Deck 7: The Quest for Profit and the Invisible Hand

Question 1

Which of the following is NOT true of a perfectly competitive market?

A) A single good of constant quality is offered for sale.
B) All buyers and sellers know the market price and quality of the good.
C) Factors of production are mobile.
D) A firm can eventually dominate the market by lowering its price if no one else in the industry is lowering their prices.
E) Firms in the market seek to maximize profit.

Answer 1

A firm can eventually dominate the market by lowering its price if no one else in the industry is lowering their prices.

Question 2

A perfectly competitive firm finds that it

A) can sell exactly the same amount at any price.
B) must raise its price to sell less.
C) can sell all it wants to at the market price.
D) must lower its price to sell more.
E) faces inelastic demand for its product.

Answer 2

can sell all it wants to at the market price.

Question 3

Market equilibrium is considered efficient because

A) quantity supplied equals quantity demanded.
B) the price consumers pay equals the amount producers receive.
C) it produces the largest possible total economic surplus.
D) excess supply is zero.
E) excess demand is zero.

Answer 3

it produces the largest possible total economic surplus.

Question 4

Which of the following firms best represents a price taker?

A) Microsoft.
B) General Motors.
C) The local McDonald's.
D) A wheat farmer in Manitoba.
E) The Gap.

Question 5

A price-taking firm confronts a demand curve that is

A) vertical at the market price.
B) upward-sloping.
C) downward-sloping.
D) horizontal at the market price.
E) inelastic.

Question 6

Suppose that the market for coffee is in equilibrium at a price of $15 per kilogram.This means that

A) all producers who want to sell coffee are pleased.
B) all remaining producers require less than $15 to produce coffee.
C) all consumers who want to buy coffee are satisfied.
D) all remaining consumers value a kilogram of coffee at less than $15.
E) many trades between consumers and producers remain.

Question 7

An imperfectly competitive firm is one that

A) has some degree of influence over the price it charges for its output.
B) finds it difficult to compete.
C) charges any price it wishes.
D) maximizes revenue.
E) confronts a perfectly inelastic demand curve.

Question 8

If a price below the equilibrium price is imposed in a perfectly competitive market,

A) any price reduction will increase total economic surplus.
B) any price increase will reduce total economic surplus.
C) leaving the price at this value will increase total economic surplus.
D) increasing the price to the equilibrium price will increase total economic surplus.
E) reducing the price to zero will increase total economic surplus.

Question 9

Which of the following is the closest example of a perfectly competitive market?

A) An agricultural product,such as wheat,produced by small farmers.
B) Ontario Hydro.
C) Bell Canada.
D) The Hudson Bay Company.
E) Mr.Sub.

Question 10

From an efficiency point of view,if a market is in equilibrium,then

A) supply equals demand.
B) the price is "too high."
C) the price is "too low."
D) total economic surplus is maximized.
E) some mutually beneficial transactions between consumers and producers have not taken place.

Question 11

When weighing policy choices,economic analysis stresses

A) equity.
B) the size of total economic surplus.
C) both equity and the size of total economic surplus.
D) the maximum amount of government involvement.
E) the minimum amount of government involvement.

Question 12

Suppose that a perfectly competitive industry has an external cost (e.g. ,noise pollution).The market outcome will ______ because the equilibrium price is ______.

A) not maximize total surplus;greater than the true cost
B) maximize total surplus;correct
C) not maximize total surplus;too high
D) maximize total surplus;too low
E) not maximize total surplus;less than the true cost

Question 13

Economic surplus is the

A) benefit gained by taking an action.
B) price paid to take an action.
C) difference between the benefit gained and the cost incurred of taking an action.
D) wage someone would have to earn in order to take an action.
E) difference between the price paid and taxes collected by the government.

Question 14

Suppose that the market for sugar is in equilibrium at $10 per kilogram.This means that

A) all remaining producers will require more than $10 to produce sugar.
B) too many trades have occurred.
C) all remaining consumers value sugar at more than $10.
D) the benefit of the last kilogram of sugar exceeds $10.
E) the cost of the last kilogram of sugar is less than $10.

Question 15

The market for new automobiles is not likely to maximize total economic surplus because

A) of price ceilings on automobiles.
B) the market is not perfectly competitive.
C) of price floors on automobiles.
D) automobiles are allocated on first-come,first-served basis.
E) consumers negotiate prices.

Question 16

Which of the following is NOT true of a perfectly competitive firm?

A) It faces a perfectly elastic demand curve.
B) It is unable to influence the market price of the good it sells.
C) It seeks to maximize revenue.
D) Relative to the size of the market,the firm is small.
E) The firm's only decision is how much output to produce.

Question 17

In a perfectly competitive market,no firm will charge a lower price for its product because

A) other firms will also lower their prices to match.
B) the government will take legal action against the lower-price firm.
C) consumers will demand a higher price.
D) there are many sellers in the market selling an identical good at a single price.
E) there is always a bigger firm that can sell at an even lower price.

Question 18

If a price above the equilibrium price is imposed in a perfectly competitive market,

A) any price reduction will reduce total economic surplus.
B) any price increase will increase total economic surplus.
C) leaving the price at this value will increase total economic surplus.
D) reducing the price to the equilibrium price will increase total economic surplus.
E) reducing the price to zero will increase total economic surplus.

Question 19

The reason why we expect a perfectly competitive firm to earn zero economic profit in the long run is that

A) there are many buyers in the market.
B) there is a single good of constant quality in the market.
C) all buyers know the market price of the good.
D) all sellers sell the same quality good.
E) factors of production are mobile and can enter or leave the market easily.

Question 20

When economic profit exists in a perfectly competitive market,we expect

A) existing firms to join forces and increase their prices so as to earn an even larger profit.
B) existing firms to compete and lower their prices in order to gain market share.
C) existing firms to join forces to prevent other firms from entering the industry.
D) new firms to enter the industry,causing the market price to eventually fall.
E) new firms to enter the industry,causing the market price to rise even higher.

Question 21

Refer to the diagram above.If the price in this market is initially $3.00 and the most dissatisfied supplier sells a unit of the good for $5.50 to the most eager buyer,by how much does economic surplus rise?

A) $1.50.
B) $2.50.
C) $4.00.
D) $5.50.
E) $7.00.

Question 22

Refer to the diagram above.If the price in this market is initially $3.00 and the most dissatisfied supplier sells a unit of the good for $5.50 to the most eager buyer,by how much is the buyer better off?

A) $1.50.
B) $2.50.
C) $4.00.
D) $5.50.
E) $7.00.

Question 23

Of the following characteristics,which one applies only to a perfectly competitive firm?

A) It always earns a profit.
B) It seeks only to minimize cost.
C) It can sell all it wants to at the market price.
D) It will never earn a profit.
E) It has a narrow range of prices it can charge for its output.

Question 24

Refer to the diagram above.If the price in this market is initially $7.00 and it is then allowed to move to the equilibrium,does the quantity demanded increase or decrease,and by how much?

A) The quantity demanded decreases by 40 units.
B) The quantity demanded decreases by 20 units.
C) The quantity demanded remains unchanged.
D) The quantity demanded increases by 20 units.
E) The quantity demanded increases by 40 units.

Question 25

Refer to the diagram above.If the price in this market is initially $7.00 and it is then allowed to move to the equilibrium,does the quantity supplied increase or decrease,and by how much?

A) The quantity supplied decreases by 40 units.
B) The quantity supplied decreases by 20 units.
C) The quantity supplied remains unchanged.
D) The quantity supplied increases by 20 units.
E) The quantity supplied increases by 40 units.

Question 26

Refer to the diagram above.The equilibrium quantity is

A) 20 units.
B) 40 units.
C) 60 units.
D) 80 units.
E) 100 units.

Question 27

Refer to the diagram above.If the price in this market is $3.00,what is the quantity demanded in the market?

A) 20 units.
B) 40 units.
C) 60 units.
D) 80 units.
E) 100 units.

Question 28

Refer to the diagram above.If the price in this market is initially $3.00 and it is then allowed to move to the equilibrium,does the quantity demanded increase or decrease,and by how much?

A) The quantity demanded decreases by 40 units.
B) The quantity demanded decreases by 20 units.
C) The quantity demanded remains unchanged.
D) The quantity demanded increases by 20 units.
E) The quantity demanded increases by 40 units.

Question 29

Refer to the diagram above.If the price in this market is $3.00,what is the quantity supplied in the market?

A) 20 units.
B) 40 units.
C) 60 units.
D) 80 units.
E) 100 units.

Question 30

Refer to the diagram above.If the price in this market is initially $7.00 and the most dissatisfied supplier sells a unit of the good for $5.50 to the most eager buyer,by how much is the buyer better off?

A) $1.50.
B) $2.50.
C) $4.00.
D) $5.50.
E) $7.00.

Question 31

If the firm's demand curve is perfectly elastic,the firm must be a(n)

A) monopoly.
B) imperfect competitor.
C) oligopoly.
D) perfect competitor.
E) revenue maximizer.

Question 32

Refer to the diagram above.If the price in this market is initially $3.00 and the most dissatisfied supplier sells a unit of the good for $5.50 to the most eager buyer,by how much is the supplier better off?

A) $1.50.
B) $2.50.
C) $4.00.
D) $5.50.
E) $7.00.

Question 33

Refer to the diagram above.If the price in this market is initially $3.00 and it is then allowed to move to the equilibrium,does the quantity supplied increase or decrease,and by how much?

A) The quantity supplied decreases by 40 units.
B) The quantity supplied decreases by 20 units.
C) The quantity supplied remains unchanged.
D) The quantity supplied increases by 20 units.
E) The quantity supplied increases by 40 units.

Question 34

Refer to the diagram above.If the price in this market is $7.00,what is the quantity supplied in the market?

A) 20 units.
B) 40 units.
C) 60 units.
D) 80 units.
E) 100 units.

Question 35

If markets are perfectly competitive and price has a value other than its equilibrium value,then is it possible to identify an unrealized transaction that would make the buyer and the seller better off?

A) Yes,always.
B) Yes,often.
C) Yes,occasionally.
D) Yes,but only if the government intervenes to set the price.
E) No,under no circumstances.

Question 36

Refer to the diagram above.If the price in this market is $7.00,what is the quantity demanded in the market?

A) 20 units.
B) 40 units.
C) 60 units.
D) 80 units.
E) 100 units.

Question 37

Which of the following statements is true for both General Motors and a locally-owned restaurant?

A) Both are perfect competitors.
B) Both confront perfectly elastic demand for their products.
C) Neither is able to influence the price of their products.
D) Both seek to maximize profit.
E) Both seek to maximize revenue.

Question 38

Refer to the diagram above.The equilibrium price is ________ per unit.

A) $9.00
B) $7.00
C) $5.00
D) $3.00
E) $1.00

Question 39

Refer to the diagram above.If the price in this market is initially $7.00 and the most dissatisfied supplier sells a unit of the good for $5.50 to the most eager buyer,by how much does economic surplus rise?

A) $1.50.
B) $2.50.
C) $4.00.
D) $5.50.
E) $7.00.

Question 40

Refer to the diagram above.If the price in this market is initially $7.00 and the most dissatisfied supplier sells a unit of the good for $5.50 to the most eager buyer,by how much is the supplier better off?

A) $1.50.
B) $2.50.
C) $4.00.
D) $5.50.
E) $7.00.

Question 41

Refer to the diagram above.Based on demand curve D1 and supply curve S,the dollar value of producer surplus is

A) $135.
B) $150.50.
C) $200.
D) $212.50.
E) $250.

Question 42

If an individual producer is willing to sell one unit of a good for $5 but finds he can sell it for $7.50,he has a producer surplus of

A) $12.50.
B) $7.50.
C) $5.
D) $6.25.
E) $2.50.

Question 43

Which of the following is NOT required for the market equilibrium to be efficient?

A) Consumers and producers must be well informed.
B) The market must be perfectly competitive.
C) The equilibrium price must be considered fair and just.
D) The supply curve must include all the costs of production.
E) The demand curve must include all the benefits of consumption.

Question 44

If there is a change in a market that leads to a reduction in consumer surplus,

A) it is still possible for economic surplus to increase.
B) it is not possible for economic surplus to increase.
C) producer surplus will necessarily increase.
D) producer surplus will necessarily decrease.
E) economic surplus will necessarily decrease.

Question 45

Refer to the diagram above.Based on demand curve D1 and supply curve S,the dollar value of total economic surplus is

A) $600.
B) $607.50.
C) $630.
D) $643.50.
E) $700.

Question 46

The cumulative difference between what buyers are willing to pay and the price they actually pay is

A) producer surplus.
B) deadweight loss.
C) total economic surplus.
D) conspicuous consumption.
E) consumer surplus.

Question 47

Refer to the diagram above.Based on demand curve D and supply curve S,the dollar value of producer surplus is

A) $180.
B) $160.
C) $150.
D) $130.
E) $75.

Question 48

When the price is either higher or lower than the equilibrium price,the quantity exchanged will be ________ the equilibrium quantity.

A) higher than
B) lower than
C) equal to
D) either lower than or higher than
E) either equal to or lower than

Question 49

A reduction in consumer surplus accompanied by an equivalent increase in producer surplus will

A) leave economic surplus unchanged.
B) result in relatively higher economic surplus.
C) result in relatively lower economic surplus.
D) make everyone in the society worse off.
E) make all producers better off.

Question 50

The opportunities for additional mutually beneficial exchanges cease only if

A) the price exceeds the equilibrium price.
B) the price is less than the equilibrium price.
C) the government intervenes in the market.
D) firms make an agreement to stop selling additional units.
E) the price equals the equilibrium price.

Question 51

Refer to the diagram above.Based on demand curve D and supply curve S,the dollar value of total economic surplus is

A) $75.
B) $150.
C) $180.
D) $225.
E) $255.

Question 52

Which of the following can be used to estimate the dollar value of the change in consumer well-being from a price change?

A) A change in consumer surplus.
B) A change in producer surplus.
C) Excess supply.
D) Excess demand.
E) Market prices.

Question 53

A reduction in economic surplus in a society corresponds to

A) an increase in happiness in the society.
B) a decrease in happiness in the society.
C) a decrease in scarcity in the society.
D) a decrease in money in the society.
E) an increase in money in the society.

Question 54

Total economic surplus refers to

A) surplus supply.
B) the excess quantity of goods that remain unsold.
C) the quantity of goods that consumers do not wish to buy.
D) the total amount by which buyers and sellers benefit from their participation in the market.
E) the total amount by which buyers and sellers are worse off due to their participation in the market.

Question 55

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

A) producer surplus.
B) deadweight loss.
C) total economic surplus.
D) conspicuous consumption.
E) consumer surplus.

Question 56

Refer to the diagram above.Based on demand curve D1 and supply curve S,the dollar value of consumer surplus is

A) $550.
B) $525.50.
C) $500.
D) $472.50.
E) $450.

Question 57

The sum of the economic surpluses accruing to buyers and sellers is

A) producer surplus.
B) deadweight loss.
C) total economic surplus.
D) conspicuous consumption.
E) consumer surplus.

Question 58

Refer to the diagram above.Based on demand curve D and supply curve S,the dollar value of consumer surplus is

A) $240.
B) $200.
C) $180.
D) $160.
E) $120.

Question 59

Market equilibrium is not efficient unless markets are ________ and the ________ curve includes all the relevant production costs.

A) perfectly competitive;demand
B) imperfectly competitive;demand
C) perfectly competitive;supply
D) highly regulated;supply
E) controlled by a few multinational corporations;supply

Question 60

If an individual consumer is willing to pay $11 for one unit of a good but finds he can purchase it for $7,he has a consumer surplus of

A) $18.
B) $11.
C) $7.
D) $4.
E) $2.

Question 61

The reason for the existence of ticket scalpers at concerts of popular entertainers is that

A) some provinces allow them.
B) someone will always try to exploit a situation for financial gain.
C) scalpers have very high opportunity costs.
D) some consumers will value a ticket for a front row seat at more than its face value.
E) ticket prices are too high.

Question 62

Which of the following statements expresses the justification for making the maximization of total economic surplus the first goal of economic interaction?

A) It gives the poor an incentive to improve their economic status.
B) Since consensus on what is a fair distribution of goods is impossible,it is the next best goal.
C) People are not really concerned about the problems of the poor.
D) It is too difficult to pursue more than one goal at a time.
E) It allows other goals to be more fully achieved.

Question 63

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

A) the deadweight loss.
B) the value of trades not made.
C) consumer surplus.
D) total economic surplus.
E) producer surplus.

Question 64

Refer to the diagram above.When quantity supplied and quantity demanded are equal,the sum of consumer surplus and producer surplus is equal to

A) $600.
B) $1200.
C) $1400.
D) $2000.
E) $2400.

Question 65

Refer to the diagram above.When quantity supplied and quantity demanded are equal,consumer surplus is equal to

A) $600.
B) $1200.
C) $1400.
D) $2000.
E) $2400.

Question 66

Total economic surplus is

A) the ratio of consumer surplus to producer surplus.
B) the difference between consumer surplus and producer surplus.
C) the difference between tax revenue and government expenditure.
D) the sum of consumer surplus and producer surplus.
E) minimized at the point of market equilibrium.

Question 67

Refer to the diagram above.If the current price is $16.30 per unit,producer surplus equals

A) $1400.
B) $600.
C) $423.50.
D) $1171.50.
E) $1350.

Question 68

Refer to the diagram above.If the price is currently $16.30 per unit,consumer surplus equals

A) $1400.
B) $600.
C) $423.50.
D) $1171.50.
E) $1350.

Question 69

Refer to the diagram above.When quantity supplied and quantity demanded are equal,producer surplus is equal to

A) $600.
B) $1200.
C) $1400.
D) $2000.
E) $2400.

Question 70

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

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) Neither a shortage nor a surplus will exist.
E) All mutually beneficial trades will have been made.

Question 71

Maximizing total economic surplus as the first social goal and equity as the second means that

A) when equity is considered,the surplus available is as large as possible.
B) society is unconcerned with the problems of the underprivileged.
C) society will become more materialistic.
D) income inequality will rise.
E) the rich get richer and the poor get poorer.

Question 72

Producer surplus is the

A) cumulative difference between the price producers receive and the price they require in order to produce.
B) difference between the brand name price and the generic brand price.
C) difference between the suggested retail price and the actual cost.
D) value of the mark-up over price.
E) value of extra sales generated by loss leaders.

Question 73

Consumer surplus is the value of

A) consumer spending on frivolous goods.
B) the cumulative difference between what consumers are willing to pay and the price they actually pay.
C) the difference between the suggested retail price and the everyday low price.
D) the difference between the list price and the price the consumer can negotiate.
E) making bulk purchases.

Question 74

Refer to the diagram above.The difference between total surplus when quantity supplied is equal to quantity demanded and total surplus when price is $16.30 and quantity is 110 is

A) $405.
B) $423.50.
C) $600.
D) $800.
E) $1000.

Question 75

Moe waited in line to buy a ticket for a show.He was fortunate to buy the last ticket for $65.The lady behind him offered to buy Moe's ticket for $100,and he agreed.We can conclude that Moe's benefit from the show is

A) less than $65.
B) $65.
C) $100.
D) $165.
E) greater than $65 but no more than $100.

Question 76

Which of the following policies maintains maximum economic surplus in the housing market while assisting the poor with their housing needs?

A) A price floor.
B) A price ceiling.
C) A free market with subsidies to landlords.
D) A free market with subsidies to the poor.
E) Subsidized moving expenses for the poor.

Question 77

If the supply curve fails to capture all of the costs of production,then the

A) equilibrium price is efficient but the quantity will be too large.
B) equilibrium price and quantity are still efficient.
C) government needs to impose regulations on the industry.
D) equilibrium price is inefficiently low.
E) equilibrium price is inefficiently high.

Question 78

Suppose that a market is in equilibrium.The area between the demand curve and the market price is

A) total economic surplus.
B) producer surplus.
C) consumer surplus.
D) the deadweight loss.
E) the degree of overconsumption.

Question 79

Moe waited in line to buy a ticket for a show.He was fortunate to buy the last ticket for $65.The lady behind him offered to buy Moe's ticket for $100,but Moe refused.We can conclude that Moe's benefit from the show is

A) less than $65.
B) $65.
C) $100.
D) $165.
E) at least $100.

Question 80

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

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