Deck 14: Equilibrium and Efficiency

Question 1

Graphically,market supply for a product:

A) is the horizontal difference of the individual supply curves.
B) is the horizontal sum of the individual supply curves.
C) is the vertical difference of the individual supply curves.
D) is the vertical sum of the individual supply curves.

Answer 1

is the horizontal sum of the individual supply curves.

Question 2

Characteristics of a perfectly competitive market include:

A) the presence of transaction costs.
B) differentiated products.
C) many sellers, each with a small market share.
D) All of these are characteristics of a perfectly competitive market.

Answer 2

many sellers, each with a small market share.

Question 3

Graphically,market demand for a product:

A) is the horizontal difference of the individual demand curves.
B) is the horizontal sum of the individual demand curves.
C) is the vertical difference of the individual demand curves.
D) is the vertical sum of the individual demand curves.

Answer 3

is the horizontal sum of the individual demand curves.

Question 4

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as Q^d_Julia = 12 - 3P at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as Q^d_Zach = 10 - 2P at prices below $5 and zero for prices above $5.Market demand when price is $4 is:

A) Q^d_Market = 12 - 3P.
B) Q^d_Market = 10 - 2P.
C) Q^d_Market = 22 - 3P.
D) Q^d_Market = 22 - 5P.

Question 5

The market demand curve for a product:

A) is the demand of an individual consumer.
B) will lie to the right of all of the individual demand curves for a product.
C) graphically is the vertical sum of the individual demand curves.
D) will lie below all of the individual demand curves for a product.

Question 6

In a perfectly competitive market:

A) firms are price setters.
B) firms produce the quantity for which marginal cost equals price.
C) firms can increase profits by charging a price higher than the market price.
D) buyers are price setters.

Question 7

Characteristics of a perfectly competitive market include:

A) the presence of transaction costs.
B) homogenous products.
C) few sellers, each with a large market share.
D) All of these are characteristics of a perfectly competitive market.

Question 8

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as Q^d_Julia = 12 - 3P at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as Q^d_Zach = 10 - 2P at prices below $5 and zero for prices above $5.If the market price for milk is $4.50,market demand is:

A) zero units of milk.
B) 1.5 units of milk.
C) 1 units of milk.
D) 10 units of milk.

Question 9

The market supply curve for a product:

A) is the supply of an individual consumer.
B) will lie to the right of all of the individual supply curves for a product.
C) graphically is the vertical sum of the individual supply curves.
D) will lie above all of the individual supply curves for a product.

Question 10

In a perfectly competitive market,all of the following are true EXCEPT:

A) firms take prices as given.
B) firms produce the quantity for which marginal cost equals price.
C) firms can increase profits by charging a price higher than the market price.
D) buyers take prices as given.

Question 11

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.At a price of $2.00:

A) the market supply of milk is 33 units.
B) the market supply of milk is 15 units.
C) the market supply of milk is 18 units.
D) the market supply of milk is 42 units.

Question 12

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.At a price of $0.45:

A) the market supply of milk is between 9 and 10 units.
B) the market supply of milk is between 4 and 5 units.
C) the market supply of milk is between 5 and 6 units.
D) the market supply of milk is between 1 and 2 units.

Question 13

Each of the following is implied if we say that transactions costs are absent EXCEPT:

A) sellers can easily communicate their prices.
B) buyers can easily locate suppliers and learn their prices.
C) buyers and sellers can arrange transactions without significant obstacles.
D) sellers do not charge a markup over marginal cost.

Question 14

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as Q^d_Julia = 12 - 3P at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as Q^d_Zach = 10 - 2P at prices below $5 and zero for prices above $5.In this case,the market demand curve for milk is:

A) upward sloping.
B) a downward sloping straight line.
C) kinked at a quantity of 2 units.
D) kinked at a quantity of 1 unit.

Question 15

Suppose Julia and Zach are the only consumers of milk.Julia's demand for milk is defined as Q^d_Julia = 12 - 3P at prices below $4 and zero for prices above $4.Zach's demand for milk is defined as Q^d_Zach = 10 - 2P at prices below $5 and zero for prices above $5.In this case,the market demand curve for milk is:

A) is upward sloping.
B) a downward sloping straight line.
C) kinked at a price of $5.
D) kinked at a price of $4.

Question 16

Characteristics of a perfectly competitive market include:

A) the absence of transaction costs.
B) differentiated products.
C) few sellers, some with a large market share.
D) All of these are characteristics of a perfectly competitive market.

Question 17

Products are homogenous when:

A) they are identical in the eyes of the purchasers
B) some purchasers view the products as different
C) suppliers can charge different prices for the same good
D) they meet basic safety standards.

Question 18

Characteristics of a perfectly competitive market include:

A) the absence of transaction costs
B) product homogeneity
C) many sellers, each with a very small market share
D) All of these are characteristics of a perfectly competitive market.

Question 19

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.At a price of $0.45:

A) Milky Moo is the only supplier of milk.
B) Mega Cow is the only supplier of milk.
C) both Milky Moo and Mega Cow supply milk.
D) neither Milky Moo nor Mega Cow supply milk.

Question 20

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.At a price of $2.00,the market supply of milk is:

A) Q^s_Market = 12P - 6.
B) Q^s_Market = 9P - 3.
C) Q^s_Market = 21P - 9.
D) Q^s_Market = 12P - 9.

Question 21

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.What is the new long-run equilibrium price?

A) $20 per unit
B) $40 per unit
C) $24 per unit
D) $2 per unit

Question 22

Properties of long-run competitive equilibrium with free entry include:

A) an equilibrium price equal to the minimum MC.
B) firms earning zero profits.
C) active firms producing at their maximum scales of production.
D) All of these are properties of long-run competitive equilibrium.

Question 23

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,the short run market supply function is:

A) Q^s = 40P if price is greater than $20.
B) Q^s = P/4 if price is greater than $20.
C) Q^s = 2.5P if price is greater than $20.
D) Q^s = 300 - 10P for all prices.

Question 24

Suppose that,in the long run,a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.The long run market supply curve is:

A) vertical at 5 gallons per day.
B) horizontal at $20 per gallon.
C) horizontal at $50 per gallon.
D) horizontal at $100 per gallon.

Question 25

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,what is each of the active firms' profit per unit in the short run equilibrium?

A) $3.67 per unit
B) $20.33 per unit
C) $24.00 per unit
D) $6.67 per unit

Question 26

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,what is the short run equilibrium quantity?

A) 100 units
B) 200 units
C) 50 units
D) 60 units

Question 27

The short and long run market supply curves:

A) are equivalent.
B) may differ because the set of firms that are able to produce in a market may change.
C) may differ due to barriers to entry in the long run.
D) do not intersect.

Question 28

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,what is the short run equilibrium price?

A) $20 per unit
B) $24 per unit
C) $10 per unit
D) $40 per unit

Question 29

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the market equilibrium price?

A) $50 per gallon
B) $20 per gallon
C) $100 per gallon
D) $25 per gallon

Question 30

Suppose that,in the long run,a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the efficient scale of production?

A) 5 gallons per day
B) 100 gallons per day
C) 20 gallons per day
D) 50 gallons per day

Question 31

Suppose that,in the long run,a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run,there is free entry into the market.What is the dairy's total cost function?

A) TC = 2Q² + 4Q
B) TC = 4Q + 50
C) TC = 2Q² + 50
D) TC = 2Q² + 4Q + 50

Question 32

With free entry:

A) the long run market supply curve is horizontal at the market price.
B) the long run market supply curve is vertical at the market price.
C) the short and long run market supply curves are the same.
D) there is a known and limited number of potential suppliers that can produce a good in the long run.

Question 33

Properties of long-run competitive equilibrium with free entry include:

A) an equilibrium price equal to the minimum MC.
B) firms earning positive profits.
C) active firms producing at their efficient scales of production.
D) All of these are properties of long-run competitive equilibrium.

Question 34

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.If in the short run the number of firms is fixed and their fixed costs are sunk,how much does each of the active firms produce in the short run equilibrium?

A) 5 units
B) 6 units
C) 10 units
D) 20 units

Question 35

Properties of long-run competitive equilibrium with free entry include:

A) an equilibrium price equal to the minimum AC.
B) firms earning zero profits.
C) active firms producing at their efficient scales of production.
D) All of these are properties of long-run competitive equilibrium.

Question 36

With free entry:

A) there is a known and limited number of potential suppliers that can produce a good in the long run.
B) there is an unlimited number of firms that can produce a good in the long run.
C) the long run market supply curve is vertical at the market quantity.
D) the long run market demand curve is horizontal at the market price.

Question 37

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.In this case,the market supply curve for milk is:

A) kinked at a price of $0.33.
B) kinked at a price of $0.50.
C) downward sloping.
D) an upward sloping straight line.

Question 38

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the market equilibrium quantity?

A) 5 gallons per day
B) 35 gallons per day
C) 50 gallons per day
D) 100 gallons per day

Question 39

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.How many active firms are in the market?

A) 50
B) 5
C) 10
D) 20

Question 40

Milky Moo and Mega Cow are the only sellers of milk.Milky Moo's supply function is Q^s_MMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50.Mega Cow's supply function is Q^s_MCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33.In this case,the market supply curve for milk is:

A) kinked at a price of $0.33.
B) kinked at 1.5 units.
C) downward sloping.
D) kinked at 3 units.

Question 41

Aggregate surplus:

A) is minimized under perfect competition.
B) is the difference between consumer and producer surpluses.
C) is the sum of consumer and producer surpluses.
D) will never be positive in the long run.

Question 42

Suppose the market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the market supply function is Q^s = 2.5P - 7.5.How much deadweight loss would there be in this market if the quantity bought and sold was 8,500 units?

A) $2.03
B) $4.05
C) $1,800
D) $2,025

Question 43

In a perfectly competitive market,an increase in demand will lead to a long-run increase in the product's price:

A) every time.
B) if the increase in demand for inputs drives up the price of inputs.
C) if the good in question is a Giffen good.
D) if and only if the increase in demand is temporary.

Question 44

Aggregate surplus:

A) equals consumers' total willingness to pay for a good less firms' total avoidable cost of production.
B) equals consumers' total willingness to pay for a good plus firms' total avoidable cost of production.
C) captures the total benefit created by the production and consumption of the good.
D) captures the total cost created by the production and consumption of the good.

Question 45

Discuss some of the changes in the organization of the economic systems of countries transitioning from communism to capitalism.How does this type of market reform increase economic efficiency?

Question 46

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.How many new firms enter the market in the long run due to the increased demand?

A) 10
B) 20
C) 100
D) 2

Question 47

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.What is the new long-run equilibrium quantity?

A) 50
B) 60
C) 100
D) 120

Question 48

A deadweight loss:

A) can be large in a perfectly competitive market.
B) is a reduction in aggregate surplus below its maximum possible value.
C) is independent the amount produced and consumed.
D) is equal to the difference between total willingness to pay and the total avoidable cost of production.

Question 49

Suppose the market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the market supply function is Q^s = 2.5P - 7.5.How much deadweight loss would there be in this market if the quantity bought and sold was 5,000 units?

A) $0.63
B) $62.50
C) $625
D) $6,250

Question 50

Suppose the market demand for milk is Q^d = 150 - 5P.Additionally,suppose that a dairy's variable costs are VC = 2Q² (where Q is the number of gallons of milk produced each day),its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.Suppose the demand for milk doubles.How many total active firms are in the market in the long run due to the increased demand?

A) 10
B) 20
C) 100
D) 2

Question 51

The market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,where both quantities are measured in millions of gallons per year.What is the producer surplus at the competitive market equilibrium?

A) $1.5 million
B) $4.5 million
C) $9 million
D) $13.5 million

Question 52

The market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,where both quantities are measured in millions of gallons per year.What is the consumer surplus at the competitive market equilibrium?

A) $4.5 million
B) $9 million
C) $13.5 million
D) $18 million

Question 53

Aggregate surplus:

A) is the sum of total willingness to pay and total avoidable costs of production.
B) is minimized under perfect competition.
C) is the sum of consumer and producer surpluses.
D) is equal to zero in the long run.

Question 54

Any market that we are studying and the markets for the related inputs must all be in equilibrium at the same time.This leads to:

A) simultaneous equilibrium effects.
B) partial equilibrium effects.
C) general equilibrium effects.
D) equilibrium-induced changes.

Question 55

The market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,where both quantities are measured in millions of gallons per year.What is the aggregate surplus at the competitive market equilibrium?

A) $4.5 million
B) $9 million
C) $13.5 million
D) $27 million

Question 56

Suppose the market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the market supply function is Q^s = 2.5P - 7.5.How much deadweight loss would there be in this market if the quantity bought and sold was 6,000 units?

A) $0.03
B) $25
C) $500
D) $2,500

Question 57

Suppose the wiz-pop market is in long-run equilibrium.Suddenly,fixed costs decrease,although variable costs remain unchanged.Discuss the short-run and long-run changes in market equilibrium.