Deck 14: Perfectly Competitive Markets: Short-Run Analysis

Question 1

Refer to Exhibit 14-1. Which point represents an optimal quantity?

A) a
B) b
C) c

Answer 1

b

Question 2

Provided that the market price is greater than AVC, the profit-maximizing quantity for a competitive firm to set in the short run is that quantity at which the price received __________________ the marginal cost of production.

A) is equal to
B) is greater than
C) is less than

Answer 2

is equal to

Question 3

A government wage subsidy cannot rise indefinitely.

Answer 3

True

Question 4

For prices above the lowest point on the AVC curve, the supply curve for a perfectly competitive firm corresponds to the firm's

A) MC curve
B) AVC curve
C) ATC curve

Question 5

Refer to Exhibit 14.2. If the market price is $26, what quantity should the firm produce in order to maximize profits.

A) 5
B) 0
C) 26

Question 6

Tax incidence is the ultimate distribution of the benefits of a tax.

Question 7

Refer to Exhibit 14-4. At which price will there be excess supply?

A) p1
B) pe
C) p2

Question 8

Refer to Exhibit 14-3. Which curve is most likely to be a supply curve for a perfectly competitive firm?

A) a
B) b
C) c

Question 9

The market supply curve is derived by _______________ adding the supply curves of all the firms in the industry.

A) horizontally
B) diagonally
C) vertically

Question 10

A market supply function (aggregate supply function) tells us how much of a product all of the firms in an industry will supply at any given market price.

Question 11

In a comparative static analysis, the economist examines the equilibrium of the market before and after a policy change to see the effect of the change on the market price and quantity.

Question 12

Perfectly competitive firms must take the market price as

A) given
B) being randomly determined
C) whatever the firms want it to be

Question 13

A law that prescribes a floor below which wages cannot fall is known as a maximum wage law.

Question 14

An analysis in which the economist examines the path that the market will follow in moving from one equilibrium to another is known as dynamic analysis.

Question 15

The profit-maximizing quantity for a competitive firm to set in the short run is that quantity at which the price received equals the marginal cost of production, provided that this price is greater than the average variable cost of production.

Question 16

The price-quantity combination that will prevail in a perfectly competitive market in the short run is called short-run equilibrium.

Question 17

The major characteristic of perfectly competitive markets is that, in these markets, firms are large enough to change the price of the good on the market.

Question 18

A supply function specifies how much of a good a firm would be willing to sell given any hypothetical market price if all other factors remain constant.

Question 19

In the short run, the price that the firm receives must cover its average ___________ cost, but not necessarily its average ___________ cost.

A) variable, total
B) variable, marginal
C) total, variable

Question 20

Refer to Exhibit 14-1. Which point shows where the firm should produce zero output?

A) a
B) b
C) c

Question 21

In general, the _______ elastic the demand for a product being taxed, the _______ the incidence of the tax will fall on the consumers.

A) more, more
B) more, less
C) less, less

Question 22

If the demand curve for illegal drugs shifts to the left, then drug enforcement most likely is targeting

A) growers in foreign countries
B) dealers
C) users

Question 23

Refer to Exhibit 14-4. At which price will there be excess demand?

A) p1
B) pe
C) p2

Question 24

What does a market supply curve reveal about costs?

Question 25

Refer to Exhibit 14-5. In such a market, on whom does the tax incidence fall?

A) both consumers and producers
B) producers only
C) consumers only

Question 26

Refer to Exhibit 14-7. In such a market, on whom does the tax incidence fall?

A) both consumers and producers
B) producers only
C) consumers only

Question 27

Explain why a perfectly competitive firm would produce at a price that is greater than average variable cost but less than average total cost.

Question 28

Do you favor minimum wage laws or government-subsidized wages? Why?

Question 29

When goverment sets a price ceiling in a market, government establishes a __________ price.

A) maximum
B) minimum
C) Neither answer is correct

Question 30

A government subsidy of wages will shift the demand curve for labor to the

A) left
B) right
C) The direction of the shift depends on the size of the subsidy

Question 31

Assuming that labor demand is downward-sloping, a minimum wage set above the equilibrium wage will cause the number of workers to

A) increase
B) stay unchanged
C) decrease

Question 32

When government sets a price floor in a market, government establishes a __________ price.

A) maximum
B) minimum
C) Neither answer is correct

Question 33

Refer to Exhibit 14-4. At which price will there be equilibrium?

A) p1
B) pe
C) p2

Question 34

Government can affect the working of a market by

A) the way in which it enforces laws
B) imposing taxes
C) Both answers are correct

Question 35

Refer to Exhibit 14-6. In such a market, on whom does the tax incidence fall?

A) both consumers and producers
B) producers only
C) consumers only

Question 36

In a market for illegal drugs, the supply curve represents the profit-maximizing decisions of the

A) dealers
B) police
C) users

Question 37

When is a tougher drug enforcement policy beneficial to society on the whole?

Question 38

An increase in government drug enforcement targeted at dealers will cause the supply curve to

A) not shift at all
B) shift to the left
C) shift to the right

Question 39

In the short run, can a perfectly competitive firm earn an extra-normal profit?

Question 40

When firms face an upward-sloping labor supply curve, increases in the minimum wage

A) may even increase employment
B) will always decrease employment
C) will alter the elasticity of labor demand