Deck 8: B--Perfect Competition

Question 1

Long-run expansion in an increasing-cost industry increases each firm's marginal and average costs by

A)saving money on per-unit production costs
B)bidding up the price of resources
C)holding the price of resources constant
D)forcing down the price of resources
E)bidding up each firm's marginal revenue

Answer 1

bidding up the price of resources

Question 2

The term allocative efficiency refers to

A)the level of output where MC = AVC
B)the equality between MR and MC
C)the production of those goods and services most valued by consumers
D)the point where marginal revenue equals average total cost
E)the production of a good up to the point where AFC = 0

Answer 2

the production of those goods and services most valued by consumers

Question 3

The term productive efficiency refers to

A)any short-run equilibrium position of the competitive firm
B)the production of all goods and services that consumers need
C)the production of a good at the lowest long-run average cost
D)the equality between average total and average variable cost
E)satisfying the condition that MR = MC

Answer 3

the production of a good at the lowest long-run average cost

Question 4

In the short run, producers derive surplus from market exchange because

A)total revenue is greater than the minimum they would require to sell the good
B)total revenue is equal to the minimum amount they would require to sell the good
C)total revenue is less than the minimum amount they would require to sell the good
D)marginal revenue equals average revenue
E)they can rob consumers of most of their consumer surplus

Question 5

When an industry supply curve increases enough to erase economic profits,

A)weaker firms exit the industry
B)quantity demanded decreases, but only slightly
C)all firms in the industry incur economic losses
D)entry of new firms and expansion of existing firms stop
E)marginal revenue increases

Question 6

The relationship between price and quantity supplied after firms fully adjust to any short-term economic profit or loss resulting from a change in demand is illustrated by the

A)long-run industry supply curve
B)Dutch auction model
C)short-run firm supply curve
D)constant-cost industry supply curve
E)short-run industry supply curve

Question 7

Economic profits in a competitive industry are signals that

A)attract new firms into the industry
B)prevent firms from adopting newer technologies
C)encourage existing firms to continue to operate inefficiently
D)indicate that business conditions are improving
E)cause the industry's resources to be used in lower valued uses

Question 8

Resources are efficiently allocated when production occurs at that point at which

A)marginal cost intersects average variable cost
B)price is equal to average revenue
C)price is equal to marginal cost
D)marginal revenue equals marginal cost
E)price is equal to average variable cost

Question 9

In the short run, producers derive surplus from market exchange because

A)total revenue is greater than the minimum amount they would require to sell the good
B)total revenue is equal to the minimum amount they would require to sell the good
C)total revenue is less than the minimum amount they would require to sell the good
D)marginal revenue equals average total cost
E)they can rob consumers of most of their consumer surplus

Question 10

A firm that minimizes average cost will not survive in the long run.

Question 11

Compared to the short run, the long-run market supply curve is

A)less elastic
B)equally elastic
C)more elastic
D)always negatively sloped
E)None of the answers is correct.

Question 12

With the total cost and total revenue curves, we measure economic profit by the ________ between the two curves.With the per-unit curves, we measure economic profit by a(n)_______.

A)vertical distance, horizontal distance
B)vertical distance, area
C)area, area
D)area, vertical distance
E)horizontal distance, area

Question 13

A general conclusion from experimental economics is that market experiments

A)provide empirical support for economic theory
B)do not seem to have much to do with the real world
C)often provide evidence that is contrary to what economic theory predicts
D)indicate the need for significant changes to some economic theories
E)work better than real-world markets work

Question 14

If you were to put the following effects of a decrease in demand into the sequence in which they occur, which would be last?

A)The demand curve facing each individual firm drops.
B)Each firm reduces quantity supplied to the point where marginal cost equals its now-lower marginal revenue.
C)In the short run, the market price drops.
D)Market output falls.
E)A short-run loss forces some firms out of business in the long run.

Question 15

The experimental evidence on posted-offer pricing suggests that

A)such markets adjust more quickly to changing conditions than double continuous auctions markets do
B)such markets do not adjust as quickly to changing conditions as double continuous auction markets do
C)quantities adjust more quickly to changing conditions than prices do
D)prices adjust more quickly to changing conditions than quantities do
E)the quality of goods and services often adjusts more quickly to changing conditions that either price or quantity does

Question 16

In the short run, producer surplus equals

A)TR - VC
B)TR - AVC
C)TR + VC
D)TR - AFC
E)TR + TC

Question 17

Experimental evidence suggests that

A)markets quickly adjust to equate quantities demanded and supplied
B)markets often do not adjust as quickly as economists previously believed
C)large numbers of buyers are necessary in order for a market to behave competitively
D)large numbers of sellers are necessary in order for a market to behave competitively
E)large number of buyers and sellers are necessary in order for markets to behave competitively

Question 18

The purpose of experimental economics is to

A)provide empirical support for economic theories
B)test economic theories in a controlled environment
C)replace the lecture as the main method of economic education
D)allow economists to claim that they are scientists
E)determine the best ways to profit from the study of economics

Question 19

In a double continuous auction,

A)the price starts high and then falls
B)the price starts low and then rises
C)any buyer or seller can announce a bid or offer to the entire group
D)each buyer and each seller has power over the market price
E)there are as many prices as there are market participants

Question 20

Whether the firm produces or shuts down in the short run, fixed cost is equal to

A)average variable cost
B)total cost
C)sunk cost
D)price
E)marginal cost

Question 21

Social welfare is

A)a government program through which society takes care of low-income people
B)the overall well-being of people in the economy
C)measured by spending on party supplies, restaurant meals, and movie tickets
D)applies to sociology, not economics
E)All the answers are correct.

Question 22

Figure 8-21 Consider Figure 8-21.If the market price is P₁, which of the following best describes the long-run implications for the industry?

A)Profit will attract new resources to the industry and drive the market price down.
B)Profit will attract new resources to the industry and drive prices up.
C)The lack of profit will lead to the maintenance of the status quo.
D)Losses will drive resources from the industry and drive market price down.
E)Losses will drive resources from the industry and drive market prices up.

Question 23

Market exchange usually benefits

A)both consumers and buyers, but not sellers
B)both consumers and producers
C)only consumers
D)only employees
E)only producers

Question 24

Figure 8-21 Consider Figure 8-21.If the market price is P₂, which of the following best describes the long-run implications for the industry?

A)Profit will attract new resources to the industry and drive the market price down.
B)Profit will attract new resources to the industry and drive prices up.
C)The lack of profit will lead to the maintenance of the status quo.
D)Losses will drive resources from the industry and drive market price down.
E)Losses will drive resources from the industry and drive market prices up.

Question 25

Figure 8-21 Consider Figure 8-21.If the market price is P₃, which of the following best describes the long-run implications for the industry?

A)Profit will attract new resources to the industry and drive the market price down.
B)Profit will attract new resources to the industry and drive prices up.
C)The lack of profit will lead to the maintenance of the status quo.
D)Losses will drive resources from the industry and drive market price down.
E)Losses will drive resources from the industry and drive market prices up.