficient 
C) inefficiently low;inefficiently high 
D) efficient;inefficiently low 
A) inefficiently high;inefficiently low 
B) inefficiently high;efficient 
C) inefficiently low;inefficiently high 
D) efficient;inefficiently low C

Question 4

Daily Supply and Demand: Oranges in Hurricane Alley  
Refer to the figure above.What is the cost of harvesting the tenth pound of oranges?

Accepted Answer

A) $2 
B) $2.50 
C) $4 
D) $5 
A) $2 
B) $2.50 
C) $4 
D) $5

Question 5

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

Accepted Answer

A) new firms will enter the industry. 
B) old firms will exit the industry. 
C) the number of firms in the industry is stable. 
D) market supply will shift to the left. 
A) new firms will enter the industry. 
B) old firms will exit the industry. 
C) the number of firms in the industry is stable. 
D) market supply will shift to the left.

Question 6

Assume that all firms in this industry have identical cost functions.  
The firm depicted in the graph on the right faces a demand curve that

Accepted Answer

A) is horizontal at the market price. 
B) is downward sloping,and less than market demand curve. 
C) is the same as the marginal cost curve. 
D) is the same as the market demand curve. 
A) is horizontal at the market price. 
B) is downward sloping,and less than market demand curve. 
C) is the same as the marginal cost curve. 
D) is the same as the market demand curve.

Question 7

Subsidies are most likely to:

Accepted Answer

A) reduce consumer surplus. 
B) increase total economic surplus. 
C) reduce total economic surplus. 
D) leave total economic surplus unchanged,but transfer surplus from producers to consumers. 
A) reduce consumer surplus. 
B) increase total economic surplus. 
C) reduce total economic surplus. 
D) leave total economic surplus unchanged,but transfer surplus from producers to consumers.

Question 8

In a perfectly competitive industry over the long run:

Accepted Answer

A) economic profits tend to persist. 
B) the number of firms in an industry grows. 
C) economic losses tend to persist. 
D) economic profits and losses are driven towards zero by entry and exit. 
A) economic profits tend to persist. 
B) the number of firms in an industry grows. 
C) economic losses tend to persist. 
D) economic profits and losses are driven towards zero by entry and exit.

Question 9

Curly told Larry about his new business venture: Curly pays Acme International $1,000 per month for supplies and access to Acme's network,works out of his own apartment on his own computer and earns monthly revenues of $1,500.Should Larry quit his job and do what Curly is doing?

Accepted Answer

A) Yes,if Larry has at least $1,000 in savings to get started. 
B) Not if Larry is earning more than $500 per month at his current job. 
C) Yes,if Larry can borrow the $1,000 monthly payment for less than 3% interest. 
D) Yes,if Larry already owns a computer. 
A) Yes,if Larry has at least $1,000 in savings to get started. 
B) Not if Larry is earning more than $500 per month at his current job. 
C) Yes,if Larry can borrow the $1,000 monthly payment for less than 3% interest. 
D) Yes,if Larry already owns a computer.

Question 10

Explicit costs:

Accepted Answer

A) measure the opportunity costs of the business owners. 
B) are always fixed in the short run. 
C) measure the payments made to the firm's factors of production. 
D) are always variable in the short run. 
A) measure the opportunity costs of the business owners. 
B) are always fixed in the short run. 
C) measure the payments made to the firm's factors of production. 
D) are always variable in the short run.

Question 11

Cost saving developments-e.g. ,a new production procedure that shortens a production process by two steps-in a perfectly competitive industry will lead to:

Accepted Answer

A) entry by new firms. 
B) economic profits by new firms. 
C) economic profits for a few firms for a short time. 
D) a leftward shift of the supply curve. 
A) entry by new firms. 
B) economic profits by new firms. 
C) economic profits for a few firms for a short time. 
D) a leftward shift of the supply curve.

Question 12

Suppose all firms in a perfectly competitive industry are experiencing economic profits.One would expect that,over time,the number of firms will _______ and the market price will _____.

Accepted Answer

A) rise;fall 
B) fall;rise 
C) rise;rise 
D) rise;stay the same 
A) rise;fall 
B) fall;rise 
C) rise;rise 
D) rise;stay the same

Question 13

The allocative function of price works well under conditions of:

Accepted Answer

A) free entry and difficult exit. 
B) free entry and free exit. 
C) free entry only. 
D) free exit only. 
A) free entry and difficult exit. 
B) free entry and free exit. 
C) free entry only. 
D) free exit only.

Question 14

Professor Plum,who earns $75,000 per year,read in the paper today that the university pays its basketball coach one million dollars per year in exchange for the coach's agreement to remain at the university for at least three more years.The coach earns more than Professor Plum because:

Accepted Answer

A) demand for sporting events exceeds demand for college courses. 
B) universities value sports over academics. 
C) the coach is able to earn economic rent due to his unique talents. 
D) the coach has more human capital than does Prof.Plum. 
A) demand for sporting events exceeds demand for college courses. 
B) universities value sports over academics. 
C) the coach is able to earn economic rent due to his unique talents. 
D) the coach has more human capital than does Prof.Plum.

Question 15

Suppose you quit your job to start a business.In the first month,your total revenue was $6,000.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.
You determine that your profit that month was negative $200.Why?

Accepted Answer

A) You did the math incorrectly. 
B) You accounted for lost salary of $200. 
C) You accounted for lost salary of $1,000. 
D) Your equipment rent is an implicit cost. 
A) You did the math incorrectly. 
B) You accounted for lost salary of $200. 
C) You accounted for lost salary of $1,000. 
D) Your equipment rent is an implicit cost.

Question 16

Which of the following statements illustrates the concept of efficiency?

Accepted Answer

A) The production of the good generates very little pollution. 
B) At equilibrium,all mutually beneficial transactions have taken place. 
C) The production of the good generates very few by-products. 
D) The consumption of the good produces very little waste. 
A) The production of the good generates very little pollution. 
B) At equilibrium,all mutually beneficial transactions have taken place. 
C) The production of the good generates very few by-products. 
D) The consumption of the good produces very little waste.

Question 17

Adam Smith believed that the individual pursuit of self-interest:

Accepted Answer

A) was a basic human instinct that must be curbed in order for society to advance. 
B) always worked to undermine social benefits. 
C) always worked to advance social benefits. 
D) sometimes worked to advance social benefits. 
A) was a basic human instinct that must be curbed in order for society to advance. 
B) always worked to undermine social benefits. 
C) always worked to advance social benefits. 
D) sometimes worked to advance social benefits.

Question 18

Suppose several United States software design companies compete with each other in a perfectly competitive environment.If one company decides to move some of its offices to a low-wage country in order to reduce operating costs:

Accepted Answer

A) the other companies will still be able to remain profitable while operating solely in the United States. 
B) the company that moves to the lower-wage country will earn positive economic profits in the long run because it will keep a cost advantage. 
C) the other companies will also move to the low wage country in order to remain in the industry. 
D) the first company to move will charge a lower price than the companies remaining in the United States. 
A) the other companies will still be able to remain profitable while operating solely in the United States. 
B) the company that moves to the lower-wage country will earn positive economic profits in the long run because it will keep a cost advantage. 
C) the other companies will also move to the low wage country in order to remain in the industry. 
D) the first company to move will charge a lower price than the companies remaining in the United States.

Question 19

Last year Pat was a soybean farmer and Chris was a corn farmer.This year,high demand for ethanol,an automobile fuel made from corn,causes the price of corn to increase.
Refer to the information above.Suppose Pat stopped growing soybeans and began growing corn.What principle would explain that change?

Accepted Answer

A) The principle of comparative advantage. 
B) The scarcity principle. 
C) The incentive principle. 
D) The equilibrium principle. 
A) The principle of comparative advantage. 
B) The scarcity principle. 
C) The incentive principle. 
D) The equilibrium principle.

Question 20

Economic rent:

Accepted Answer

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

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

If all firms in a perfectly competitive industry are experiencing economic losses,then firms will:

An example of an implicit cost is:

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.What is the cost of harvesting the tenth pound of oranges?

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

Assume that all firms in this industry have identical cost functions. The firm depicted in the graph on the right faces a demand curve that

Subsidies are most likely to:

In a perfectly competitive industry over the long run:

Curly told Larry about his new business venture: Curly pays Acme International $1,000 per month for supplies and access to Acme's network,works out of his own apartment on his own computer and earns monthly revenues of $1,500.Should Larry quit his job and do what Curly is doing?

Explicit costs:

Cost saving developments-e.g. ,a new production procedure that shortens a production process by two steps-in a perfectly competitive industry will lead to:

Suppose all firms in a perfectly competitive industry are experiencing economic profits.One would expect that,over time,the number of firms will _______ and the market price will _____.

The allocative function of price works well under conditions of:

Professor Plum,who earns $75,000 per year,read in the paper today that the university pays its basketball coach one million dollars per year in exchange for the coach's agreement to remain at the university for at least three more years.The coach earns more than Professor Plum because:

Which of the following statements illustrates the concept of efficiency?

Adam Smith believed that the individual pursuit of self-interest:

Suppose several United States software design companies compete with each other in a perfectly competitive environment.If one company decides to move some of its offices to a low-wage country in order to reduce operating costs:

Economic rent:

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

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Monetary Policy and the Federal Reserve

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Suppose all firms in a perfectly competitive industry are experiencing economic profits.One would expect that,over time,the number of firms will ___ and the market price will _.