Question 1

When a price ceiling is imposed in a competitive market at a level below the equilibrium price:

Accepted Answer

A) the gain to producers outweighs the loss to consumers. 
B) the output level becomes inefficient. 
C) the total surplus in the market is not affected. 
D) the producer surplus is increased. 
A) the gain to producers outweighs the loss to consumers. 
B) the output level becomes inefficient. 
C) the total surplus in the market is not affected. 
D) the producer surplus is increased.

Question 2

Given that quotas benefit producers,who are few in number,at a greater expense to consumers,who are more in number,which of the following correctly explains why quotas are still in effect?

Accepted Answer

A) Domestic consumers are better organized than domestic producers. 
B) Quotas reduce prices in domestic markets. 
C) The benefits of quotas are concentrated and visible while the costs are dispersed. 
D) When a quota is imposed by the importing country,it lowers prices in the global market. 
A) Domestic consumers are better organized than domestic producers. 
B) Quotas reduce prices in domestic markets. 
C) The benefits of quotas are concentrated and visible while the costs are dispersed. 
D) When a quota is imposed by the importing country,it lowers prices in the global market.

Question 3

The following figure shows the effect of a price ceiling in the market for yams.The market was initially in equilibrium at price P2 and quantity B.   Refer to Figure 10-1.The total surplus at the initial point of equilibrium,F,is given by _____.

Accepted Answer

A) LFP2 
B) LFGP1 
C) LFM 
D) LFIP1 
A) LFP2 
B) LFGP1 
C) LFM 
D) LFIP1

Question 4

An excise tax levied on firms in a constant-cost competitive industry will:

Accepted Answer

A) increase output more in the short run than in the long run. 
B) reduce output more in the long run than in the short run. 
C) benefit consumers in the short run but harm them in the long run. 
D) increase the product price more in the short run than in the long run. 
A) increase output more in the short run than in the long run. 
B) reduce output more in the long run than in the short run. 
C) benefit consumers in the short run but harm them in the long run. 
D) increase the product price more in the short run than in the long run.

Question 5

Is the outcome of a competitive market efficient? Explain with the help of a graph.

Accepted Answer

The equilibrium level of output in a com

Question 6

Which of the following strengthens the possibility that the airline market is a contestable market?

Accepted Answer

A) Since other airlines can enter the market at no cost and charge lower fares,the fare charged by a single airline is always equal to the marginal cost. 
B) The barriers to entry in the airline market lead to nonprice competition between the airlines operating in the market. 
C) The fares that are charged for routes with more than one airline are significantly higher than the fares charged for a route with only one airline. 
D) Airlines regularly charge fares that are above the competitive levels irrespective of the number of airlines plying a particular route. 
A) Since other airlines can enter the market at no cost and charge lower fares,the fare charged by a single airline is always equal to the marginal cost. 
B) The barriers to entry in the airline market lead to nonprice competition between the airlines operating in the market. 
C) The fares that are charged for routes with more than one airline are significantly higher than the fares charged for a route with only one airline. 
D) Airlines regularly charge fares that are above the competitive levels irrespective of the number of airlines plying a particular route.

Question 7

How do price ceilings in the rental housing market affect tenants?

Accepted Answer

A) Since price ceilings keep rents from rising above a certain level,the net gain to tenants is positive. 
B) Tenants are worse off from price ceilings since the supply of rental housing falls in the long run. 
C) Tenants benefit from price ceilings since landlords have incentives to improve the quality of existing rental housing 
D) Since the supply of rental housing is inelastic in the short run,tenants are not affected by a price ceiling. 
A) Since price ceilings keep rents from rising above a certain level,the net gain to tenants is positive. 
B) Tenants are worse off from price ceilings since the supply of rental housing falls in the long run. 
C) Tenants benefit from price ceilings since landlords have incentives to improve the quality of existing rental housing 
D) Since the supply of rental housing is inelastic in the short run,tenants are not affected by a price ceiling.

Question 8

A contestable market is one in which:

Accepted Answer

A) a small number of firms operate,keeping price above marginal cost. 
B) the market price is independent of the number of firms. 
C) the price in the market depends upon the number of firms because entry is free. 
D) the lack of barriers to entry causes price to remain low. 
A) a small number of firms operate,keeping price above marginal cost. 
B) the market price is independent of the number of firms. 
C) the price in the market depends upon the number of firms because entry is free. 
D) the lack of barriers to entry causes price to remain low.

Question 9

Which of the following is true of a quota in a competitive market?

Accepted Answer

A) A quota increases total surplus as the quantity produced and consumed in the domestic market increases. 
B) A quota is a trade policy used to promote greater efficiency in production within world markets. 
C) A quota reduces the welfare of domestic consumers more than it increases the welfare of producers. 
D) A quota is imposed in a competitive market to increase total world output of goods and services. 
A) A quota increases total surplus as the quantity produced and consumed in the domestic market increases. 
B) A quota is a trade policy used to promote greater efficiency in production within world markets. 
C) A quota reduces the welfare of domestic consumers more than it increases the welfare of producers. 
D) A quota is imposed in a competitive market to increase total world output of goods and services.

Question 10

Issuing a fixed number of licenses to operate a taxicab in a city would mean that the number of:

Accepted Answer

A) cabs and fares are both above the efficient level. 
B) cabs is less than the efficient quantity and fares are above free-market levels. 
C) cabs is above the efficient level and fares are depressed below the free-market level. 
D) cabs and fares are both below the efficient level. 
A) cabs and fares are both above the efficient level. 
B) cabs is less than the efficient quantity and fares are above free-market levels. 
C) cabs is above the efficient level and fares are depressed below the free-market level. 
D) cabs and fares are both below the efficient level.

Question 11

Producer surplus is calculated as _____.

Accepted Answer

A) the area between the price line and the supply curve up to the equilibrium level of output 
B) the area between the supply curve and the X-axis up to the equilibrium level of output 
C) the area between the price line and the demand curve up to the equilibrium level of output 
D) the area between the demand curve and the supply curve up to the equilibrium level of output 
A) the area between the price line and the supply curve up to the equilibrium level of output 
B) the area between the supply curve and the X-axis up to the equilibrium level of output 
C) the area between the price line and the demand curve up to the equilibrium level of output 
D) the area between the demand curve and the supply curve up to the equilibrium level of output

Question 12

Suppose the demand for some good can be estimated using the equation QD = a - bP,and the supply can be estimated using the equation QS = c + dP,where a is the intercept and b is the slope of the demand curve,and c is the intercept and d is the slope of the supply curve.P is the equilibrium price in the market.
(a)If a per-unit excise tax of size T were imposed on each unit of this good sold in the market,show that the percentage of the tax born by the consumer is  
[Hint: The tax (T)is equal to the price the consumer pays (i.e. ,Pd. minus the price received by the supplier (PS).Therefore,T = PD - PS.Rearrange and substitute into one of the equations above.]

Accepted Answer

(a)Setting the demand and supply curves

Question 13

Use the following figure to answer the questions : Figure 10-4 : shows the intersection of the demand and supply curves for a commodity in the domestic market at price PS1U1B12S1U1B0 and quantity QS1U1B12S1U1B0,in the absence of trade.With trade,the supply curve shifts to SupplyS1U1B1tradeS1U1B0.  
-Refer to Figure 10-4.In the absence of trade,the total producer surplus is given by _____.

Accepted Answer

A) f + g + j 
B) f + g + h + j 
C) f + g + h + i 
D) f + g + h + i + j 
A) f + g + j 
B) f + g + h + j 
C) f + g + h + i 
D) f + g + h + i + j

Question 14

A per-unit excise tax on a single competitive firm causes:

Accepted Answer

A) all cost curves,except the total fixed cost curve to increase by the amount of the tax. 
B) all per-unit cost curves to increase by less than the amount of the tax. 
C) all per-unit cost curves,except the marginal cost curve,to decrease by the amount of the tax. 
D) all per-unit cost curves and the marginal cost curve to increase by the amount of the tax. 
A) all cost curves,except the total fixed cost curve to increase by the amount of the tax. 
B) all per-unit cost curves to increase by less than the amount of the tax. 
C) all per-unit cost curves,except the marginal cost curve,to decrease by the amount of the tax. 
D) all per-unit cost curves and the marginal cost curve to increase by the amount of the tax.

Question 15

The level of output produced by a firm is efficient if _____ at that level of output.

Accepted Answer

A) marginal benefit equals marginal cost 
B) total cost equals total revenue 
C) fixed cost equals price 
D) average variable cost equals average revenue 
A) marginal benefit equals marginal cost 
B) total cost equals total revenue 
C) fixed cost equals price 
D) average variable cost equals average revenue

Question 16

The long-run supply curve in a constant-cost competitive industry is a(n)_____ line.

Accepted Answer

A) horizontal 
B) vertical 
C) downward sloping 
D) upward sloping 
A) horizontal 
B) vertical 
C) downward sloping 
D) upward sloping

Question 17

For an excise tax which causes output in a market to fall to zero:

Accepted Answer

A) the tax revenue and deadweight loss are both zero. 
B) the tax revenue is positive but there is no deadweight loss. 
C) the deadweight loss is equal to the total surplus before the tax. 
D) the deadweight loss is equal to the producer's surplus. 
A) the tax revenue and deadweight loss are both zero. 
B) the tax revenue is positive but there is no deadweight loss. 
C) the deadweight loss is equal to the total surplus before the tax. 
D) the deadweight loss is equal to the producer's surplus.

Question 18

Use the following figure to answer the questions : Figure 10-4 : shows the intersection of the demand and supply curves for a commodity in the domestic market at price PS1U1B12S1U1B0 and quantity QS1U1B12S1U1B0,in the absence of trade.With trade,the supply curve shifts to SupplyS1U1B1tradeS1U1B0.  
-Refer to Figure 10-4.When foreign suppliers enter the domestic market the total consumer surplus becomes _____.

Accepted Answer

A) a + b + c + d 
B) a + b + c + f + g + h 
C) a + b + c + f + g + j 
D) a + b + c + f + g + h + i 
A) a + b + c + d 
B) a + b + c + f + g + h 
C) a + b + c + f + g + j 
D) a + b + c + f + g + h + i

Question 19

Use the following figure to answer the questions : Figure 10-5 shows the domestic U.S.market for bananas and the global market for bananas.The domestic supply curve is given by SUPPLYS1U1B1USS1U1B0.With free trade,the equilibrium output in the U.S.market is Q.The import quota imposed by the government is equal to 0A.  
-Refer to Figure 10-5.Given that trade in bananas is free from any restrictions,which of the following would be true if P5 was lesser than P3?

Accepted Answer

A) The domestic demand for bananas would be fully satisfied through imports. 
B) The U.S.would not import bananas;domestic demand would be satisfied by domestic production. 
C) Domestic producers would be worse off and foreign producers would be better off. 
D) Domestic consumers would lose surplus as they would have to pay a higher domestic price. 
A) The domestic demand for bananas would be fully satisfied through imports. 
B) The U.S.would not import bananas;domestic demand would be satisfied by domestic production. 
C) Domestic producers would be worse off and foreign producers would be better off. 
D) Domestic consumers would lose surplus as they would have to pay a higher domestic price.

Question 20

In the long run,aggregate producer surplus is zero in:

Accepted Answer

A) industries with positive accounting profits. 
B) industries with a positive economic profit. 
C) decreasing-cost industries. 
D) constant-cost competitive industries. 
A) industries with positive accounting profits. 
B) industries with a positive economic profit. 
C) decreasing-cost industries. 
D) constant-cost competitive industries.

When a price ceiling is imposed in a competitive market at a level below the equilibrium price:

Given that quotas benefit producers,who are few in number,at a greater expense to consumers,who are more in number,which of the following correctly explains why quotas are still in effect?

The following figure shows the effect of a price ceiling in the market for yams.The market was initially in equilibrium at price P₂and quantity B. Refer to Figure 10-1.The total surplus at the initial point of equilibrium,F,is given by _____.

An excise tax levied on firms in a constant-cost competitive industry will:

Is the outcome of a competitive market efficient? Explain with the help of a graph.

Which of the following strengthens the possibility that the airline market is a contestable market?

How do price ceilings in the rental housing market affect tenants?

A contestable market is one in which:

Which of the following is true of a quota in a competitive market?

Issuing a fixed number of licenses to operate a taxicab in a city would mean that the number of:

Producer surplus is calculated as _____.

A per-unit excise tax on a single competitive firm causes:

The level of output produced by a firm is efficient if _____ at that level of output.

The long-run supply curve in a constant-cost competitive industry is a(n)_____ line.

For an excise tax which causes output in a market to fall to zero:

In the long run,aggregate producer surplus is zero in:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 10: Using the Competitive Model

When a price ceiling is imposed in a competitive market at a level below the equilibrium price:

Given that quotas benefit producers,who are few in number,at a greater expense to consumers,who are more in number,which of the following correctly explains why quotas are still in effect?

The following figure shows the effect of a price ceiling in the market for yams.The market was initially in equilibrium at price P2 and quantity B. Refer to Figure 10-1.The total surplus at the initial point of equilibrium,F,is given by _____.

An excise tax levied on firms in a constant-cost competitive industry will:

Is the outcome of a competitive market efficient? Explain with the help of a graph.

Which of the following strengthens the possibility that the airline market is a contestable market?

How do price ceilings in the rental housing market affect tenants?

A contestable market is one in which:

Which of the following is true of a quota in a competitive market?

Issuing a fixed number of licenses to operate a taxicab in a city would mean that the number of:

Producer surplus is calculated as _____.

A per-unit excise tax on a single competitive firm causes:

The level of output produced by a firm is efficient if _____ at that level of output.

The long-run supply curve in a constant-cost competitive industry is a(n)_____ line.

For an excise tax which causes output in a market to fall to zero:

In the long run,aggregate producer surplus is zero in:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

The following figure shows the effect of a price ceiling in the market for yams.The market was initially in equilibrium at price P₂and quantity B. Refer to Figure 10-1.The total surplus at the initial point of equilibrium,F,is given by _____.