Deck 9: Aggregate Demand

Question 1

If the price of ricotta cheese, an ingredient in lasagna, increases, then

A) The market supply curve for lasagna will shift to the right.
B) The market supply curve for lasagna will shift to the left.
C) There will be a movement up along the market supply curve for lasagna.
D) There will be a movement down along the market supply curve for lasagna.

Answer 1

B

Question 2

Investment decisions are made on the basis of the relationship of price to

A) Short-run average total cost.
B) Short-run marginal cost.
C) Long-run fixed cost.
D) Long-run average total cost.

Answer 2

D

Question 3

If someone invents a better way to produce frozen pizzas, then

A) The market supply curve for frozen pizzas will shift to the right.
B) The market supply curve for frozen pizzas will shift to the left.
C) There will be a movement up along the market supply curve for frozen pizzas.
D) There will be a movement down along the market supply curve for frozen pizzas.

Answer 3

A

Question 4

Which of the following is an investment decision in a competitive market?

A) The shutdown decision.
B) The rate of output to produce.
C) Entry or exit.
D) The price to charge.

Question 5

Which of the following is a determinant of market supply but not the supply curve of an individual firm?

A) The price of factor inputs.
B) Expectations.
C) The number of firms in the market.
D) Technology.

Question 6

If long-run economic losses are being experienced in a competitive market,

A) More firms will enter the market.
B) The market supply curve will shift to the right.
C) Equilibrium price will rise as firms exit.
D) Normal profit will fall to zero as firms enter.

Question 7

Marginal cost is the increase in total cost associated with a one-unit

A) Increase in production.
B) Decrease in production.
C) Increase in input usage.
D) Decrease in input usage.

Question 8

Which of the following is characteristic of a perfectly competitive market?

A) A small number of firms.
B) Exit of small firms when profits are high for large firms.
C) Zero economic profit in the long run.
D) Marginal revenue lower than price for each firm.

Question 9

Which of the following is true about a competitive market supply curve?

A) It is horizontal.
B) It is downward-sloping to the right.
C) It is the sum of the marginal cost curves of all firms.
D) It is vertical.

Question 10

In a competitive market where firms are earning economic losses, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

A) A higher price and more firms.
B) A higher price and fewer firms.
C) A lower price and more firms.
D) A lower price and fewer firms.

Question 11

In making an investment decision, an entrepreneur

A) Makes a decision to exit if price is above marginal cost.
B) Makes a short-run decision.
C) Must consider only variable costs.
D) Must take account of diminishing returns.

Question 12

If catfish farmers expect catfish prices to fall in the future, then right now

A) There will be a movement down along the market supply curve for catfish.
B) There will be a movement up along the market supply curve for catfish.
C) The market supply curve for catfish will shift to the left.
D) The market supply curve for catfish will shift to the right.

Question 13

If economic profits are earned in a competitive market, then over time

A) Additional firms will enter the market.
B) The market supply curve will shift to the left.
C) Equilibrium price will rise as more firms enter.
D) Normal profit will fall to zero as more firms enter.

Question 14

The equilibrium price in a competitive market

A) Ensures that anyone who wants the good can get it.
B) Equates the demand for goods with the supply of goods.
C) Remains unchanged forever.
D) Remains unchanged only if demand doesn't change.

Question 15

For a competitive market in the long run,

A) Economic losses induce firms to shut down.
B) Economic profits induce firms to enter until profits are normal.
C) Accounting profit is zero.
D) Economic profit is positive.

Question 16

The market supply curve in a perfectly competitive market is usually

A) Downward-sloping.
B) Horizontal.
C) Vertical.
D) Upward-sloping.

Question 17

In a competitive market, economic profits will

A) Cause existing firms to expand production.
B) Potentially last a long time.
C) Cause new firms to leave the market.
D) Not be possible, even in the short run.

Question 18

If a new sushi restaurant opens, then

A) The market supply curve for sushi will shift to the right.
B) The market supply curve for sushi will shift to the left.
C) There will be a movement up along the market supply curve for sushi.
D) There will be a movement down along the market supply curve for sushi.

Question 19

To determine the market supply, the quantities

A) Demanded at each price by each demander are added together.
B) Supplied at each price by each supplier are added together.
C) Demanded at each price by each demander and supplied at each price by each supplier are added together.
D) Demanded at each price by each demander are subtracted from the quantities supplied at each price by each supplier.

Question 20

In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

A) A higher price and fewer firms.
B) A higher price and more firms.
C) A lower price and fewer firms.
D) A lower price and more firms.

Question 21

The behavior expected in a competitive market includes

A) Very little entry and exit.
B) Marginal cost pricing.
C) Aggressive behavior among competitors to control prices.
D) Little technological growth.

Question 22

The competitive market model is important because

A) It characterizes all the markets in the U.S. economy.
B) It shows how laissez faire can overcome market failures.
C) All industries function much like the competitive model.
D) It shows that firms can earn economic profits in the long run.

Question 23

Which of the following is characteristic of a perfectly competitive market?

A) Long-run economic profit.
B) High barriers to entry.
C) Identical products.
D) A small number of firms.

Question 24

Which of the following is not a characteristic of a perfectly competitive market?

A) Zero economic profit in the long run.
B) Perfect information.
C) Homogeneous products.
D) High barriers.

Question 25

In a competitive market,

A) Buyers don't have market power but sellers do.
B) Sellers don't have market power but buyers do.
C) Neither buyers nor sellers have market power.
D) Buyers and sellers both have market power.

Question 26

The entry of firms into a market

A) Increases the equilibrium price.
B) Reduces the profits of existing firms in the market.
C) Shifts the market supply curve to the left.
D) Shifts the market demand curve to the left.

Question 27

Perfectly competitive firms cannot individually affect market price because

A) There is an infinite demand for their goods.
B) Demand is perfectly inelastic for their goods.
C) There are many firms, none of which has a significant share of total output.
D) The government exercises control over the market power of competitive firms.

Question 28

The entry of firms into a market, ceteris paribus,

A) Shifts the market supply curve to the left.
B) Reduces the economic profit of each firm already in the market.
C) Decreases the equilibrium output in the market.
D) Shifts the market demand curve to the left.

Question 29

If two products are homogeneous, then they

A) Are identical.
B) Differ from each other.
C) Must be used together.
D) Are similar to each other.

Question 30

Examples of barriers to entry include

A) Price taking.
B) Patents.
C) Standardized products.
D) Economic profits.

Question 31

The exit of firms from a market, ceteris paribus,

A) Shifts the market supply curve to the right.
B) Has no effect on the economic losses of remaining firms in the market.
C) Increases the equilibrium price in the market.
D) Shifts the market demand curve to the left.

Question 32

Which of the following is not a barrier to entry?

A) Patents.
B) Well-established brand loyalty.
C) Control of distribution outlets.
D) Perfect information.

Question 33

Which of the following is characteristic of a perfectly competitive market?

A) Differentiated products.
B) Price below marginal revenue.
C) A large number of firms.
D) Significant barriers to entry.

Question 34

The market structure of the computer industry

A) Was originally a monopoly.
B) Was originally perfectly competitive.
C) Has become more competitive over time.
D) Has become less competitive over time.

Question 35

Suppose a perfectly competitive firm is experiencing zero economic profits. In an effort to increase profits, the firm decides to initiate an advertising campaign for its product. The most likely short-run result of this campaign, ceteris paribus, would be

A) Economic losses for the firm.
B) The ability to sell more at the existing market price.
C) The ability to sell more at a lower price.
D) The ability to sell more at a higher price.

Question 36

The exit of firms from a market, ceteris paribus,

A) Shifts the market supply curve to the right.
B) Reduces the economic losses of remaining firms in the market.
C) Increases the equilibrium output in the market.
D) Shifts the market demand curve to the left.

Question 37

Which of the following is not a barrier to entry?

A) Government regulation.
B) Control of essential factors of production.
C) Economies of scale.
D) Perfect information.

Question 38

If the products of two firms are homogeneous, then they

A) Are perfect substitutes.
B) Differ from each other.
C) Must be used together.
D) Are costless to produce.

Question 39

Other things being equal, as more firms enter a market, the market supply curve

A) Becomes more inelastic.
B) Shifts to the left.
C) Shifts to the right.
D) Intersects the demand curve at a higher price.

Question 40

In a perfectly competitive industry, economic profit:

A) Can persist in the long run because of barriers to entry.
B) Can persist in the long run because of homogeneous products.
C) Will approach zero in the long run as prices are driven to zero.
D) Will approach zero in the long run as prices are driven to the level of average production costs.

Question 41

To maximize profits, a competitive firm will seek to expand output until

A) Total revenue equals total cost.
B) The elasticity of demand equals 1.
C) Price equals marginal cost.
D) Price equals $0.

Question 42

If a firm decides to make the investment decision to expand its capacity, then it must have discovered that

A) P = ATC.
B) P > AVC.
C) P > ATC.
D) P = AVC.

Question 43

In which of the following cases would entry and exit cease?

A) P > short-run ATC.
B) P = long-run ATC.
C) P > long-run ATC.
D) P < long-run ATC.

Question 44

In which of the following cases would a firm exit from a market?

A) P > short-run ATC.
B) P < short-run ATC.
C) P > long-run ATC.
D) P < long-run ATC.

Question 45

If price is above the long-run competitive equilibrium level,

A) Firms will enter the market.
B) Firms will shut down.
C) Firms will incur losses.
D) The market supply will shift to the left.

Question 46

Profit per unit is equal to

A) Price divided by average total cost.
B) Price minus average total cost.
C) Total revenue minus total cost.
D) Total revenue minus variable cost divided by quantity.

Question 47

Which of the following is consistent with long-run equilibrium for a perfectly competitive market?

A) Average total costs of production are maximized.
B) Economic profits are positive.
C) Maximum technical efficiency is achieved.
D) Average variable costs of production are maximized.

Question 48

In long-run perfectly competitive equilibrium, marginal cost

A) Is greater than ATC.
B) Is less than ATC.
C) Equals the minimum of the ATC.
D) Equals the minimum of the AVC.

Question 49

In a perfectly competitive market in the long run, which of the following is not correct?

A) Firms are attempting to maximize profit.
B) Economic profits are zero.
C) There are no better uses for the firm's resources.
D) Firms are maximizing total revenue.

Question 50

For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one?

A) P = MR.
B) P = MC.
C) P = minimum ATC.
D) P = maximum ATC.

Question 51

In a perfectly competitive market, when price is equal to the

A) Minimum short-run average total cost, it has reached the shutdown point.
B) Minimum average variable cost, economic profit is zero.
C) Marginal cost, accounting profit is maximized.
D) Minimum average total cost, economic profit is zero.

Question 52

A competitive market creates strong pressure for technological innovation that

A) Allows the firm to raise the price of its product.
B) Provides the firm with more market power.
C) Shifts the firm's demand curve to the right.
D) Shifts the supply curve to the right.

Question 53

In which of the following cases would a firm enter a market?

A) P > short-run ATC.
B) P < short-run ATC.
C) P > long-run ATC.
D) P < long-run ATC.

Question 54

In a competitive market, if the market price is equal to the minimum point of the firm's ATC curve, the firm may seek to earn economic profits by

A) Producing at the rate of output where price equals demand.
B) Decreasing production costs through technological improvements.
C) Decreasing price.
D) Increasing price.

Question 55

Profit per unit is maximized when the firm produces the output where

A) The ATC is minimized.
B) MC equals MR.
C) The MC is minimized.
D) Demand equals MC.

Question 56

If price is below the long-run competitive equilibrium level, there will be

A) Greater demand.
B) Positive economic profits.
C) Greater output.
D) Exit of firms from the market.

Question 57

A profit-maximizing producer seeks to

A) Maximize profit per unit.
B) Minimize marginal cost.
C) Minimize average total costs.
D) Maximize total profit.

Question 58

If a firm finds that its marginal cost is greater than its price, it

A) Should reduce production.
B) Is maximizing its profit.
C) Should increase production.
D) Is maximizing its total revenue.

Question 59

Which of the following characterizes a firm that is in long-run perfectly competitive equilibrium where profits are maximized?

A) Price equals minimum ATC.
B) Positive economic profit.
C) Price equals marginal cost.
D) Price exceeds marginal cost.

Question 60

Which of the following is a production decision?

A) Whether to enter or exit an industry.
B) Whether to increase or decrease plant capacity.
C) Whether to increase or decrease output.
D) Whether to share information with a competitor.

Question 61

The price signal the consumer gets in a competitive market

A) In no way reflects opportunity cost.
B) Is an accurate reflection of opportunity cost.
C) Is not reliable for making choices about the allocation of resources.
D) Is the result of the selfishness of individuals.

Question 62

Technological improvements cause

A) ATC to shift down.
B) The supply curve to shift to the left.
C) MC to shift up.
D) P to increase.

Question 63

Refer to Figure 23.1 for a perfectly competitive firm. In the long run, this firm would stay in this market only if the market price was equal to or higher than

A) $5.
B) $10.
C) $15.
D) $20.

Question 64

Refer to Figure 23.2 for a perfectly competitive firm. If this firm produces the level of output corresponding to point C in the short run, it will earn

A) Zero profit.
B) The maximum profit possible.
C) A profit, although not the maximum profit possible.
D) A loss.

Question 65

Marginal cost pricing means that a firm

A) Produces up to the output where P = MC for a given market price.
B) Lowers market price to marginal cost for a given output.
C) Lets marginal cost rise to the market price for a given output.
D) Produces up to the output level at which MC = 0 for a given market price.

Question 66

Refer to Figure 23.1. If the market price equaled $10, in the short run this firm should

A) Raise the price.
B) Produce with an economic loss.
C) Shut down.
D) Produce where the ATC is at a minimum.

Question 67

Which of the following is a consequence of competition?

A) An unrelenting squeeze on prices and profit.
B) Positive economic profit in the long run.
C) Elimination of the most efficient firms.
D) Price-gouging behavior.

Question 68

Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see

A) Entry into this industry.
B) Exit from this industry.
C) No change in the number of firms in this industry.
D) Costs rise to absorb the profits earned by the firms in the industry.

Question 69

Refer to Figure 23.2 for a perfectly competitive firm. This firm will maximize profits by producing the level of output that corresponds to point

A)A.
B)B.
C)C.
D)D.

Question 70

When a firm is earning positive economic profits, this is an indication that the firm

A) Should leave this market in the long run.
B) Is using its resources in the best possible way.
C) Is using its resources in one of a number of ways that would yield positive economic profits.
D) Is producing at the minimum ATC.

Question 71

Which of the following is least likely to occur during the long run in a perfectly competitive market experiencing economic profits?

A) A rightward shift in the market supply curve.
B) An increase in the market quantity demanded.
C) An increase in marginal revenue.
D) A decline in the ATC and MC curves.

Question 72

A firm should shut down production when

A) P < minimum AVC.
B) P > minimum AVC.
C) P = minimum ATC.
D) P = MC.

Question 73

Economic losses are a signal to producers

A) That they are using resources in the most efficient way.
B) That they are not using resources in the best way.
C) That consumer demand is being satisfied.
D) That consumers are content with the allocation of resources.

Question 74

Marginal cost pricing results in the most desirable mix of goods and services from the consumer's standpoint because

A) Firms are forced to produce at the most technically efficient output level.
B) Economic profits are zero.
C) Prices are forced down to the lowest possible level.
D) The prices consumers pay are a reflection of the value of the goods and services given up.

Question 75

A perfectly competitive market results in efficiency because

A) Price is driven down to minimum ATC.
B) Price rises high enough to equal marginal cost.
C) Zero economic profit is achieved.
D) MC < P.

Question 76

Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see

A) Firms exit from the industry, driving up the market price.
B) Firms exit from the industry, driving down the market price.
C) No change in the number of firms in the industry and no change in the market price.
D) Firms enter the industry, driving down the market price.

Question 77

Technological improvements cause

A) New firms to enter but existing firms to continue producing their old output levels.
B) Some firms to exit but the remaining firms to produce more output.
C) Existing firms to produce more output.
D) Existing firms to continue producing their old output levels but to lower the price of the products.

Question 78

When firms in a competitive market are experiencing zero economic profits, this is an indication that

A) They should be producing a different product.
B) There is currently no better way to use society's scarce resources.
C) They will eventually go bankrupt.
D) Accounting losses are being experienced by these firms.

Question 79

Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?

A) Marginal cost pricing.
B) Average cost pricing.
C) Minimum cost pricing.
D) Total cost pricing.

Question 80

Refer to Figure 23.1 for a perfectly competitive firm. This firm should shut down in the short run if the market price is below

A) $5.
B) $10.
C) $15.
D) $20.