Econ Ch 7
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
All else being equal, the steeper the demand curve, the _____ the social surplus in a market. All else being equal, the flatter the supply curve, the _____ the social surplus in a market.
larger smaller
In a market economy, the alignment of interests is accomplished through the use of
prices
Social surplus is the ____________.
sum of consumer surplus and producer surplus
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.
Sofia, a political science student, 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.
If you are the only buyer, and you know that the lowest ask price is ___ should you accept this offer?
$3 Both A and C are correct.
Imagine you are a buyer in a double oral auction with a reservation value of $12 and there is a seller asking for $8. If you accept this offer, you will gain ___
$4
In a command economy, a planning agency sets prices for various inputs and final goods. In a market economy, supply and demand decide the prices of various goods. In both cases, there is a set of prices operating in the economy. Then why are market economies considered more efficient than planned economies?
All of the above
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?
The government should lift the price control imposed on the base fare of cabs.
Compared to the market for cars, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for cars than in the vintage button market. 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.
According to reports in the Chinese media, commuters in Beijing are facing a somewhat paradoxical situation: They find it difficult to get a cab while hundreds of cabs lie idle during rush hour. The demand for taxis in Beijing has increased as average incomes have risen. Government-determined gasoline prices have also increased. But the government, worried about rising prices for cab rides, has left the cabs' base fare unchanged. Which of the following statements is true of the market for cabs in Beijing?
There has been a rightward shift of the demand curve, while the supply curve has remained unchanged.
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 the competitive market equilibrium.
Social surplus is maximized when the ___________.
all 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