Question 1

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 2

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.
Chris's explicit annual cost is _____ and Chris's implicit cost is ______.

Accepted Answer

A)  $15,000;$43,000 
B)  $18,000;$40,000 
C)  $36,000;$140,000 
D)  $51,000;$40,000 
A)  $15,000;$43,000 
B)  $18,000;$40,000 
C)  $36,000;$140,000 
D)  $51,000;$40,000

Question 3

Adam Smith coined the term "invisible hand" to describe the process by which:

Accepted Answer

A)  self-interest leads an economy to ruin. 
B)  self-interest leads to an allocation of goods and services that is relatively efficient. 
C)  private interests are sacrificed for the benefit of society. 
D)  the wealthy become richer and the poor become poorer. 
A)  self-interest leads an economy to ruin. 
B)  self-interest leads to an allocation of goods and services that is relatively efficient. 
C)  private interests are sacrificed for the benefit of society. 
D)  the wealthy become richer and the poor become poorer.

Question 4

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 5

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 6

Economic rent is:

Accepted Answer

A)  the amount you pay for an apartment in a free market. 
B)  the payment made to suppliers of an input. 
C)  the difference between the payment made to the supplier of an input and the supplier's reservation price. 
D)  the same as the input supplier's reservation price. 
A)  the amount you pay for an apartment in a free market. 
B)  the payment made to suppliers of an input. 
C)  the difference between the payment made to the supplier of an input and the supplier's reservation price. 
D)  the same as the input supplier's reservation price.

Question 7

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 8

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.

Question 9

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 10

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 11

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 12

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.Ingrid decides to try to buy a ticket from a scalper (a person who has purchased extra tickets at the box office with the intent to resell those tickets).If Ingrid finds someone who is willing to sell her a ticket for $70,she should:

Accepted Answer

A)  not purchase it because it is overpriced by $10. 
B)  not purchase it because the cost to the scalper was only $60,and it is unfair of the scalper to take advantage of the ticket shortage. 
C)  purchase it because to do so will lead to an increase in surplus. 
D)  purchase it even though it is not surplus-enhancing. 
A)  not purchase it because it is overpriced by $10. 
B)  not purchase it because the cost to the scalper was only $60,and it is unfair of the scalper to take advantage of the ticket shortage. 
C)  purchase it because to do so will lead to an increase in surplus. 
D)  purchase it even though it is not surplus-enhancing.

Question 13

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.
Chris's opportunity cost of running her own business is ______ which is the _______.

Accepted Answer

A)  $15,000;implicit cost 
B)  $51,000;explicit cost 
C)  $40,000;implicit cost 
D)  $51,000;economic cost 
A)  $15,000;implicit cost 
B)  $51,000;explicit cost 
C)  $40,000;implicit cost 
D)  $51,000;economic cost

Question 14

Suppose the market for coffee is in equilibrium at a price of $5 per pound.This means:

Accepted Answer

A)  all producers who want to sell coffee earn a profit. 
B)  all potential producers not producing coffee require less than $5 to produce coffee. 
C)  all consumers who want to buy coffee are satisfied. 
D)  all potential consumers not buying coffee value a pound of coffee at less than $5. 
A)  all producers who want to sell coffee earn a profit. 
B)  all potential producers not producing coffee require less than $5 to produce coffee. 
C)  all consumers who want to buy coffee are satisfied. 
D)  all potential consumers not buying coffee value a pound of coffee at less than $5.

Question 15

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 16

E-commerce and an internet presence are important to many firms,requiring employees with specialized skills that are in short supply.The invisible hand solves the employment problem by:

Accepted Answer

A)  encouraging the government to set up new training programs. 
B)  giving selfish workers the incentive to acquire the skills in order to receive high wages. 
C)  allowing the few employees with the skills to exploit the firms. 
D)  moving slowly until the e-commerce craze ends. 
A)  encouraging the government to set up new training programs. 
B)  giving selfish workers the incentive to acquire the skills in order to receive high wages. 
C)  allowing the few employees with the skills to exploit the firms. 
D)  moving slowly until the e-commerce craze ends.

Question 17

The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions.  
Assume that the market is currently as shown in the graph on the left .What is true of the number of firms?

Accepted Answer

A)  There are currently 30 firms in the industry,and that number will remain stable until there is a change in demand or in technology. 
B)  There are currently ten firms in this industry,and that number will remain stable until there is a change in demand or in technology. 
C)  It is impossible to tell how many firms currently exist in this industry,but you can tell that the number of firms is likely to increase in the near future. 
D)  There are currently ten firms in this industry,and that number is likely to increase in the near future. 
A)  There are currently 30 firms in the industry,and that number will remain stable until there is a change in demand or in technology. 
B)  There are currently ten firms in this industry,and that number will remain stable until there is a change in demand or in technology. 
C)  It is impossible to tell how many firms currently exist in this industry,but you can tell that the number of firms is likely to increase in the near future. 
D)  There are currently ten firms in this industry,and that number is likely to increase in the near future.

Question 18

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 19

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 20

Market equilibrium is considered efficient because:

Accepted Answer

A)  prices are low. 
B)  the price consumers pay equals the profit producers receive. 
C)  no more trades remain that benefit some without harming others. 
D)  it assures that both the buyer and seller earn equal surplus. 
A)  prices are low. 
B)  the price consumers pay equals the profit producers receive. 
C)  no more trades remain that benefit some without harming others. 
D)  it assures that both the buyer and seller earn equal surplus.

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

Adam Smith coined the term "invisible hand" to describe the process by which:

Subsidies are most likely to:

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,

Economic rent is:

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

An example of an implicit cost is:

Economic profits are:

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

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

Suppose the market for coffee is in equilibrium at a price of $5 per pound.This means:

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

E-commerce and an internet presence are important to many firms,requiring employees with specialized skills that are in short supply.The invisible hand solves the employment problem by:

The following graphs depict a perfectly competitive firm and its market. Assume that all firms in this industry have identical cost functions. Assume that the market is currently as shown in the graph on the left .What is true of the number of firms?

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

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:

Market equilibrium is considered efficient because:

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

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

Adam Smith coined the term "invisible hand" to describe the process by which:

Subsidies are most likely to:

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,

Economic rent is:

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

An example of an implicit cost is:

Economic profits are:

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

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

Suppose the market for coffee is in equilibrium at a price of $5 per pound.This means:

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

E-commerce and an internet presence are important to many firms,requiring employees with specialized skills that are in short supply.The invisible hand solves the employment problem by:

The following graphs depict a perfectly competitive firm and its market. Assume that all firms in this industry have identical cost functions. Assume that the market is currently as shown in the graph on the left .What is true of the number of firms?

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

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:

Market equilibrium is considered efficient because:

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

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