Question 1

If you were to put the following effects of a decrease in demand into the sequence in which they occur, which would be last?

Accepted Answer

A)  The demand curve facing each individual firm drops. 
B)  Each firm reduces quantity supplied to the point where marginal cost equals its now-lower marginal revenue. 
C)  In the short run, the market price drops. 
D)  Market output falls. 
E)  A short-run loss forces some firms out of business in the long run. 
A)  The demand curve facing each individual firm drops. 
B)  Each firm reduces quantity supplied to the point where marginal cost equals its now-lower marginal revenue. 
C)  In the short run, the market price drops. 
D)  Market output falls. 
E)  A short-run loss forces some firms out of business in the long run. E

Question 2

The relationship between price and quantity supplied after firms fully adjust to any short-term economic profit or loss resulting from a change in demand is illustrated by the

Accepted Answer

A)  long-run industry supply curve 
B)  Dutch auction model 
C)  short-run firm supply curve 
D)  constant-cost industry supply curve 
E)  short-run industry supply curve 
A)  long-run industry supply curve 
B)  Dutch auction model 
C)  short-run firm supply curve 
D)  constant-cost industry supply curve 
E)  short-run industry supply curve A

Question 3

Compared to the short run, the long-run market supply curve is

Accepted Answer

A)  less elastic 
B)  equally elastic 
C)  more elastic 
D)  always negatively sloped 
E)  None of the answers is correct. 
A)  less elastic 
B)  equally elastic 
C)  more elastic 
D)  always negatively sloped 
E)  None of the answers is correct. C

Question 4

Long-run expansion in an increasing-cost industry increases each firm's marginal and average costs by

Accepted Answer

A)  saving money on per-unit production costs 
B)  bidding up the price of resources 
C)  holding the price of resources constant 
D)  forcing down the price of resources 
E)  bidding up each firm's marginal revenue 
A)  saving money on per-unit production costs 
B)  bidding up the price of resources 
C)  holding the price of resources constant 
D)  forcing down the price of resources 
E)  bidding up each firm's marginal revenue

Question 5

The term productive efficiency refers to

Accepted Answer

A)  any short-run equilibrium position of the competitive firm 
B)  the production of all goods and services that consumers need 
C)  the production of a good at the lowest long-run average cost 
D)  the equality between average total and average variable cost 
E)  satisfying the condition that MR = MC 
A)  any short-run equilibrium position of the competitive firm 
B)  the production of all goods and services that consumers need 
C)  the production of a good at the lowest long-run average cost 
D)  the equality between average total and average variable cost 
E)  satisfying the condition that MR = MC

Question 6

An increasing cost industry is one in which per unit cost increases as output expands in the long run

Accepted Answer

A) True 
 B)False

Question 7

A constant-cost industry is one that can expand and contract without effecting per unit production costs.

Accepted Answer

A) True 
 B)False

Question 8

When an industry supply curve increases enough to erase economic profits,

Accepted Answer

A)  weaker firms exit the industry 
B)  quantity demanded decreases, but only slightly 
C)  all firms in the industry incur economic losses 
D)  entry of new firms and expansion of existing firms stop 
E)  marginal revenue increases 
A)  weaker firms exit the industry 
B)  quantity demanded decreases, but only slightly 
C)  all firms in the industry incur economic losses 
D)  entry of new firms and expansion of existing firms stop 
E)  marginal revenue increases

Question 9

In the short run, producer surplus equals

Accepted Answer

A)  TR - VC 
B)  TR - AVC 
C)  TR + VC 
D)  TR - AFC 
E)  TR + TC 
A)  TR - VC 
B)  TR - AVC 
C)  TR + VC 
D)  TR - AFC 
E)  TR + TC

Question 10

In the short run, producers derive surplus from market exchange because

Accepted Answer

A)  total revenue is greater than the minimum amount they would require to sell the good 
B)  total revenue is equal to the minimum amount they would require to sell the good 
C)  total revenue is less than the minimum amount they would require to sell the good 
D)  marginal revenue equals average total cost 
E)  they can rob consumers of most of their consumer surplus 
A)  total revenue is greater than the minimum amount they would require to sell the good 
B)  total revenue is equal to the minimum amount they would require to sell the good 
C)  total revenue is less than the minimum amount they would require to sell the good 
D)  marginal revenue equals average total cost 
E)  they can rob consumers of most of their consumer surplus

Question 11

The term allocative efficiency refers to

Accepted Answer

A)  the level of output where MC = AVC 
B)  the equality between MR and MC 
C)  the production of those goods and services most valued by consumers 
D)  the point where marginal revenue equals average total cost 
E)  the production of a good up to the point where AFC = 0 
A)  the level of output where MC = AVC 
B)  the equality between MR and MC 
C)  the production of those goods and services most valued by consumers 
D)  the point where marginal revenue equals average total cost 
E)  the production of a good up to the point where AFC = 0

Question 12

Production efficiency exists when the least cost combination of inputs is used to produce output.

Accepted Answer

A) True 
 B)False

Question 13

Social welfare is

Accepted Answer

A)  a government program through which society takes care of low-income people 
B)  the overall well-being of people in the economy 
C)  measured by spending on party supplies, restaurant meals, and movie tickets 
D)  applies to sociology, not economics 
E)  All the answers are correct. 
A)  a government program through which society takes care of low-income people 
B)  the overall well-being of people in the economy 
C)  measured by spending on party supplies, restaurant meals, and movie tickets 
D)  applies to sociology, not economics 
E)  All the answers are correct.

Question 14

Resources are efficiently allocated when production occurs at that point at which

Accepted Answer

A)  marginal cost intersects average variable cost 
B)  price is equal to average revenue 
C)  price is equal to marginal cost 
D)  marginal revenue equals marginal cost 
E)  price is equal to average variable cost 
A)  marginal cost intersects average variable cost 
B)  price is equal to average revenue 
C)  price is equal to marginal cost 
D)  marginal revenue equals marginal cost 
E)  price is equal to average variable cost

Question 15

Allocative efficienty exist when firms produce the output most preferred by consumers.

Accepted Answer

A) True 
 B)False

Question 16

Economic profits in a competitive industry are signals that

Accepted Answer

A)  attract new firms into the industry 
B)  prevent firms from adopting newer technologies 
C)  encourage existing firms to continue to operate inefficiently 
D)  indicate that business conditions are improving 
E)  cause the industry's resources to be used in lower valued uses 
A)  attract new firms into the industry 
B)  prevent firms from adopting newer technologies 
C)  encourage existing firms to continue to operate inefficiently 
D)  indicate that business conditions are improving 
E)  cause the industry's resources to be used in lower valued uses

Question 17

In the short run, producers derive surplus from market exchange because

Accepted Answer

A)  total revenue is greater than the minimum they would require to sell the good 
B)  total revenue is equal to the minimum amount they would require to sell the good 
C)  total revenue is less than the minimum amount they would require to sell the good 
D)  marginal revenue equals average revenue 
E)  they can rob consumers of most of their consumer surplus 
A)  total revenue is greater than the minimum they would require to sell the good 
B)  total revenue is equal to the minimum amount they would require to sell the good 
C)  total revenue is less than the minimum amount they would require to sell the good 
D)  marginal revenue equals average revenue 
E)  they can rob consumers of most of their consumer surplus

Question 18

Market exchange usually benefits

Accepted Answer

A)  both consumers and buyers, but not sellers 
B)  both consumers and producers 
C)  only consumers 
D)  only employees 
E)  only producers 
A)  both consumers and buyers, but not sellers 
B)  both consumers and producers 
C)  only consumers 
D)  only employees 
E)  only producers

Question 19

Whether the firm produces or shuts down in the short run, fixed cost is equal to

Accepted Answer

A)  average variable cost 
B)  total cost 
C)  sunk cost 
D)  price 
E)  marginal cost 
A)  average variable cost 
B)  total cost 
C)  sunk cost 
D)  price 
E)  marginal cost

Question 20

Allocative efficiency occurs when

Accepted Answer

A)  output is produced at minimum average cost 
B)  the marginal benefit, that consumers attach to the final unit purchased, just equals the opportunity cost of the resources employed to produce that unit. 
C)  new firms enter a perfectly competitive market 
D)  the marginal benefit consumers attach to products purchased is maximized 
E)  goods and services are sold in an English style auction market 
A)  output is produced at minimum average cost 
B)  the marginal benefit, that consumers attach to the final unit purchased, just equals the opportunity cost of the resources employed to produce that unit. 
C)  new firms enter a perfectly competitive market 
D)  the marginal benefit consumers attach to products purchased is maximized 
E)  goods and services are sold in an English style auction market

Exam 8: B: Perfect Competition

If you were to put the following effects of a decrease in demand into the sequence in which they occur, which would be last?

The relationship between price and quantity supplied after firms fully adjust to any short-term economic profit or loss resulting from a change in demand is illustrated by the

Compared to the short run, the long-run market supply curve is

Long-run expansion in an increasing-cost industry increases each firm's marginal and average costs by

The term productive efficiency refers to

An increasing cost industry is one in which per unit cost increases as output expands in the long run

A constant-cost industry is one that can expand and contract without effecting per unit production costs.

When an industry supply curve increases enough to erase economic profits,

In the short run, producer surplus equals

In the short run, producers derive surplus from market exchange because

The term allocative efficiency refers to

Production efficiency exists when the least cost combination of inputs is used to produce output.

Social welfare is

Resources are efficiently allocated when production occurs at that point at which

Allocative efficienty exist when firms produce the output most preferred by consumers.

Economic profits in a competitive industry are signals that

In the short run, producers derive surplus from market exchange because

Market exchange usually benefits

Whether the firm produces or shuts down in the short run, fixed cost is equal to

Allocative efficiency occurs when

The Art and Science of Economic Analysis

Appendix: Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Consumer Choice and Demand

Production and Cost in the Firm

A: Perfect Competition

A: Monopoly

B: Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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