Question 1

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. B

Question 2

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. A

Question 3

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. D

Question 4

If a firm is earning zero economic profits:

Accepted Answer

A)  its revenues are sufficient to pay explicit costs,but not implicit costs. 
B)  the owner will not be able to pay himself or herself a salary. 
C)  it will shut down in the long run,but will continue to operate in the short run. 
D)  the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment. 
A)  its revenues are sufficient to pay explicit costs,but not implicit costs. 
B)  the owner will not be able to pay himself or herself a salary. 
C)  it will shut down in the long run,but will continue to operate in the short run. 
D)  the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment.

Question 5

Which of the following statements expresses the justification for making efficiency the first goal of economic interaction?

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. 
D)  Efficiency maximizes total economic surplus and thereby allows other goals to be more fully 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. 
D)  Efficiency maximizes total economic surplus and thereby allows other goals to be more fully achieved.

Question 6

Some people have argued that the government should provide medical care to everyone.Under this system:

Accepted Answer

A)  the price of medical care will allocate resources efficiently. 
B)  the price of medical care will ration resources efficiently. 
C)  prices will not ration medical care so there will be no scarcity. 
D)  prices will not ration medical care so some other rationing method will be used. 
A)  the price of medical care will allocate resources efficiently. 
B)  the price of medical care will ration resources efficiently. 
C)  prices will not ration medical care so there will be no scarcity. 
D)  prices will not ration medical care so some other rationing method will be used.

Question 7

Implicit costs:

Accepted Answer

A)  are always fixed. 
B)  measure the forgone opportunities of the owners of the business. 
C)  always exceed explicit costs. 
D)  are irrelevant to business decisions. 
A)  are always fixed. 
B)  measure the forgone opportunities of the owners of the business. 
C)  always exceed explicit costs. 
D)  are irrelevant to business decisions.

Question 8

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 9

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 10

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 11

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 12

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 13

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.Pat's explicit cost is _____ and Pat's implicit cost is ______.

Accepted Answer

A)  $16,000;$51,000 
B)  $15,000;$36,000 
C)  $16,000;$35,000 
D)  $35,000;$16,000 
A)  $16,000;$51,000 
B)  $15,000;$36,000 
C)  $16,000;$35,000 
D)  $35,000;$16,000

Question 14

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 15

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 16

The statement,"If a deal is too good to be true,it probably is not true" is most closely related to which principle?

Accepted Answer

A)  The low-hanging fruit principle 
B)  The no-cash-on-the-table principle 
C)  The cost-benefit principle 
D)  The diminishing marginal returns principle 
A)  The low-hanging fruit principle 
B)  The no-cash-on-the-table principle 
C)  The cost-benefit principle 
D)  The diminishing marginal returns principle

Question 17

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 18

_____________ 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 19

The statement,"price directs resources across different sectors of the economy" refers to the ______ function of price.

Accepted Answer

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

Question 20

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.

Accounting profits minus implicit costs equals:

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):

Explicit costs:

If a firm is earning zero economic profits:

Which of the following statements expresses the justification for making efficiency the first goal of economic interaction?

Some people have argued that the government should provide medical care to everyone.Under this system:

Implicit costs:

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

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

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

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

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

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

A market equilibrium is only efficient when:

The statement,"If a deal is too good to be true,it probably is not true" is most closely related to which principle?

_____________ work together to guide resources to their highest value.

The statement,"price directs resources across different sectors of the economy" refers to the ______ function of price.

Price ceilings that are below the equilibrium price result in:

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

Accounting profits minus implicit costs equals:

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):

Explicit costs:

If a firm is earning zero economic profits:

Which of the following statements expresses the justification for making efficiency the first goal of economic interaction?

Some people have argued that the government should provide medical care to everyone.Under this system:

Implicit costs:

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

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

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

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

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

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

A market equilibrium is only efficient when:

The statement,"If a deal is too good to be true,it probably is not true" is most closely related to which principle?

_____________ work together to guide resources to their highest value.

The statement,"price directs resources across different sectors of the economy" refers to the ______ function of price.

Price ceilings that are below the equilibrium price result in:

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