Question 1

Explicit costs:

Accepted Answer

A)   measure the opportunity costs of the business owners.
B)   are always fixed in the short run.
C)   measure the payments made to the firm's factors of production.
D)   are always variable in the short run.

Question 2

If the demand curve fails to capture all of the benefits of consumption,then the:

Accepted Answer

A)   equilibrium price is efficient but the quantity will be too large.
B)   the equilibrium price is inefficiently low.
C)   government needs to impose regulations that require more consumption.
D)   the equilibrium price is inefficiently high.

Question 3

Professor Plum,who earns $75,000 per year,read in the paper today that the university pays its basketball coach one million dollars per year in exchange for the coach's agreement to remain at the university for at least three more years.The coach earns more than Professor Plum because:

Accepted Answer

A)   demand for sporting events exceeds demand for college courses.
B)   universities value sports over academics.
C)   the coach is able to earn economic rent due to his unique talents.
D)   the coach has more human capital than does Prof.Plum.

Question 4

Cost saving developments-e.g. ,a new production procedure that shortens a production process by two steps-in a perfectly competitive industry will lead to:

Accepted Answer

A)   entry by new firms.
B)   economic profits by new firms.
C)   economic profits for a few firms for a short time.
D)   a leftward shift of the supply curve.

Question 5

It is always true that:

Accepted Answer

A)   accounting profits are positive.
B)   economic profits are zero.
C)   economic profits are greater than or equal to accounting profits.
D)   accounting profits greater than or equal to economic profits.

Question 6

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 7

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 8

Accounting profits are:

Accepted Answer

A)   equal to total revenues minus implicit costs.
B)   the difference between total revenues and explicit costs.
C)   equal to total revenues minus explicit and implicit costs.
D)   less than economic profits.

Question 9

A price ceiling that is below the equilibrium price will cause:

Accepted Answer

A)   producer surplus to fall.
B)   total economic surplus to rise.
C)   quantity supplied to exceed quantity demanded.
D)   demand to increase.

Question 10

The No Cash on the Table principle means unexploited opportunities:

Accepted Answer

A)   never exist.
B)   cannot be exploited for long.
C)   can exist in equilibrium but rarely do.
D)   always exist in equilibrium.

Question 11

Last year Pat was a soybean farmer and Chris was a corn farmer.This year,high demand for ethanol,an automobile fuel made from corn,causes the price of corn to increase.
Refer to the information above.Suppose Pat stopped growing soybeans and began growing corn.What principle would explain that change?

Accepted Answer

A)   The principle of comparative advantage.
B)   The scarcity principle.
C)   The incentive principle.
D)   The equilibrium principle.

Question 12

In an industry with free entry and exit,economic profits:

Accepted Answer

A)   indicate a market failure.
B)   can never occur.
C)   provide incentives for a reallocation of resources out of other industries and into the one with economic profits.
D)   can be sustained indefinitely.

Question 13

Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand function will shift to the right,causing the market:

Accepted Answer

A)   price to increase,and a new stable equilibrium to be established at a higher price and higher quantity.
B)   price to increase,and all firms in the industry will earn higher profits for the foreseeable future.
C)   price to increase.Increased profits will encourage new firms to enter,shifting the market supply function to the right.Long-run market equilibrium will be at a higher quantity than before the surge in popularity.
D)   price and quantity supplied to increase.Increased profits will encourage new firms to enter shifting the market supply function upward.Long-run market equilibrium will be at a lower quantity and higher price than before the surge in popularity.

Question 14

If all firms in a perfectly competitive industry are experiencing economic losses,then firms will:

Accepted Answer

A)   exit the industry,until economic profits are positive.
B)   exit the industry,until accounting profits equal zero.
C)   continue in the industry,hoping for better times.
D)   exit the industry,until economic profits equal zero.

Question 15

Ingrid has been waiting for the show "Mamma Mia!" to come to town.When it finally does come,ticket prices are $60.Ingrid's reservation price is $75.But when Ingrid tries to buy a ticket,they are sold out.
Refer to the information above.Sven had purchased a ticket at the ticket window for $60.Sven's reservation price is $65.If Sven attends "Mamma Mia!" and Ingrid does not,it is:

Accepted Answer

A)   inefficient because Sven and Ingrid could have made a mutually beneficial trade.
B)   efficient because Sven paid less for the ticket than his reservation price.
C)   efficient because Sven arrived at the ticket counter before the show was sold out.
D)   inefficient because ticket prices are regulated by the government.

Question 16

Last year Pat was a soybean farmer and Chris was a corn farmer.This year,high demand for ethanol,an automobile fuel made from corn,causes the price of corn to increase.
Refer to the information above.You would predict that this year Pat may:

Accepted Answer

A)   grow more soybeans.
B)   switch to growing corn.
C)   continue to grow the same amount of soybeans.
D)   go out of business.

Question 17

The statement,"price distributes goods and services to those that value them the most" refers to the ______ function of price.

Accepted Answer

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

Question 18

Daily Supply and Demand: Oranges in Hurricane Alley 
Refer to the figure above.What is the cost of harvesting the tenth pound of oranges?

Accepted Answer

A)   $2
B)   $2.50
C)   $4
D)   $5

Question 19

One difference between the long run and the short run in a perfectly competitive industry is that:

Accepted Answer

A)   economic profits in the long run are always greater than they are in the short run.
B)   economic profits in the short run are always greater than they are in the long run.
C)   firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.
D)   firms necessarily earn positive economic profit in the long run but may earn positive or negative economic profit in the short run.

Question 20

Assume that all firms in this industry have identical cost functions. 
The firm depicted in the graph on the right faces a demand curve that

Accepted Answer

A)   is horizontal at the market price.
B)   is downward sloping,and less than market demand curve.
C)   is the same as the marginal cost curve.
D)   is the same as the market demand curve.

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

Cost saving developments-e.g. ,a new production procedure that shortens a production process by two steps-in a perfectly competitive industry will lead to:

Correct Answer
verified

One difference between the long run and the short run in a perfectly competitive industry is that:

Correct Answer
verified

The No Cash on the Table principle means unexploited opportunities:

Correct Answer
verified

In an industry with free entry and exit,economic profits:

Correct Answer
verified

Correct Answer
verified

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.What is the cost of harvesting the tenth pound of oranges?

Correct Answer
verified

Assume that all firms in this industry have identical cost functions. The firm depicted in the graph on the right faces a demand curve that

Correct Answer
verified

Explicit costs:

Correct Answer
verified

If the demand curve fails to capture all of the benefits of consumption,then the:

Correct Answer
verified

The statement,"price distributes goods and services to those that value them the most" refers to the ______ function of price.

Correct Answer
verified

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

Correct Answer
verified

Last year Pat was a soybean farmer and Chris was a corn farmer.This year,high demand for ethanol,an automobile fuel made from corn,causes the price of corn to increase. Refer to the information above.You would predict that this year Pat may:

Correct Answer
verified

A price ceiling that is below the equilibrium price will cause:

Correct Answer
verified

Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand function will shift to the right,causing the market:

Correct Answer
verified

Professor Plum,who earns $75,000 per year,read in the paper today that the university pays its basketball coach one million dollars per year in exchange for the coach's agreement to remain at the university for at least three more years.The coach earns more than Professor Plum because:

Correct Answer
verified

Accounting profits are:

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

It is always true that:

Correct Answer
verified

If all firms in a perfectly competitive industry are experiencing economic losses,then firms will:

Correct Answer
verified

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

Cost saving developments-e.g. ,a new production procedure that shortens a production process by two steps-in a perfectly competitive industry will lead to:

Correct AnswerverifiedShow Answer

One difference between the long run and the short run in a perfectly competitive industry is that:

Correct AnswerverifiedShow Answer

The No Cash on the Table principle means unexploited opportunities:

Correct AnswerverifiedShow Answer

In an industry with free entry and exit,economic profits:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.What is the cost of harvesting the tenth pound of oranges?

Correct AnswerverifiedShow Answer

Assume that all firms in this industry have identical cost functions. The firm depicted in the graph on the right faces a demand curve that

Correct AnswerverifiedShow Answer

Explicit costs:

Correct AnswerverifiedShow Answer

If the demand curve fails to capture all of the benefits of consumption,then the:

Correct AnswerverifiedShow Answer

The statement,"price distributes goods and services to those that value them the most" refers to the ______ function of price.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Last year Pat was a soybean farmer and Chris was a corn farmer.This year,high demand for ethanol,an automobile fuel made from corn,causes the price of corn to increase. Refer to the information above.You would predict that this year Pat may:

Correct AnswerverifiedShow Answer

A price ceiling that is below the equilibrium price will cause:

Correct AnswerverifiedShow Answer

Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand function will shift to the right,causing the market:

Correct AnswerverifiedShow Answer

Professor Plum,who earns $75,000 per year,read in the paper today that the university pays its basketball coach one million dollars per year in exchange for the coach's agreement to remain at the university for at least three more years.The coach earns more than Professor Plum because:

Correct AnswerverifiedShow Answer

Accounting profits are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

It is always true that:

Correct AnswerverifiedShow Answer

If all firms in a perfectly competitive industry are experiencing economic losses,then firms will:

Correct AnswerverifiedShow Answer

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