Chapters 6-9 Econ Exam

Suppose that when the price of tomatoes is $2 per pound, there are five farmers each willing to supply 10 pounds per day, and 3 farmers each willing to supply 20 pounds per day. Thus, when the price of tomatoes is $2 per pound, the market supply of tomatoes is *answer* pounds per day

110 pounds. (5x10)+(3x20)=110

Consumer surplus formula

Area below the demand curve above price. Fif all

the marginal cost curve passes through the minimum of the:

Average total cost curve, average variable cost curve

the difference between a firm's total revenue and the sum of its explicit and implicit costs is the firm's

Economic profit

the part of the payment for a factor of production that is greater than the owner's reservation price

Economic rent

if the market equilibrium is efficient, then:

Economic surplus is maximized, enabling society easily achieve its goals, AND it's not possible to find a transaction that will make some people better off without harming others

it's always possible to design a transaction that will help both buyers or sellers whenever the price of a product is

Either above or below the equilibrium price

Accounting profit is the difference between

Firms total revenue and it's explicit costs

The market equilibrium is efficient then:

It is not possible to find a transaction that will make some people better off without harming others, AND economic surplus is maximized, enabling society easily achieve its goals

suppose the automobile manufacturers in an economy use a similar set of inputs to produce cars and SUVs. If the market price of SUVs increases, which of the following is likely to happen to the supply of cars?

It will decrease (Automobile manufacturers will shift their resources away from producing cars and towards producing SUVs, so the supply of cars will decrease)

the market equilibrium is efficient if

It's not possible to find a transaction that will help some people without harming others

All of the firms in a market are identical and the equilibrium price in the market equals the minimum of each firm's average total cost curve, then we would expect

Neither entry into nor exit from the market

Economic profit is

The difference between a firm's total revenue in the sum of its explicit and implicit costs

the market equilibrium is only efficient if

The market demand curve captures all of the relevant benefits of buying another unit of the good, AND the market supply curve captures all of the relevant cost of producing another unit of the good, AND the market is perfectly competitive

When the cost and benefits to individual participants in the market differ from those experience by society as a whole,

The market equilibrium will not be socially optimal

The fact that firms enter industries in response to positive economic profit and leave industries in response to economic loss illustrates the

allocative function of price

Producer surplus

area below the demand curve above price

In general, price subsidies will *answer* total economic surplus.

decrease

if the firms in a market are earning an economic loss, then in the long run there will be *answer* the market, leading the equilibrium price to *answer*

exit from; rise

if strawberries sell for $3 per pound at a quantity of 30 1,000's pounds/day

if the price is $3, surplus will be $45,000. (3x30,000)/2

When the market is *answer*, there are no further opportunities for gain available to individuals

in equilibrium

The opportunity cost of the resources supplied by a firms owner this is the firms

normal profit

Firms in perfectly competitive markets face demand curves that are

perfectly elastic

At each point along a market supply curve, *answer* measures each seller's marginal cost of production

price

If a firm is profitable, then at its profit maximizing level of output:

price is greater than average total cost (P>ATC)

If the total economic surplus from a market is thought of as a pie to be divided among the participants in the market, then imposing price controls will:

reduce the size of pie

a firm's implicit costs are

the opportunity costs of the resources supplied by the firm's owners

In the long run, all firms in an industry will tend to earn

zero economic profit

The market has many sellers, each of which sells only a small fraction of the total quantity sold in the market, AND buyers are well informed about the prices different firms change

Characteristics of perfectly competitive markets

if the price is less than average variable cost even when the firm produces at the level of output that minimizes average variable cost, AND if the firm's revenue is less than the firm's variable cost at all levels of output

Condition under which firms will shutdown

Price controls are often designed to help the poor, but the fact that they were deuce total economic surplus means that alternative policies such as direct income transfers to the poor:

Could make everyone better off

Accounting profit

Difference between a firms total revenue and its explicit cost

a market in which no individual seller has significant influence over the market price of a product is known as

a perfectly Competitive market

any force that prevents firms from entering a new market is called a *answer* to entry.

barrier

The individual pursuit of self interest *answer* with the broader interest of society

does not always coincide

If the government where to subsidize the price of cars, it's likely that the total economic surplus would

fall

a firm that has no influence over the price at which it sells its product is a

price taker

if the market for calculators is in a long run equilibrium, and the demand for calculators increases, then we would expect:

the price of calculators to rise in the short run, AND firms to earn an economic profit in the short run

Accounting profit=

total revenue- explicit costs

The rationing function of price is to

Distribute scares good to those consumers who value them most highly

If a firms economic loss is $10,000, then its *answer* is -$10,000

Economic profit

Your payments of firm makes to it's factors of production and other suppliers are it's

Explicit costs

If a firm is earning a positive economic profit then overtime we would expect that firms profit to

Fall as new firms enter the market

Firms to exit the market in the long run, and the price of soccer balls to fall in the short run

If the market for soccer balls is in the long run equilibrium, and then demand for soccer balls falls, then we would expect

if output can be varied continuously, then fries in a perfectly competitive market maximize their profits by choosing the level of output such that P<MC, P=MC, P>MC, P=MR

P=MC, Price Equals marginal cost

In the long run, new firms will enter a market if existing firms are earning a

Positive economic profit

Fixed cost is

the sum of all payments made to the firm's fixed factors of production

Adam Smith's theory that the actions of independent self interested buyers and sellers will often result in the most efficient allocation of resources is

the theory of the invisible hand

Economists believe that

there are important social goals besides economic efficiency

A firm's fixed cost is the sum of all payments made...

to the firm's fixed factors of production