Micro Ch 11 LearnSmart

_____ captures the idea that the creation of new products and new production methods erodes the market positions of firms committed to existing products and old ways of doing business.

Creative Destruction

Which of the following describes consumer surplus?

It is the difference between the maximum price that consumers are willing to pay for a product and the market price for that product.

_____ efficiency means that resources are distributed among firms and industries to yield a mix of goods and services that is most wanted by society.

allocative

The transformative effects of competition are often referred to as:

creative destruction

If demand for the good decreases creating economic losses, firms will exit the industry in the long run. As firms exit in the long run, industry supply will ______ and market price will ______.

decrease; rise

A competitive market generates _____ efficiency and _____ efficiency.

productive; allocative

After all long-run adjustments are completed in a perfectly competitive market, output will occur at each firm's minimum average ______.

total cost where product price is equal to marginal revenue

If there are losses in the long run, what adjustments will take place?

Firms will exit the industry until losses are eliminated.

A purely competitive market leads to the efficient use of:

society's scarce resources

_____ profits in a competitive industry will attract new firms into the industry.

Economic

Which type of market produces the most efficient use of society's resources?

Pure competition

A competitive firm may realize an economic profit or loss in the _____ run but will earn only a normal profit in the _____ run.

short; long

In purely competitive markets, efficiency can be temporarily disrupted and then restored by changes in:

-technological changes. -consumer tastes. -resource supplies.

What must be eliminated or avoided if the "invisible hand" is to produce socially optimal outcomes in purely competitive markets?

Externalities

True or false: Higher resource prices create lower ATC and cause an upward shift of the long-run ATC curve.

False

An industry where expansion or contraction will not affect resource prices and production costs is known as a(n) ______.

constant-cost industry

The difference between the maximum price a consumer is willing to pay for a product and the actual price that they do pay is known as _____.

consumer surplus

An unfavorable shift or ______ in demand will upset the original industry equilibrium and produce ______.

decrease; losses

Higher resource prices will result in ______ total costs.

higher average

The entry and the exit of firms in an industry are considered to be _____ adjustments

long-run

Which of the following does an increasing-cost industry experience?

-An upward shifting average total cost (ATC) curve as the industry expands. -A downward shifting average total cost (ATC) curve as the industry contracts.

Competitive market economies generate ______.

-productive efficiency -allocative efficiency

Which of the following statements are true about allocative efficiency?

-It is impossible to produce net gains for society by altering the mix of goods and services produced. -The goods and services produced are those that society most wants to consume. -The marginal cost and marginal benefit of producing each unit of output is equal.

Whether a purely competitive industry is a constant-cost industry or an increasing-cost industry, the final long-run equilibrium position of all competitive firms share which of the following characteristics?

-Price or marginal revenue will settle where it is equal to minimum average total cost. -In the long run, an equality occurs where price equals marginal revenue, which equals minimum average total cost. -In the long run, a multiple equality occurs where price equals marginal cost which equals the minimum average total cost.

What are the effects of the "invisible hand" in a purely competitive economy?

-Resource allocation that maximizes consumer satisfaction -Maximum profits for individual producers

Which of the following occur only in the long-run?

-The entry and exit of firms -The expansion or contraction of plant capacity

A decreasing-cost industry is one in which firms experience ______ costs as their industry ______.

-lower; expands -higher; contracts

Strategies attempted by firms for increasing their profits include:

-lowering production costs through improved business organization. -developing a new product that is popular with consumers. -lowering production costs through better technology.

There is no incentive for firms to enter or exit the industry in the long run when ______.

-price equals minimum average total cost -MR = MC -firms earn a normal profit

What will happen to a firm that finds a way to lower production costs through better technology or improved organization?

Its profits will increase.

Which of the following does a decreasing-cost industry experience?

Lower costs as industry output expands.

_____ efficiency means that goods are produced in the least costly way.

Productive

As firms exit the industry in the long run, market price rises and the losses for the remaining firms begin to subside. Firms will continue to exit until which of the following happens?

There are no economic losses.

Economists maintain that new firms are attracted into an industry due to:

economic profits

A constant-cost industry is one where ______ will not affect resource prices and production costs.

expansion or contraction

The entry of new firms entering an increasing-cost industry increase resource prices particularly:

in industries using specialized resources whose long-run supplies do not readily increase in response to increases in resource demand

Productive efficiency requires that goods be produced ___.

in the least costly way

New firms entering an increasing-cost industry will usually _____ resource prices.

increase

An industry whose average total cost curve shifts upward as the industry expands and shifts downward as the industry contracts is known as a(n) ______ industry.

increasing-cost

The long run, every purely competitive firm tends to operate at its ______.

minimum average total cost

In the long run, a purely competitive firm will only earn a ______ profit.

normal

All firms in a(n) ______ industry share the same basic efficiency characteristics.

purely competitive

True or false: Efficiency within pure competition can be temporarily disrupted by a change in consumer tastes.

true