Question 1

The economic theory of business behavior assumes that the goal of a firm is to:

Accepted Answer

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

Question 2

Generally,______ motivate firms to enter an industry while ______ motivate firms to exit an industry.

Accepted Answer

A) economic profits;economic losses 
B) accounting profits;accounting losses 
C) accounting profits;economic losses 
D) economic profits;accounting losses 
A) economic profits;economic losses 
B) accounting profits;accounting losses 
C) accounting profits;economic losses 
D) economic profits;accounting losses

Question 3

Normal profits occur when:

Accepted Answer

A) accounting profits are positive. 
B) economic profits are positive. 
C) economic profits are zero. 
D) total revenues are greater than explicit and implicit costs. 
A) accounting profits are positive. 
B) economic profits are positive. 
C) economic profits are zero. 
D) total revenues are greater than explicit and implicit costs.

Question 4

If you were to start your own business,your implicit costs would include:

Accepted Answer

A) rent that you have paid in advance for use of a building. 
B) the opportunity cost of your time. 
C) profit over and above normal profit. 
D) interest that you pay on your business loans. 
A) rent that you have paid in advance for use of a building. 
B) the opportunity cost of your time. 
C) profit over and above normal profit. 
D) interest that you pay on your business loans.

Question 5

According to the textbook,individual incentives have led to:

Accepted Answer

A) the optimal number of stock market analysts because it is a competitive market with no entry barriers. 
B) too many stock market analysts because market analysis does not produce social benefits. 
C) too many stock market analysts because the individual incentive to forecast faster exceeds the social benefit of a faster forecast. 
D) too few stock market analysts because the efficient market hypothesis predicts that no analyst will do better than random chance in the long run. 
A) the optimal number of stock market analysts because it is a competitive market with no entry barriers. 
B) too many stock market analysts because market analysis does not produce social benefits. 
C) too many stock market analysts because the individual incentive to forecast faster exceeds the social benefit of a faster forecast. 
D) too few stock market analysts because the efficient market hypothesis predicts that no analyst will do better than random chance in the long run.

Question 6

The cumulative difference between the price producers actually receive and the price for which they are willing to produce is:

Accepted Answer

A) producer surplus. 
B) lost surplus. 
C) total economics surplus. 
D) consumer surplus. 
A) producer surplus. 
B) lost surplus. 
C) total economics surplus. 
D) consumer surplus.

Question 7

Daily Supply and Demand: Oranges in Hurricane Alley  
Refer to the figure above.If the supplier sells the tenth pound of oranges to the most eager buyers for $8,the seller is _____ better off than before and the buyer is ______ better off than before.

Accepted Answer

A) $8;$0 
B) $6;$2 
C) $4;$4 
D) $2;$6 
A) $8;$0 
B) $6;$2 
C) $4;$4 
D) $2;$6

Question 8

One assumption of the perfectly competitive model is that of free entry.This assumption most directly leads to the implication that:

Accepted Answer

A) firms will spend significant amounts of money on advertising. 
B) positive economic profits will only be possible for in the short run. 
C) firms will compete on the basis of better service and amenities rather than price. 
D) a single firm will emerge as the industry leader. 
A) firms will spend significant amounts of money on advertising. 
B) positive economic profits will only be possible for in the short run. 
C) firms will compete on the basis of better service and amenities rather than price. 
D) a single firm will emerge as the industry leader.

Question 9

Which of the following would be an example of the rationing function of price?

Accepted Answer

A) Switching from a Ph.D.in economics to finance because finance salaries are higher 
B) Bill Gates purchasing the Mona Lisa for $5 billion 
C) A firm attempting to lower its explicit costs 
D) Government price controls 
A) Switching from a Ph.D.in economics to finance because finance salaries are higher 
B) Bill Gates purchasing the Mona Lisa for $5 billion 
C) A firm attempting to lower its explicit costs 
D) Government price controls

Question 10

Excess demand in a market is evidence of:

Accepted Answer

A) Pareto efficiency. 
B) the opportunity for surplus-enhancing trades. 
C) an economic pie that is too small. 
D) equilibrium. 
A) Pareto efficiency. 
B) the opportunity for surplus-enhancing trades. 
C) an economic pie that is too small. 
D) equilibrium.

Question 11

Daily Supply and Demand: Oranges in Hurricane Alley  
Refer to the figure above.The price of $4.00 per pound will lead to a(n)_____ of _____ pounds of oranges per day.

Accepted Answer

A) excess supply;20 
B) excess demand;30 
C) equilibrium quantity;20 
D) excess demand;20 
A) excess supply;20 
B) excess demand;30 
C) equilibrium quantity;20 
D) excess demand;20

Question 12

If owners of a business are receiving total revenues just sufficient to cover all their explicit and implicit costs,they are:

Accepted Answer

A) doing better than their next best alternative. 
B) earning a normal profit. 
C) earning economic losses. 
D) doing worse than their next best alternative. 
A) doing better than their next best alternative. 
B) earning a normal profit. 
C) earning economic losses. 
D) doing worse than their next best alternative.

Question 13

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

Accepted Answer

A) Wages of workers. 
B) The salary the owner could have earned working elsewhere. 
C) Rent. 
D) Medical insurance coverage for workers. 
A) Wages of workers. 
B) The salary the owner could have earned working elsewhere. 
C) Rent. 
D) Medical insurance coverage for workers.

Question 14

Unlike economic profits,economic rents:

Accepted Answer

A) can be less than zero. 
B) can't be easily driven to zero by entry. 
C) don't involve the idea of opportunity costs. 
D) only apply to land. 
A) can be less than zero. 
B) can't be easily driven to zero by entry. 
C) don't involve the idea of opportunity costs. 
D) only apply to land.

Question 15

Assume that all firms in this industry have identical cost functions.  
Firms in this industry will shut down if the price is

Accepted Answer

A) higher in the short run than in the long run. 
B) less than or equal to $15. 
C) less than or equal to $10. 
D) less than or equal to $5. 
A) higher in the short run than in the long run. 
B) less than or equal to $15. 
C) less than or equal to $10. 
D) less than or equal to $5.

Question 16

Total economic surplus is greatest when:

Accepted Answer

A) price controls keep prices low enough that most consumers can purchase the item. 
B) consumer surplus and producer surplus are equal. 
C) consumer surplus exceeds producer surplus. 
D) the market is in equilibrium. 
A) price controls keep prices low enough that most consumers can purchase the item. 
B) consumer surplus and producer surplus are equal. 
C) consumer surplus exceeds producer surplus. 
D) the market is in equilibrium.

Question 17

It is always true that:

Accepted Answer

A) accounting profits are positive. 
B) economic profits are zero. 
C) economic profits are greater than or equal to accounting profits. 
D) accounting profits greater than or equal to economic profits. 
A) accounting profits are positive. 
B) economic profits are zero. 
C) economic profits are greater than or equal to accounting profits. 
D) accounting profits greater than or equal to economic profits.

Question 18

The No Cash on the Table principle means unexploited opportunities:

Accepted Answer

A) never exist. 
B) cannot be exploited for long. 
C) can exist in equilibrium but rarely do. 
D) always exist in equilibrium. 
A) never exist. 
B) cannot be exploited for long. 
C) can exist in equilibrium but rarely do. 
D) always exist in equilibrium.

Question 19

Price ceilings that are below the equilibrium price result in:

Accepted Answer

A) increased total economic surplus. 
B) shortages. 
C) surpluses. 
D) the same amount of total economic surplus with a reallocation from producers to consumers. 
A) increased total economic surplus. 
B) shortages. 
C) surpluses. 
D) the same amount of total economic surplus with a reallocation from producers to consumers.

Question 20

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

Accepted Answer

A) her initial offer and her final salary,including royalties. 
B) her initial offer and what she could earn in a different film. 
C) her final salary and the average for leading actresses. 
D) her final salary and the least she would be willing to accept for a role. 
A) her initial offer and her final salary,including royalties. 
B) her initial offer and what she could earn in a different film. 
C) her final salary and the average for leading actresses. 
D) her final salary and the least she would be willing to accept for a role.

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

The economic theory of business behavior assumes that the goal of a firm is to:

Generally,______ motivate firms to enter an industry while ______ motivate firms to exit an industry.

Normal profits occur when:

If you were to start your own business,your implicit costs would include:

According to the textbook,individual incentives have led to:

The cumulative difference between the price producers actually receive and the price for which they are willing to produce is:

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.If the supplier sells the tenth pound of oranges to the most eager buyers for $8,the seller is _____ better off than before and the buyer is ______ better off than before.

One assumption of the perfectly competitive model is that of free entry.This assumption most directly leads to the implication that:

Which of the following would be an example of the rationing function of price?

Excess demand in a market is evidence of:

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.The price of $4.00 per pound will lead to a(n)_____ of _____ pounds of oranges per day.

If owners of a business are receiving total revenues just sufficient to cover all their explicit and implicit costs,they are:

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

Unlike economic profits,economic rents:

Assume that all firms in this industry have identical cost functions. Firms in this industry will shut down if the price is

Total economic surplus is greatest when:

It is always true that:

The No Cash on the Table principle means unexploited opportunities:

Price ceilings that are below the equilibrium price result in:

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

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

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

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.If the supplier sells the tenth pound of oranges to the most eager buyers for $8,the seller is _ better off than before and the buyer is __ better off than before.

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.The price of $4.00 per pound will lead to a(n)_ of _ pounds of oranges per day.