Chapter 7

Each firm can produce at most one car. Suppose the market for electric cars is competitive. Why is the equilibrium price in this market ​$40,000? Which firms will produce an electric car if the price is ​$40,000? Which consumers will buy an electric car when the price is $40,000?

All of the above. B, C, and D 1, 3, and 2

The equilibrium rent in a town is​ $500 per​ month, and the equilibrium number of apartments is 100. The city now passes a rent control law that sets the maximum rent at​ $400. The diagram on the right summarizes the supply and demand for apartments in this city. A) consumer surplus B) producer surplus C) social surplus

Before rent control: A) A + B B) C + D + F C) A + B + C + D + F

From the positions the curves hold in each​ graph, it can be deduced that the​ older, less efficient facility is ______ If video games are produced in a competitive market and the current price is $70, production in Alpha is ____ thousand units and production in Beta is ____ thousand units. If management sought to transfer 10 thousand units of Beta​'s production to Alpha​, the​ firm's overall profits would ______, since for those 10 thousand additional units ______.

Beta 70 - 60 decrease, MC Beta < MC Alpha

In Table​ 3, show the change in consumer​ surplus, producer surplus and social surplus resulting from the rent control law. A) consumer surplus B) producer surplus C) social surplus

Change A) C-B B) -(C+D) C) -(D+B)

Using the results from Table​ 3, assess each change from the before value to after value as​ positive, negative, or unclear. A) consumer surplus B) producer surplus C) social surplus

Direction of Change A) unclear B) negative C) negative

Does price gouging have the same effect as setting prices above equilibrium​ level?

No, price gouging is actually an equilibrium​ outcome, while the setting of prices above equilibrium is not.

thinks that the government should intervene to revive declining industries like video stores and print newspapers. The​ government, she​ reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with​ her? Explain your answer.

No, these industries are declining not because of coordination problems​ but, rather, because of falling demand.

Using the concept of Pareto​ efficiency, which of the following statements is likely to be​ true?

The outcome in the market for cars is Pareto efficient because it is a perfectly competitive market.

Which of the following statements is true of the market for cabs in​ Beijing? Based on your understanding of how the invisible hand​ works, which of the following decisions is likely to correct the problem of shortages of cabs in​ Beijing?

There has been a rightward shift of the demand​ curve, while the supply curve has remained unchanged. The government should lift the price control imposed on the base fare of cabs.

Are all efficient outcomes also​ equitable? Explain.

There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative​ economics, where subjective value judgments are made.

Which of the following would maximize social​ surplus?

Trade at competitive market equilibrium

Then why are market economies considered more efficient than planned​ economies?

all of the above

A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade. This is known as the _____ problem.

coordination

A weather pattern that produces a bumoer corn crop: This will ______ corn prices by shifting the supply curve for corn ______ A rise in the price of wheat (a substitute for corn). This will ______ corn prices by shifting the demand curve for corn ______ A decrease in the number of demanders in the corn market: This will ______ corn prices by shifting the deamdn curve for the corn ______ An increase in the number of demanders in the corn market. This will ______ corn prices by shifting the demand curve for corn ______

decrease, rightward increase, rightward increase, rightward increase, rightward

in a perfectly competitive market, a firm with multiple production plants will minimize total costs of production when:

each plant produces where marginal revenue equals marginal cost

Once planners have successfully brought economic agents together, a second problem of aligning the interests of the economic agents must be solved.This is known as the ______ problem.

incentive

A flood that destroys a great deal of the corn crop. This will ______ corn prices by shifting the supply curve for corn ______. A fall in the price of wheat​ (a substitute for​ corn). This will ______ corn prices by shifting the demand curve for corn ______ A change in consumer tastes away from corn dogs toward hot dogs. This will ______ corn prices by shifting the demand curve for corn ______ An increase in the number of demanders in the corn market. This will ______ corn prices by shifting the demand curve for corn ______

increase, leftward decrease, leftward decrease, leftward increase, rightward

All else being​ equal, the steeper the supply​ curve, the the ______ social surplus in a market.

larger

The figure on the right shows the typical firm in a perfectly competitive industry. Equilibrium in the market is currently yielding a price of $30 At this price, the typical firm earns a ___ economic profit As a consequence of the current​ short-run conditions in this​ industry, it may be expected that firms will ______ this market. As this movement of firms​ occurs, economic profits for the typical firm will ______.

negative leave --

The figure on the right shows the typical firm in a perfectly competitive industry. Equilibrium in the market is currently yielding a price of $70 At this price, the typical firm earns a ___ economic profit As a consequence of the current​ short-run conditions in this​ industry, it may be expected that firms will ______ this market. As this movement of firms​ occurs, economic profits for the typical firm will ______.

positive enter approach zero

In a market economy, the alignment of interests is accomplished through the use of ______.

prices

All else being​ equal, the flatter the demand​ curve, the ______ the social surplus in a market.

smaller

Social surplus is the​ ______

total value from trade in the market

Imagine you are a buyer in a double oral auction with a reservation value of $15 and there is a seller asking for $10. If you accept this​ offer, you will gain $______ If you are the only​ buyer, and you know that the lowest ask price is $3​, should you accept this​ offer?

5 Both A and C are correct.

Calculate consumer surplus, producer surplus, and social surplus when the price is $40,000.

1+3+4=190k 40k x 3 = 120k consumer surplus: 190-120=70k firms D,A,C: 20+30+40=90k producer surplus: 120-90=30k social surplus: 90+30=100k

The figure on the right displays the market for video game​ consoles, where nine buyers are interacting with nine sellers. 1. According to this​ figure, the equilibrium price is ​$______, and at that ​price,the equilibrium quantity is ______. 2. When the market is in​ equilibrium, social surplus is $______ 3. If the number of consoles is restricted to two less than the equilibrium​ quantity, social surplus is $______ 4. Alternatively, if the government mandated that one more video game console than equilibrium be​ transacted, social surplus is now $______ 5. From this​ analysis, it can be concluded that a market in competitive equilibrium ______ social surplus.

1. 250, 5 2. 1000 3. 900 4. 900 5. maximizes

Identify after the rent control: A) consumer surplus B) producer surplus C) social surplus

A) A + C B) F C) A + C + F

Social surplus is maximized when the ______

d. All of the above