Question 1

Suppose a market is in equilibrium.The area between the market price and the supply curve is:

Accepted Answer

A) the surplus loss. 
B) producer surplus. 
C) consumer surplus. 
D) total economic surplus. 
A) the surplus loss. 
B) producer surplus. 
C) consumer surplus. 
D) total economic surplus.

Question 2

Explicit costs:

Accepted Answer

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

Question 3

Ingrid has been waiting for the show "Mamma Mia!" to come to town.When it finally does come,ticket prices are $60.Ingrid's reservation price is $75.But when Ingrid tries to buy a ticket,they are sold out.
Refer to the information above.Sven had purchased a ticket at the ticket window for $60.Sven's reservation price is $65.If Sven attends "Mamma Mia!" and Ingrid does not,it is:

Accepted Answer

A) inefficient because Sven and Ingrid could have made a mutually beneficial trade. 
B) efficient because Sven paid less for the ticket than his reservation price. 
C) efficient because Sven arrived at the ticket counter before the show was sold out. 
D) inefficient because ticket prices are regulated by the government. 
A) inefficient because Sven and Ingrid could have made a mutually beneficial trade. 
B) efficient because Sven paid less for the ticket than his reservation price. 
C) efficient because Sven arrived at the ticket counter before the show was sold out. 
D) inefficient because ticket prices are regulated by the government.

Question 4

_____________ work together to guide resources to their highest value.

Accepted Answer

A) The explicit cost and the implicit cost of a profit maximizing firm 
B) The short run and long run supply curve 
C) The rationing and allocative functions of price 
D) The economic profit and accounting profit 
A) The explicit cost and the implicit cost of a profit maximizing firm 
B) The short run and long run supply curve 
C) The rationing and allocative functions of price 
D) The economic profit and accounting profit

Question 5

Economic profits are:

Accepted Answer

A) the same as accounting profits. 
B) equal to total revenue minus the sum of explicit fixed and variable costs. 
C) equal to total revenue minus both explicit and implicit costs. 
D) greater than accounting profits. 
A) the same as accounting profits. 
B) equal to total revenue minus the sum of explicit fixed and variable costs. 
C) equal to total revenue minus both explicit and implicit costs. 
D) greater than accounting profits.

Question 6

Barriers to entry are created by:

Accepted Answer

A) government regulation only. 
B) government regulation and natural characteristics of a market. 
C) natural characteristics of a market only. 
D) restrictions on foreign trade. 
A) government regulation only. 
B) government regulation and natural characteristics of a market. 
C) natural characteristics of a market only. 
D) restrictions on foreign trade.

Question 7

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.
Refer to the information given above.For Pat to earn normal profit,accounting profit would have to be _______.

Accepted Answer

A) $50,000 
B) $35,000 
C) $15,000 
D) 0 
A) $50,000 
B) $35,000 
C) $15,000 
D) 0

Question 8

A price ceiling that is 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) demand to increase. 
A) producer surplus to fall. 
B) total economic surplus to rise. 
C) quantity supplied to exceed quantity demanded. 
D) demand to increase.

Question 9

In an industry with free entry and exit,economic profits:

Accepted Answer

A) indicate a market failure. 
B) can never occur. 
C) provide incentives for a reallocation of resources out of other industries and into the one with economic profits. 
D) can be sustained indefinitely. 
A) indicate a market failure. 
B) can never occur. 
C) provide incentives for a reallocation of resources out of other industries and into the one with economic profits. 
D) can be sustained indefinitely.

Question 10

If buyers and sellers are free to pursue their own selfish interests,according to the invisible hand theory,the result would be:

Accepted Answer

A) anarchy. 
B) exploitation of workers and natural resources. 
C) an equitable allocation of resources. 
D) an efficient allocation of resources. 
A) anarchy. 
B) exploitation of workers and natural resources. 
C) an equitable allocation of resources. 
D) an efficient allocation of resources.

Question 11

Mary Jane is willing to baby-sit for $6 an hour.Her neighbor called and asked her to baby-sit for $8 an hour.Mary Jane will earn:

Accepted Answer

A) consumer surplus of $2 per hour. 
B) economic rent of $2 per hour. 
C) economic profit of $8 per hour. 
D) accounting profit of $8 per hour,but economic profit of $0 per hour. 
A) consumer surplus of $2 per hour. 
B) economic rent of $2 per hour. 
C) economic profit of $8 per hour. 
D) accounting profit of $8 per hour,but economic profit of $0 per hour.

Question 12

Accounting profits minus implicit costs equals:

Accepted Answer

A) total revenues. 
B) economic profits. 
C) explicit costs. 
D) fixed and variable costs. 
A) total revenues. 
B) economic profits. 
C) explicit costs. 
D) fixed and variable costs.

Question 13

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.Relative to last year,the price of soybeans is likely to be ______,and the price of corn is likely to be ______.

Accepted Answer

A) higher;higher 
B) higher;lower 
C) lower,higher 
D) the same;higher 
A) higher;higher 
B) higher;lower 
C) lower,higher 
D) the same;higher

Question 14

If resources are currently misallocated in a market with no barriers to entry,then the presence of opportunities to profit:

Accepted Answer

A) will inspire a more efficient reallocation of resources. 
B) will inspire a less efficient reallocation of resources. 
C) will not inspire a reallocation of resources in the absence of government regulation. 
D) will not inspire a reallocation of resources unless a firm is subsidized. 
A) will inspire a more efficient reallocation of resources. 
B) will inspire a less efficient reallocation of resources. 
C) will not inspire a reallocation of resources in the absence of government regulation. 
D) will not inspire a reallocation of resources unless a firm is subsidized.

Question 15

If an individual producer is willing to produce one unit of a good for $2.50 but finds he can sell it for $7.50,he has a producer surplus of:

Accepted Answer

A) $10.00. 
B) $7.50. 
C) $5.00. 
D) $6.25. 
A) $10.00. 
B) $7.50. 
C) $5.00. 
D) $6.25.

Question 16

The argument that efficiency is an appropriate goal assumes that the gains from enhancing efficiency:

Accepted Answer

A) will be equally distributed in the population. 
B) will benefit the poor by more than the wealthy. 
C) could potentially benefit everyone. 
D) reduce income disparities in the population. 
A) will be equally distributed in the population. 
B) will benefit the poor by more than the wealthy. 
C) could potentially benefit everyone. 
D) reduce income disparities in the population.

Question 17

The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions.  
In the long run equilibrium in this market,

Accepted Answer

A) price will equal $5,and there will be 20 firms in the industry. 
B) price will equal $5,and there will be 10 firms in the industry. 
C) price will equal $8,and there will be 20 firms in the industry. 
D) price will equal $5 and total output will equal 500 units,but there is not enough information to know how many firms there will be. 
A) price will equal $5,and there will be 20 firms in the industry. 
B) price will equal $5,and there will be 10 firms in the industry. 
C) price will equal $8,and there will be 20 firms in the industry. 
D) price will equal $5 and total output will equal 500 units,but there is not enough information to know how many firms there will be.

Question 18

If a single firm,belonging to a perfectly competitive industry in long run equilibrium,discovers a significant cost saving methodology,then:

Accepted Answer

A) all firms will enjoy economic profits for a short period of time. 
B) the rest of the industry will quickly adopt the new methodology. 
C) the firm will enjoy economic profits forever. 
D) the firm will lower its price to drive the rest of the industry out of business. 
A) all firms will enjoy economic profits for a short period of time. 
B) the rest of the industry will quickly adopt the new methodology. 
C) the firm will enjoy economic profits forever. 
D) the firm will lower its price to drive the rest of the industry out of business.

Question 19

Chris was the business manager for a real estate firm earning an annual salary of $40,000.Then Chris decided to become a consultant.Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included)for $3,000 per month.Chris earned $100,000 in total revenue the first year as a consultant.
In order for Chris to earn normal profit,accounting profit would have to be _______.

Accepted Answer

A) $51,000 
B) $40,000 
C) 0 
D) $9,000 
A) $51,000 
B) $40,000 
C) 0 
D) $9,000

Question 20

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.You would predict that this year Pat may:

Accepted Answer

A) grow more soybeans. 
B) switch to growing corn. 
C) continue to grow the same amount of soybeans. 
D) go out of business. 
A) grow more soybeans. 
B) switch to growing corn. 
C) continue to grow the same amount of soybeans. 
D) go out of business.

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

Suppose a market is in equilibrium.The area between the market price and the supply curve is:

Explicit costs:

_____________ work together to guide resources to their highest value.

Economic profits are:

Barriers to entry are created by:

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

In an industry with free entry and exit,economic profits:

If buyers and sellers are free to pursue their own selfish interests,according to the invisible hand theory,the result would be:

Mary Jane is willing to baby-sit for $6 an hour.Her neighbor called and asked her to baby-sit for $8 an hour.Mary Jane will earn:

Accounting profits minus implicit costs equals:

If resources are currently misallocated in a market with no barriers to entry,then the presence of opportunities to profit:

If an individual producer is willing to produce one unit of a good for $2.50 but finds he can sell it for $7.50,he has a producer surplus of:

The argument that efficiency is an appropriate goal assumes that the gains from enhancing efficiency:

The following graphs depict a perfectly competitive firm and its market. Assume that all firms in this industry have identical cost functions. In the long run equilibrium in this market,

If a single firm,belonging to a perfectly competitive industry in long run equilibrium,discovers a significant cost saving methodology,then:

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.You would predict that this year Pat may:

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

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