Question 1

If the demand curve fails to capture all of the benefits of consumption,then the:

Accepted Answer

A) equilibrium price is efficient but the quantity will be too large. 
B) the equilibrium price is inefficiently low. 
C) government needs to impose regulations that require more consumption. 
D) the equilibrium price is inefficiently high. 
A) equilibrium price is efficient but the quantity will be too large. 
B) the equilibrium price is inefficiently low. 
C) government needs to impose regulations that require more consumption. 
D) the equilibrium price is inefficiently high.

Question 2

Daily Supply and Demand: Oranges in Hurricane Alley  
Refer to the figure above.The marginal buyer values the tenth pound of oranges at ____.

Accepted Answer

A) $0 
B) $4 
C) $8 
D) $12 
A) $0 
B) $4 
C) $8 
D) $12

Question 3

Which of the following is NOT guaranteed by the efficiency of the market equilibrium?

Accepted Answer

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

Question 4

The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions.  
A starting assumption about this industry was that all of the firms had identical cost functions.This assumption

Accepted Answer

A) is unrealistic because all firms are unique. 
B) is realistic because any cost advantage of one firm will be quickly adopted by the others. 
C) is unrealistic because firms closely guard their production process secrets. 
D) is unrealistic because competition forces all firms to seek the most efficient production processes. 
A) is unrealistic because all firms are unique. 
B) is realistic because any cost advantage of one firm will be quickly adopted by the others. 
C) is unrealistic because firms closely guard their production process secrets. 
D) is unrealistic because competition forces all firms to seek the most efficient production processes.

Question 5

A market equilibrium is only efficient when:

Accepted Answer

A) buyers and sellers each earn equal surplus from the transaction. 
B) consumer surplus and producer surplus are both zero. 
C) all relevant costs,including those imposed on others,are accounted for. 
D) income is distributed equitably. 
A) buyers and sellers each earn equal surplus from the transaction. 
B) consumer surplus and producer surplus are both zero. 
C) all relevant costs,including those imposed on others,are accounted for. 
D) income is distributed equitably.

Question 6

Assume that all firms in this industry have identical cost functions.  
The long-run equilibrium price in this industry is

Accepted Answer

A) $15. 
B) $10. 
C) $5. 
D) $5 for some firms and $10 for others. 
A) $15. 
B) $10. 
C) $5. 
D) $5 for some firms and $10 for others.

Question 7

Assume that all firms in this industry have identical cost functions.  
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 8

Daily Supply and Demand: Oranges in Hurricane Alley  
Refer to the figure above.At the price of $4.00,sellers offer _____ pounds of oranges per day,and buyers want to purchase ____ pounds of oranges a day.

Accepted Answer

A) 10;30 
B) 10;20 
C) 20;20 
D) 30;10 
A) 10;30 
B) 10;20 
C) 20;20 
D) 30;10

Question 9

Barriers to entry are _____,and one effect of barriers to entry is to _____ the ability of the invisible hand to allocate resources efficiently.

Accepted Answer

A) uncommon today due to antitrust enforcement;improve 
B) forces that limit new firms from joining an industry;reduce 
C) forces that limit new firms from joining an industry;irrelevant to 
D) uncommon today due to antitrust enforcement;reduce 
A) uncommon today due to antitrust enforcement;improve 
B) forces that limit new firms from joining an industry;reduce 
C) forces that limit new firms from joining an industry;irrelevant to 
D) uncommon today due to antitrust enforcement;reduce

Question 10

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.
The damage to the downstream fish is a(n):

Accepted Answer

A) relevant cost of production. 
B) relevant cost of production only if the firm is charged a fine for the damage done. 
C) relevant cost of production only if there are commercial fishing activities downstream. 
D) implicit cost of production which the firm will take into account in determining profit maximizing output. 
A) relevant cost of production. 
B) relevant cost of production only if the firm is charged a fine for the damage done. 
C) relevant cost of production only if there are commercial fishing activities downstream. 
D) implicit cost of production which the firm will take into account in determining profit maximizing output.

Question 11

An implication of entry and exit in response to the profit incentive is that,for perfectly competitive firms,

Accepted Answer

A) no firm accepts zero economic profits in the long run. 
B) firms produce the quantity that minimizes average variable costs in the short run. 
C) firms produce the quantity that minimizes average total costs in the long run. 
D) demand is completely inelastic. 
A) no firm accepts zero economic profits in the long run. 
B) firms produce the quantity that minimizes average variable costs in the short run. 
C) firms produce the quantity that minimizes average total costs in the long run. 
D) demand is completely inelastic.

Question 12

Duke is a particularly highly skilled negotiator.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,with 75% going to Duke and 25% going to the law firm. 
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,with 75% going to Duke and 25% going to the law firm.

Question 13

Assume that all firms in this industry have identical cost functions.  
When price is $15 in this industry,

Accepted Answer

A) the industry is in its long run equilibrium. 
B) it is because supply has shifted from Supply B to Supply A because firms that were not making a profit left the industry. 
C) new firms will be expected to enter. 
D) all firms are making zero economic profits. 
A) the industry is in its long run equilibrium. 
B) it is because supply has shifted from Supply B to Supply A because firms that were not making a profit left the industry. 
C) new firms will be expected to enter. 
D) all firms are making zero economic profits.

Question 14

Pareto efficiency is a situation in which:

Accepted Answer

A) no one is made better off. 
B) trades remain that would make some better off without harming others. 
C) trades have benefited some and harmed others. 
D) any further trades will harm someone. 
A) no one is made better off. 
B) trades remain that would make some better off without harming others. 
C) trades have benefited some and harmed others. 
D) any further trades will harm someone.

Question 15

The statement,"price distributes goods and services to those that value them the most" refers to the ______ function of price.

Accepted Answer

A) allocative 
B) multiplicative 
C) store of value 
D) rationing 
A) allocative 
B) multiplicative 
C) store of value 
D) rationing

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

If the demand curve fails to capture all of the benefits of consumption,then the:

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.The marginal buyer values the tenth pound of oranges at ____.

Which of the following is NOT guaranteed by the efficiency of the market equilibrium?

The following graphs depict a perfectly competitive firm and its market. Assume that all firms in this industry have identical cost functions. A starting assumption about this industry was that all of the firms had identical cost functions.This assumption

A market equilibrium is only efficient when:

Assume that all firms in this industry have identical cost functions. The long-run equilibrium price in this industry is

Assume that all firms in this industry have identical cost functions. In the long run,there will be ______ firms in this market.

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.At the price of $4.00,sellers offer _____ pounds of oranges per day,and buyers want to purchase ____ pounds of oranges a day.

Barriers to entry are _____,and one effect of barriers to entry is to _____ the ability of the invisible hand to allocate resources efficiently.

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. The damage to the downstream fish is a(n):

An implication of entry and exit in response to the profit incentive is that,for perfectly competitive firms,

Duke is a particularly highly skilled negotiator.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:

Assume that all firms in this industry have identical cost functions. When price is $15 in this industry,

Pareto efficiency is a situation in which:

The statement,"price distributes goods and services to those that value them the most" refers to the ______ function of price.

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

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.At the price of $4.00,sellers offer _ pounds of oranges per day,and buyers want to purchase pounds of oranges a day.

Barriers to entry are _,and one effect of barriers to entry is to _ the ability of the invisible hand to allocate resources efficiently.