Deck 9: An Evaluation of Competitive Markets

Question 1

All of the following except one are reasons why Adam Smith advocated the doctrine of laissez-faire.Which is the exception?

A)He believed that economic liberty went hand in hand with political liberty.
B)He believed that working people needed a government to ensure that they were not exploited.
C)He believed that people should be left free to decide their own economic actions.
D)He believed that an economy works best if it is left unplanned,uncoordinated and undirected.
E)In Smith's time,government action was often arbitrary and despotic.

Answer 1

He believed that working people needed a government to ensure that they were not exploited.

Question 2

The following are cost data for four different size plants available to a competitive producer:


-Refer to the above information to answer this question.If the market price of this product is $60,which is the best size of plant?

A)The plant represented by AC1.
B)The plant represented by AC2.
C)The plant represented by AC3.
D)The plant represented by AC4.
E)It depends on whether it is the short run or the long run.

Answer 2

The plant represented by AC2.

Question 3

The following are cost data for four different size plants available to a competitive producer:


-Refer to the above information to answer this question.What will be the price of the product in the long run?

A)$55.
B)$70.
C)$65.
D)$75.
E)Cannot be determined.

Answer 3

$55.

Question 4

What is implied if P = MC > AC?

A)The market is achieving productive efficiency but is not achieving allocative efficiency.
B)The market is achieving allocative efficiency but is not achieving productive efficiency.
C)The market is achieving neither productive efficiency nor allocative efficiency.
D)The market is achieving both allocative efficiency and productive efficiency.

Question 5

What is the term for the economic doctrine that holds that an economy works best with the minimum amount of government intervention?

A)Perfect competition.
B)Productive efficiency.
C)Producers' preferences.
D)Laissez-faire.

Question 6

The following graph depicts the various cost curves for a representative competitive firm producing quantity Q1:


-Refer to the above graph to answer this question.If the price of the product is P1,what does the graph suggest?

A)The firm is operating from the optimal size plant but is not necessarily producing the optimal output.
B)The firm is producing the optimal output but is not necessarily operating from the optimal size plant.
C)The firm is neither operating from the optimal size plant nor necessarily producing the optimal output.
D)The firm is producing the optimal output and is also operating from the optimal size plant.

Question 7

Which of the following is true regarding the equilibrium price in perfectly competitive markets in the long run?

A)It will equal the firm's long- and short-run average costs and also its marginal cost.
B)It will equal the firm's long- and short-run average costs but not its marginal cost.
C)It will equal the firm's long-run average costs and also its marginal cost but not its short-run costs.
D)It will equal the firm's short-run average costs and also its marginal cost but not its long-run costs.

Question 8

What is the term for production of a product at the lowest possible average cost?

A)Allocative efficiency.
B)Productive efficiency.
C)Marginal efficiency.
D)Optimal efficiency.

Question 9

What will happen if all competitive firms increase in size?

A)The market demand will fall causing the price and profits to fall.
B)The market supply will fall causing the price and profits to rise.
C)The market supply will rise causing the price and profits to rise.
D)The market supply will rise causing the price and profits to fall.
E)The market demand will rise causing the price and profits to fall

Question 10

In what way is the market system costless?

A)Public goods are not sold but are provided free of charge.
B)It does not require the costly presence of bureaucrats to coordinate it.
C)External costs are generally very small in the market system.
D)Many services,like television programming,are provided free of charge by the market.

Question 11

What is the term for the production of that combination of products which best satisfies consumers' demands?

A)Allocative efficiency.
B)Productive efficiency.
C)Marginal efficiency.
D)Optimal efficiency.

Question 12

What is implied if an economy achieves allocative efficiency?

A)Products are being produced at their lowest cost.
B)Everyone is able to obtain everything he or she desires.
C)The cost of an additional item would be less than its price.
D)The income of the society is being equitably distributed.
E)The best combination of goods is being produced.

Question 13

The following graph depicts the various cost curves for a representative competitive firm producing quantity Q1:


-Refer to the above graph to answer this question.If the price of the product is P1,what does the graph suggest?

A)The market is achieving productive efficiency but not necessarily allocative efficiency.
B)The market is achieving allocative efficiency but not necessarily productive efficiency.
C)The market is achieving neither productive efficiency nor allocative efficiency.
D)The market is achieving both allocative efficiency and productive efficiency.

Question 14

All of the following except one are reasons why competitive firms are obliged to be innovative.Which is the exception?

A)If they do not keep up with the latest methods,new firms will enter who are willing to use these methods.
B)Innovation implies higher profits for the firm in the short run.
C)Innovations will increase the costs of production which will induce firms to increase production.
D)Innovation usually encourages new entrants which will reduce the price in the long run,thus penalizing firms which do not innovate.

Question 15

What is allocative efficiency?

A)Production of a combination of products that best satisfies consumers' demands.
B)The maximization of inputs for a given level of output.
C)The production of an output at the lowest possible cost.
D)The minimization of output for a given level of inputs.

Question 16

Under what conditions will a competitive firm continue to grow in size?

A)Until diminishing returns set in.
B)Until it is just able to cover its variable costs.
C)As long as other firms do.
D)Until it achieves minimum efficient scale.
E)Until it makes an economic profit.

Question 17

The following are cost data for four different size plants available to a competitive producer:


-Refer to the above information to answer this question.If the market price of this product is $80,which is the best size of plant?

A)The plant represented by AC1.
B)The plant represented by AC2.
C)The plant represented by AC3.
D)The plant represented by AC4.
E)It depends on whether it is the short run or the long run.

Question 18

What is productive efficiency?

A)Production of a combination of products that best satisfies consumers' demands.
B)The maximization of inputs for a given level of output.
C)The production of an output at the lowest possible average cost.
D)The minimization of output for a given level of inputs.

Question 19

What does a belief in the doctrine of laissez-faire mean?

A)That the government should be restricted to providing public goods only.
B)That the government should be made responsible for ensuring that enough goods and services are produced in an economy.
C)That the government works best with limited market interference.
D)That the market works best with limited government interference.

Question 20

The following graph depicts the various cost curves for a representative competitive firm producing quantity Q1:


-Refer to the above graph to answer this question.If the price of the product is P1,what does the graph suggest?

A)The firm is making economic profits in the short run but not in the long run.
B)The firm is making economic profits in the long run but not in the short run.
C)The firm is making economic profits in both the short run and the long run.
D)The firm is not making economic profits in either the short run or the long run.

Question 21

What are external benefits?

A)The benefits that are enjoyed by people other than the producers or consumers of a product.
B)The benefits that are enjoyed by outside workers.
C)The benefits that are obtained from importing products from abroad.
D)The benefits that a firm obtains from opening up plants abroad.

Question 22

Which of the following products are non-excludable?

A)Education services.
B)Water supply.
C)Private health.
D)Lighthouse.
E)Postal services.

Question 23

-Refer to the graph above to answer this question.What is the equilibrium market price?

A)0a.
B)0b.
C)0c.
D)0d

Question 24

Which of the following is true concerning a public good?

A)It is both non-rival and non-excludable.
B)It is non-rival but not necessarily non-excludable.
C)It is non-excludable but not necessarily non-rival.
D)It is neither non-rival nor non-excludable.

Question 25

If the government imposes a tax on buyers as a way of reducing pollution,which curve is affected and how?

A)The supply curve shifts to the right.
B)The supply curve shifts to the left.
C)The demand curve shifts to the right.
D)The demand curve shifts to the left.
E)Neither the demand nor the supply curve is affected but the price will increase.

Question 26

What does the term non-rival mean?

A)It refers to a market in which there is no competition.
B)The impossibility of preventing non-buyers from enjoying the benefits of a product.
C)It refers to a market where price discrimination is practiced.
D)It means that one person's consumption doesn't reduce the amount available for others.

Question 27

What is a private good?

A)A good whose benefits can be denied to non-buyers and whose consumption by one person reduces the amount available to others.
B)A good provided by the government which could be provided by private firms.
C)A good which could not be produced at a profit by the government.
D)A good which could be provided by the government but only at a loss.

Question 28

Which of the following terms refers to the impossibility of preventing non-buyers from enjoying the benefits of a product?

A)Non-consumption.
B)Non-excludable.
C)Non-rival.
D)Externalities.

Question 29

Which of the following terms refers to the situation where one person's consumption doesn't reduce the amount available for others?

A)Non-consumption.
B)Non-excludable.
C)Non-rival.
D)Externalities.

Question 30

Which of the following statements is true regarding marginal social costs?

A)They include external but not internal costs of production.
B)They include internal but not external costs of production.
C)They include both external and internal costs of production.
D)They measure the difference between social benefits and social costs.

Question 31

What does the term non-excludable mean?

A)It means that prospective buyers cannot be prevented from buying a particular product.
B)The impossibility of preventing non-buyers from enjoying the benefits of a product.
C)It refers to a market where price discrimination cannot be practiced.
D)It means that one person's consumption doesn't reduce the amount available for others.

Question 32

Military defense is a:

A)Rival good
B)Excludable good
C)Quasi-public good
D)Public good

Question 33

What is a public good?

A)A good provided by the government which could be provided by private firms.
B)A good provided by private firms which could be provided by the government.
C)A good whose benefits are not affected by the number of users and from which no one can be excluded.
D)A good which is both excludable and difficult to produce at a profit.

Question 34

All of the following,except one,are methods by which society can integrate external costs into the market process.Which is the exception?

A)By subsidizing buyers.
B)Cap and trade
C)Through legislative controls.
D)By taxing producers.

Question 35

All of the following,except one,are examples of quasi-public goods in Canada.Which is the exception?

A)Military defence.
B)Postal services.
C)Individual health care.
D)Education.

Question 36

What are external costs?

A)The costs involved in exporting products abroad.
B)The costs that are suffered by outside workers.
C)The costs that are suffered by people other than the producers or consumers of a product.
D)The costs that are imposed on plants which are located abroad.

Question 37

Which of the following products are non-rival?

A)Education services.
B)Water supply.
C)Private health.
D)Military defence.
E)Postal services.

Question 38

What does the term market failure mean?

A)The inability of markets to ensure that people get what they want.
B)The inability of markets to ensure that an efficient or equitable allocation of resources is attained.
C)The inability of the government to ensure that productive or allocative efficiency is attained.
D)The inability of the government to ensure that people get what they want.

Question 39

What are externalities?

A)The extra cost involved in the packaging and marketing of a product.
B)The additional costs of a product which cannot be recouped from the government.
C)The extra cost to the consumers of a product in terms of maintenance and insurance.
D)The benefits or costs of a product experienced by people who neither consume nor produce that product.

Question 40

All of the following,except one,are valid reasons why many governments provide quasi-public goods?

A)Because collecting fees from users might be too costly.
B)Because market competition is sometimes inefficient in the provision of certain services.
C)Because quasi-public goods produce extensive externalities.
D)Because private firms would not be able to provide those services.

Question 41

-Refer to the above graph to answer this question.If buyers of this product were subsidized by an amount equal to the external benefits,what would be the total cost to the government of the subsidy

A)$6,000.
B)$8,000.
C)$10,000.
D)$14,000.
E)$18,000.

Question 42

-Refer to the above graph to answer this question.If buyers of this product were subsidized by an amount equal to the external benefits,what would be the equilibrium price and quantity?

A)$30 and 500.
B)$40 and 800.
C)$50 and 700.
D)$50 and 900.
E)$60 and 800.

Question 43

The following table shows the marginal private benefits and marginal private cost of providing daycare spaces in the province:


-Refer to the above information to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give daycare operators a subsidy of $150 for each child registered.What will be the new equilibrium fee?

A)$350.
B)$550.
C)$500.
D)$450.
E)$650.

Question 44

-Refer to the above graph to answer this question.If this were an unregulated market,what would be the equilibrium values of price and quantity?

A)$80 and 40.
B)$100 and 30.
C)$100 and 80.
D)$120 and 70.
E)$120 and 80.

Question 45

-Refer to the above graph to answer this question.In an unregulated market,what would be the equilibrium price and quantity?

A)$30 and 500.
B)$40 and 800.
C)$50 and 700.
D)$50 and 900.
E)$60 and 800.

Question 46

The following table shows the marginal private benefits and marginal private cost of providing daycare spaces in the province:


-Refer to the above information to answer this question.Given the marginal private benefits and marginal private costs of providing daycare spaces,what is the equilibrium quantity of daycare spaces provided in the market?

A)3,000.
B)5,000.
C)7,000.
D)8,000.
E)9,000.

Question 47

-Refer to the above graph to answer this question.If this product were taxed by an amount equal to the external costs,what would be the total amount of tax revenue?

A)$6,000.
B)$8,000.
C)$10,000.
D)$14,000.
E)$16,000.

Question 48

-Refer to the above graph to answer this question.If this product were both taxed and subsidized by an amount equal to the external costs and benefits,what would be the equilibrium price and quantity?

A)$30 and 500.
B)$40 and 800.
C)$50 and 700.
D)$50 and 900.
E)$60 and 800.

Question 49

The following table shows the marginal private benefits and marginal private cost of providing daycare spaces in the province:


-Refer to the above information to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give daycare operators a subsidy of $150 for each child registered.What will be the new equilibrium quantity?

A)3,000.
B)5,000.
C)7,000.
D)8,000.
E)9,000.

Question 50

09-05 Explain how governments try to encourage production of goods and services;such as education;that carry external benefits.
09-18 Providing Subsidies
The following graph refers to a province's day care market which is in equilibrium:


-Refer to the above graph to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give daycare operators a subsidy of $150 for each child registered.What will be the new equilibrium fee?

A)$350.
B)$450.
C)$500.
D)$550.
E)$650.

Question 51

-Refer to the above graph to answer this question.If this product were taxed an amount equal to the external costs,what would be the equilibrium price and quantity?

A)$30 and 500.
B)$40 and 800.
C)$50 and 700.
D)$50 and 900.
E)$60 and 800.

Question 52

09-05 Explain how governments try to encourage production of goods and services;such as education;that carry external benefits.
09-18 Providing Subsidies
The following graph refers to a province's day care market which is in equilibrium:


-Refer to the above graph to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give parents a subsidy of $150 for each child registered.What will be the new equilibrium fee?

A)$350.
B)$450.
C)$500.
D)$600.
E)$650.

Question 53

The following table shows the marginal private benefits and marginal private cost of providing daycare spaces in the province:


-Refer to the above information to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give parents a subsidy of $150 for each child registered.What will be the new equilibrium quantity?

A)9,000.
B)8,000.
C)7,000.
D)5,000.
E)3,000.

Question 54

-Refer to the above graph to answer this question.What is the value of the external costs per unit?

A)$10.
B)$20.
C)$30.
D)$40.
E)$60.

Question 55

09-05 Explain how governments try to encourage production of goods and services;such as education;that carry external benefits.
09-18 Providing Subsidies
The following graph refers to a province's day care market which is in equilibrium:


-Refer to the above graph to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give daycare operators a subsidy of $150 for each child registered.What will be the new equilibrium quantity?

A)5,000.
B)6,000.
C)7,000.
D)8,000.
E)9,000.

Question 56

-Refer to the above graph to answer this question.What is the value of the external benefits per unit?

A)$10.
B)$20.
C)$30.
D)$40.
E)$60.

Question 57

The following table shows the marginal private benefits and marginal private cost of providing daycare spaces in the province:


-Refer to the above information to answer this question.In an effort to increase the number of daycare spaces,suppose the authorities give parents a subsidy of $150 for each child registered.What will be the new equilibrium fee?

A)$350.
B)$450.
C)$500.
D)$550.
E)$600.

Question 58

-Refer to the graph above to answer this question.If a per unit tax equal to the external costs was imposed on the sellers of this product,what would be the equilibrium price?

A)0a.
B)0b.
C)0c.
D)0d.

Question 59

-Refer to the graph above to answer this question.If a per unit tax equal to the external costs was imposed on the sellers of this product,what would be the amount of the tax?

A)ab.
B)bc.
C)bd.
D)cd.

Question 60

-What are the two main methods used to integrate external benefits into the provision of goods and services?

A)By providing quasi-public goods or taxing producers.
B)By taxing producers and consumers.
C)By providing quasi-public goods or subsidizing producers.
D)By providing normal goods or taxing producers.

Question 61

Table 9.1,which shows the toll charges on a particular highway.


-Refer to Table 9.1 to answer this question.If using the road was presently free,what toll charge would be necessary to reduce traffic by 40 percent?

A)$1.
B)$2.
C)$3.
D)$4.

Question 62

All of the following,except one,are features of a private good.Which is the exception?

A)Private goods are produced by private firms for a profit.
B)Private goods are products that could not be produced by the government.
C)Private goods can be consumed separately by each individual.
D)Private goods cost more for additional quantities.

Question 63

What does the doctrine of laissez-faire mean?

A)That the government works best with limited market interference.
B)That the market works best with limited government interference.
C)That all externalities need to be connected by government action.
D)That social costs are as important as price costs.

Question 64

What is a quasi-public good?

A)A private good provided by the government.
B)A public good sold privately to individuals.
C)A private good provided by the market
D)A public good provided by the government.

Question 65

Which of the following is an example of a public good?

A)A prescription drug.
B)Postsecondary education.
C)A lighthouse.
D)An orange orchard alongside a honey farm.

Question 66

-Refer to the above graph to answer this question.If buyers of this product were subsidized by an amount equal to the external benefits,what would be the equilibrium values of price and quantity?

A)$80 and 40.
B)$100 and 30.
C)$100 and 80.
D)$120 and 70.
E)$120 and 80.

Question 67

What does allocative efficiency mean?

A)That a product is produced where its price is equal to its marginal costs.
B)That a product is produced where its price is below its marginal costs.
C)That a product is produced where its price is equal to its average costs.
D)That a product is produced where its price is below its average costs.

Question 68

Which of the following statements is correct regarding the term marginal social cost?

A)It includes only the private costs of production.
B)It includes only the external costs of production.
C)It includes both the private and the external costs of production.
D)It is the difference between external costs and private costs of production.

Question 69

-Refer to the above graph to answer this question.If this product were taxed by an amount equal to the external costs,what would be the equilibrium values of price and quantity?

A)$80 and 40.
B)$100 and 30.
C)$100 and 80.
D)$120 and 70.
E)$120 and 80.

Question 70

All of the following,except one,are examples of market failures.Which is the exception?

A)Competitive markets do not result in an equitable distribution of incomes and wealth.
B)Competitive markets do not ensure that the economy will be stable.
C)Competitive markets do not ensure that competition will continue.
D)Competitive markets do not ensure that individuals get the type of jobs they would like.
E)Competitive markets do not take externalities into consideration.

Question 71

Why does the market fail to produce public goods?

A)Because normally there is no demand for such goods.
B)Because it is impossible for the producer to exclude non-buyers from enjoying the benefit.
C)Because such products usually entail large external costs.
D)Because their production normally leads to increased income inequality.

Question 72

All of the following,except one,are features of a public good.Which is the exception?

A)Public goods are products whose benefits are not affected by the number of users.
B)Public goods could be produced by the market.
C)Public goods are provided by the government.
D)Public goods could not be produced by private firms at a profit.

Question 73

What does the term "forces of uncompetition" refer to?

A)The tendency in the market for some firms to grow larger and drive other firms out of business,thereby eroding perfect competition.
B)The inability of firms to provide all the products that people want.
C)The inevitable wealth and income inequalities resulting from the market.
D)The tendency of governments to take over certain firms.

Question 74

What does productive efficiency mean?

A)A product is being produced at the lowest possible short-run average cost but not necessarily at the lowest long-run average costs.
B)A product is being produced at the lowest possible long-run average cost but not necessarily at the lowest short-run average costs.
C)A product is being produced at the lowest possible short- and long-run average costs.
D)A product is being produced at the lowest possible marginal costs.

Question 75

All the following,except one,are benefits of the perfectly-competitive market system.Which is the exception?

A)It is productively efficient.
B)It ensures that income is fairly distributed.
C)It is allocatively efficient.
D)It is a costless system.

Question 76

-Refer to the above graph to answer this question What is the value of the per unit external cost in this market?

A)$25.
B)$50.
C)$75.
D)$100.
E)$160.

Question 77

If the price of a product is less than its marginal social costs,then:

A)Society would prefer more of this product being produced.
B)Society would prefer less of this product being produced.
C)External costs must be zero.
D)Short-run average costs must be at minimum.

Question 78

-Refer to the above graph to answer this question What is the value of the per unit external benefit in this market?

A)$25.
B)$50.
C)$75.
D)$100.
E)$160.

Question 79

Table 9.1,which shows the toll charges on a particular highway.


-Refer to Table 9.1 to answer this question.If the user price was presently $1,what increase in the toll charge would be necessary to reduce traffic by 2,000 vehicles per hour?

A)$1.
B)$2.
C)$3.
D)$4.

Question 80

When does allocative efficiency occur?

A)When the price of the product is equal to its short-run average cost.
B)When the price of the product is equal to its long-run average cost.
C)When the price of the product is equal to its marginal cost.
D)When the price of the product is below its marginal cost.