Question 1

The Smart for One,Dumb for All principle indicates that:

Accepted Answer

A) pursuing selfish interests always promotes social welfare. 
B) if everyone is doing it,you should not. 
C) pursuing selfish interests always lessens social welfare. 
D) pursuing selfish interests sometimes conflicts with social welfare.

Question 2

Economic rent is:

Accepted Answer

A) the amount you pay for an apartment in a free market. 
B) the payment made to suppliers of an input. 
C) the difference between the payment made to the supplier of an input and the supplier's reservation price. 
D) the same as the input supplier's reservation price.

Question 3

When either the costs of production or the benefits of consumption to individuals differ from those of society:

Accepted Answer

A) the equilibrium output will be the socially optimal output. 
B) the equilibrium is not efficient. 
C) the allocation of resources remains correct. 
D) the invisible hand had completely failed.

Question 4

Adam Smith coined the term "invisible hand" to describe the process by which:

Accepted Answer

A) self-interest leads an economy to ruin. 
B) self-interest leads to an allocation of goods and services that is relatively efficient. 
C) private interests are sacrificed for the benefit of society. 
D) the wealthy become richer and the poor become poorer.

Question 5

Which of the following statements expresses the justification for making efficiency the first goal of economic interaction?

Accepted Answer

A) Efficiency gives the poor an incentive to improve their economic status. 
B) Since the consensus on what is a fair distribution of goods is impossible,efficiency is the next best goal. 
C) People are not really concerned about the problems of the poor. 
D) Efficiency maximizes total economic surplus and thereby allows other goals to be more fully achieved.

Question 6

Free entry of firms is a characteristic of:

Accepted Answer

A) all industries in the U.S.economy. 
B) perfectly competitive industries. 
C) centralized economies. 
D) industries in which firms are earning positive economic profit.

Question 7

The statement,"price directs resources across different sectors of the economy" refers to the ______ function of price.

Accepted Answer

A) allocative 
B) store of value 
C) rationing 
D) transitivity

Question 8

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year.Pat quit that job and started working as a personal trainer.Pat makes $50,000 in total annual revenue.Pat's only out-of-pocket costs are $12,000 per year for rent and utilities,$1,000 per year for advertising and $3,000 per year for equipment.
Refer to the information given above.Pat's explicit cost is _____ and Pat's implicit cost is ______.

Accepted Answer

A) $16,000;$51,000 
B) $15,000;$36,000 
C) $16,000;$35,000 
D) $35,000;$16,000

Question 9

Chris was the business manager for a real estate firm earning an annual salary of $40,000.Then Chris decided to become a consultant.Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included)for $3,000 per month.Chris earned $100,000 in total revenue the first year as a consultant.
Chris's accounting profit is _______ and Chris's economic profit is _______.

Accepted Answer

A) $100,000;$64,000 
B) $64,000;$49,000 
C) $49,000;$9,000 
D) $9,000;0

Question 10

Curly usually drives on the freeway to get to work,but this morning he heard on the radio that there was a major accident causing a long traffic back-up at the first downtown exit.So,Curly decided to drive on side streets to get to work.When Curly started driving he noticed that:

Accepted Answer

A) more people than usual were taking the side streets downtown. 
B) the side streets were about as crowded as they usually are. 
C) fewer drivers were using the side streets than usual. 
D) more people were getting on the freeway than usual.

Question 11

The sum of the economic surpluses accruing to buyers and sellers is:

Accepted Answer

A) producer surplus. 
B) equal to profit. 
C) total economics surplus. 
D) consumer surplus.

Question 12

If an individual consumer is willing to pay $11 for one unit of a good but finds he can purchase it for $7,he has a consumer surplus of:

Accepted Answer

A) $18.00. 
B) $11.00. 
C) $7.00. 
D) $4.00.

Question 13

Chris was the business manager for a real estate firm earning an annual salary of $40,000.Then Chris decided to become a consultant.Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included)for $3,000 per month.Chris earned $100,000 in total revenue the first year as a consultant.
Chris's opportunity cost of running her own business is ______ which is the _______.

Accepted Answer

A) $15,000;implicit cost 
B) $51,000;explicit cost 
C) $40,000;implicit cost 
D) $51,000;economic cost

Question 14

Suppose that in an effort to help single parents,the government has decided to pay part of the cost of childcare.This measure will

Accepted Answer

A) increase efficiency in the childcare market. 
B) increase consumer surplus in the childcare market. 
C) increase total surplus in the childcare market. 
D) leave the quantity of childcare unchanged.

Question 15

In a free market economy,the decisions of buyers and sellers are:

Accepted Answer

A) random. 
B) motivated by custom and tradition. 
C) in need of coordination by the government. 
D) guided by prices.

Question 16

Suppose the market for coffee is in equilibrium at a price of $5 per pound.This means:

Accepted Answer

A) all producers who want to sell coffee earn a profit. 
B) all potential producers not producing coffee require less than $5 to produce coffee. 
C) all consumers who want to buy coffee are satisfied. 
D) all potential consumers not buying coffee value a pound of coffee at less than $5.

Question 17

Which of the following is NOT an example of explicit costs?

Accepted Answer

A) Wages paid to workers 
B) Personal savings of the owner invested in the firm 
C) Salaries paid to management 
D) Office space rent

Question 18

A supplier of a factor of production has a reservation price of $100.The purchaser of the factor of production has a reservation price of $200.If the factor of production is unique,then:

Accepted Answer

A) there will be no transaction as the reservation prices are unequal. 
B) the transaction will occur and the price will be $150. 
C) the transaction will occur and the price will be $200. 
D) the transaction will occur and the price will be $100.

Question 19

Superstar professional athletes can sustain their economic rents because:

Accepted Answer

A) team owners will pay anything to win the championship. 
B) they have excellent union representation. 
C) their opportunity costs of playing are high. 
D) if their current team does not pay,they can take their unique talents to another team willing to pay.

Question 20

For entry into a particular perfectly competitive industry to occur,which of the following must be true?

Accepted Answer

A) Accounting profits are equal to zero 
B) Accounting profits equal economic profits 
C) Economic profits are greater than zero 
D) Economic profits are equal to zero

Exam 7: Efficiency, Exchange, and the Invisible Hand in Action