Microeconomics - Assignment 5

If it is possible to make a change that will help some people without harming others, then the situation is:

inefficient

A situation is efficient if....

it is not possible to find a transaction that will make at least one person better off without harming others.

Unlike economic profit, economic rent:

may not be driven to zero because of competition.

Efficiency is an important goal because when markets are efficient:

there are more resources available to achieve other goals.

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. Pat's accounting profit is _______, and Pat's economic profit is _______.

34,000 ; -1,000

Duke is a highly skilled negotiator who could work for many law firms. The law firm that hires Duke is able to collect twice as much revenue per hour of Duke's time than it can for any other negotiator in town. The increased revenue will:

All go to Duke. If it didn't, Duke could go to any other firm in the town.

The role that prices play in directing resources away from overcrowded markets and towards markets that are underserved is known as the ______ function of price.

Allocative

The allocative function of price cannot operate unless there is:

Both free entry and free exit.

Which of the following is NOT necessarily true in a market equilibrium?

Both rich and poor have adequate access to the good.

What is the difference between the payment made to the owner of a factor of production and the owner's reservation price?

Economic rent

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. If cotton farmers do not have to pay for the environmental damage caused by the pesticides used to grow cotton, then the market equilibrium price will be ______ and the market equilibrium quantity will be ______.

Inefficiently low, inefficiently high.

Curly told Larry about his new business venture: Curly pays Acme International $1,000 per month for supplies, works out of his apartment on his own computer and earns a monthly revenue of $1,500. Should Larry quit his job and do what Curly is doing?

Not if Larry is making $500 or more at his current job.

Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by:

The actions of independent, self-interested buyers.

If the market supply curve does not capture all of the costs to society of producing an additional unit of good, then:

The market equillibrium will not be efficient

Which of the following statements about implicit costs is true?

They measure the foregone opportunities of the firm's owners.

Suppose you own a small business. Last month, your total revenue was $6,000. In addition, you paid: $1,000 in monthly rent for office space. $200 in monthly rent for equipment. $3,000 to your workers in wages for the month. $1,000 for the supplies you used that month. If you correctly determine that your economic profit last month was negative $200, then it must be true that:

Your implicit costs are equal to $1,000 per month.

A market equilibrium is only efficient if:

all relevant costs and benefits are reflected in the market supply and demand curves.

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:

firms will earn zero economic profit in the long run.