ECON FINAL
hw#4 q 9 Fixing up old houses requires plumbing and carpentry. Jack (who is a jack of all trades but is a master of none) is a decent carpenter and a decent plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is $50,000 per year. Part 2 Jack's average total cost of fixing up two old houses is total cost is his wage. George is an excellent plumber and Harriet is an excellent carpenter. George can do all of the plumbing and Harriet can do all of the carpentry to fix up ten houses per year. Each earns a wage of $50,000 per year. Part 4 If George and Harriet work together and fix up ten old houses each year, their average cost is This problem tells us that one of the sources of economies of scale is fixed costs diminishing returns specialization .
$25,000 $10,000 specialization
How would a rightward shift in the demand curve affect the equilibrium price in a market? A. The equilibrium price would remain the same. B. The equilibrium price increases. C. The equilibrium price decreases. D, More information is needed. It may increase, decrease, or remain the same. How would the equilibrium price in a market be affected if there were a small rightward shift in the demand curve and a large rightward shift in the supply curve? A. The equilibrium price increases. B. The equilibrium price would remain the same. C C. The equilibrium price decreases. • D. More information is needed. It may increase, decrease, or remain the same.
B. The equilibrium price increases., C. The equilibrium price decreases.
If new irrigation technology improves the output per acre of hops farms, then the supply curve for beer would A. remain unchanged. B. decrease (shift left). C. increase (shift right). If an increase in the immigration of unskilled labor leads to a fall in the wages of workers on hops farms, then the supply curve for beer would A. increase (shift right). B. remain unchanged. C. decrease (shift left).
C. increase (shift right), A. increase (shift right).
If Honda decided to increase the price of its Honda CRV SUV, then the demand for the Toyota Rav4 SUV would __________________ . remain unchanged increase (shift right) decrease (shift left)
increase (shift right)
Deadweight loss is the loss in social surplus that results from producing more or less than the efficient quantity. We found that social surplus is maximized at an output of three ventilators, with a social surplus of $140,000. We also found that if only one ventilator is produced, the social surplus is $80,000. The difference between these two represents the deadweight loss and is equal to $140,000−$80,000=$60,000.
60,000
A perfectly competitive firm will choose to shut down when the ▼ price (marginal revenue) average total cost intersects the marginal cost curve below the ▼ total cost curve average variable cost curve . Therefore, the short-run supply curve for a perfectly competitive firm is represented by __________. Part 3 A. the portion of the marginal cost curve above average total cost. B. the portion of the average variable cost curve below marginal cost. C. the portion of the average variable cost curve above marginal cost. D. the portion of the marginal cost curve above average variable cost.
A perfectly competitive firm will choose to shut down when the price (marginal revenue) intersects the average variable cost curve below the total cost curve. price (marginal revenue). average variable cost curve D. the portion of the marginal cost curve above average variable cost.
In a perfectly competitive market, ___________. A. an increase in price by one seller is associated with an increase in business for him B. all of the buyers and sellers are price takers C. the market participants do not face any competition D. differentiated goods and services are sold
B. all of the buyers and sellers are price takers
In a perfectly competitive market, sellers _________ and buyers _________. A. cannot charge more than the market price; are able to pay less than the market price. B. cannot charge more than the market price; cannot pay less than the market price. C. are able to charge more than the market price; are able to pay less than the market price. D. are able to charge more than the market price; cannot pay less than the market price.
B. cannot charge more than the market price; cannot pay less than the market price.
The graph to the right shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) curves for a firm in a perfectly competitive market. In order to maximize profits, this firm should produce approximately _________ units of output. Part 5 A. 8 B. 11 C. 7 D. 15
B. 11
Which of the following statements regarding a market are not true? (Check all that apply.) A. It has different types of rules and arrangements for trading. B. It uses prices to allocate goods and services. C. It is a group of people who do not engage in any type of trade. D. It is always located at a specific place.
C. It is a group of people who do not engage in any type of trade. D. It is always located at a specific place.
Social surplus is the ____________. Part 2 A. difference between the amount that buyers actually pay and what they wish to pay. B. difference between consumer surplus and producer surplus. C. total value from trade in a market. D. excess of aggregate demand over aggregate supply.
C. total value from trade in a market.
In assessing the performance of a perfectly competitive market, we can say that ____________. Part 2 A. price efficiently allocates goods and services to buyers and sellers. B. no individual can be made better off without making someone else worse off. C. any departure from the equilibrium necessarily reduces social surplus. D. all of the above
D. all of the above
The price at which a buyer is indifferent between making a purchase and not doing so is known as her ____________. Part 2 A. reservation price. B. breakeven point. C. willingness-to-pay value. D. all of the above. E. A and C only.
E. A and C only.
The price at which a seller is indifferent between making a sale and not doing so is known as his ____________. Part 2 A. reservation price. B. breakeven point. C. willingness-to-sell value. D. all of the above. E. A and C only.
E. A and C only.
The graph on the right shows the long-run average total cost curve for a perfectly competitive firm. Refer to points A, B, and C on the graph and identify where the firm would experience economies of scale, constant returns to scale, and diseconomies of scale. Part 2 At point A, the firm experiences ▼ constant returns to scale diseconomies of scale Economies of scale. At point B, the firm experiences constant returns to scale At point C, the firm experiences diseconomies of scale
Economies of scale constant returns to scale diseconomies of scale
The graph on the right depicts the supply and demand curves for a market in competitive equilibrium. Part 3 1.) Using the triangle drawing tool, highlight the area on the graph that represents producer surplus. Label this area 'PS'. Using your graph, calculate the producer surplus in this market. Producer surplus is enter your response here. (Round your response to two decimal places.)
PS Graph producer surplus triangle: 4.50 (1/2x base(3-0) x height (6-3)) 1/2 *base*height
Consider the adjacent graph. When the market price (Pmarket) is $2.50, the total producer surplus equals $enter your response here. If the equilibrium market price (Pmarket) changes to $2, the total producer surplus would ▼ increase decreaseremain the same.
The producer surplus is the area above the MC curve and below the equilibrium price line. When we have linear supply curves, a mathematical formula can be used to compute the producer surplus. If the equilibrium market price is $2.50 per unit, then we compute the producer surplus as the base of the triangle multiplied by the height of the triangle multiplied by 1/2: Producer surplus=1/2×(Base of triangle×Height of triangle) = 0.5×(500×$1)=$250. This means that total producer surplus is $250 in this market. There are several ways in which producer surplus can increase or decrease. For example, at a lower equilibrium market price ($2), the producer surplus decreases because the area above the supply curve and below the equilibrium price line gets smaller. Consider the adjacent graph. When the market price (Pmarket) is $2.50, the total producer surplus equals $250. If the equilibrium market price (Pmarket) changes to $2, the total producer surplus would decrease.
A firm is experiencing economies of scale when its average total cost declines as more output is produced. Part 2 The table below shows the long-run total costs of three different firms. Do firms 1 and 2 experience economies of scale? Or do they experience diseconomies of scale? Part 5 A. Firm 1 is experiencing economies of scale, while firm 2 is experiencing diseconomies of scale. B. Both firms are experiencing diseconomies of scale. C. Both firms are experiencing economies of scale. D. Firm 1 is experiencing diseconomies of scale, while firm 2 is experiencing economies of scale. Minimum efficient scale is the lowest level of output where long-run average total cost is minimized. Firm 3's minimum efficient scale occurs when the output is ______ unit(s). Part 7 A. 1. B. 4. C. 2. D. 3.
a. Firm 1 is experiencing economies of scale, while firm 2 is experiencing diseconomies of scale. D. 3.
A firm is experiencing economies of scale when its ▼ average total cost total cost marginal cost declines as more output is produced.
average total cost
If the market price of the product falls, producer surplus will ▼ decrease increase since this change results in a lower price, which means there is ▼ more less area between the supply curve and the market price for the good.
decrease , less
Suppose there is a product that is being sold in a perfectly competitive market. If the market price of the product falls, producer surplus will ▼ decrease increase since this change results in a lower price, which means there is ▼ more less area between the supply curve and the market price for the good.
decrease, less
The concept of diminishing marginal benefits ______________________ for goods that you like a lot.
holds true
As a firm produces more of a good, the cost of producing each additional unit _________________. This implies that the marginal cost of producing a good _________________ as you make more of that good. Part 2 The supply curve represents ___________. A. the minimum price buyers are willing to pay to buy an extra unit of a good. B. the minimum price sellers are willing to accept to sell an extra unit of a good. Your answer is correct. C. the maximum price sellers are willing to accept to sell an extra unit of a good. D. the maximum price buyers are willing to pay to buy an extra unit of a good.
increases, increases B. the minimum price sellers are willing to accept to sell an extra unit of a good.
All else being equal, the steeper the demand curve, the larger the social surplus in a market. Part 2 All else being equal, the flatter the supply curve, the smaller the social surplus in a market.
larger smaller
1.) Using the point drawing tool, plot each point in the table above in the adjacent graph. 2.) Using the line drawing tool, draw the line that connects all the four points in the graph. Label this line as 'Demand'. Given this information, if the price of a book is $25, the quantity demanded of books will be ________________ the quantity of books demanded when the price is $10 per book.
less than
Suppose instead that the price of the good dropped below the competitive equilibrium price to a price of $15 per unit. If this were to occur, then the quantity supplied would be less than the quantity demanded, resulting in an excess demand, which is also known as a shortage.
less than, excess demand, shortage
Willingness to accept is the lowest price that a seller is willing to get paid to sell an extra unit of a good. Willingness to accept is the same as the marginal cost of production
lowest, marginal
The Law of Demand states that as the price of a good increases, ceteris paribus, the ______________________________________ decreases. This can be shown graphically with ___________________________ demand curve or numerically in a table using a ____________________________. The relationship that exists between these two variables can be described as __________________.
quantity demanded, a downward-sloping, demand schedule, negatively related
The amount of money the firm brings in from the sale of its outputs is called ▼ revenue profit , while the change in total revenue associated with producing one more unit of output is called ▼ marginal revenue average revenue
revenue, marginal revenue
In a perfectly competitive market, an increase in market price shifts the marginal revenue (MR) curve ▼ up down , ▼ increasing decreasing the quantity supplied.
up, increasing
Consider the given graph that shows the price and the quantity demanded and supplied of good X in a competitive market. The price that equates the quantity supplied and the quantity demanded of good X is $40. The quantity that corresponds to the competitive equilibrium price is 3000 units of good X. Part 2 In the graph, at the market price of $60, the market is not in a competitive equilibrium. At this price, the excess supply equals 1000 units of good X. Part 3 In the graph, at the market price of $20, the quantity demanded is greater than the quantity supplied by 2000 units of good X. The competitive process will eventually push up the market price to $40. As a result, the market will be in competitive equilibrium.
$40, 3000, not in excess supply,
Fill in the missing values in the following supply schedule: Price ($/unit) $8, 0, 0, 0 Quantity supplied by Firm A 16, 30, 45, 75 Quantity supplied by Firm B 18, 50, 75, 125 Total quantity supplied 20, 65, 100, 165 Based on the above supply schedule, fill in the following blanks: Firm A is willing to accept $20 to produce its 65th unit of a good. Firm B's marginal cost is $18 when it produces its 75th unit of a good. Firm B is not willing to accept any price lower than $16 when it produces its 45* unit of a good.
20, 75, lower
How would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market? Part 2 A. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. Your answer is correct. B. It would make all firms in the market less competitive, since any artificial barrier hurts the market overall. C. It would create downward pressure on prices, causing firms to exit the market. D. There would be no effect on the market, since there are no barriers to entry in perfectly competitive markets.
A. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. Your answer is correct.
Which of the following is not a characteristic of a market? A. Markets are physical locations where trading occurs B. There are rules and arrangements for trading C. Flexible prices D. Voluntary exchanges between economic agents
A. Markets are physical locations where trading occurs
Which would be the correct sequence of events in the speedboat industry if waterway access was improved and, at the same time, a lighter polymer became available that increased production efficiency? A. Supply would shift right, demand would shift left, equilibrium price would increase, and equilibrium quantity would be indeterminable. B. Supply would shift right, demand would shift right, equilibrium price would be indeterminable, and equilibrium quantity would increase. Your answer is correct. C. Supply would shift left, demand would shift left, equilibrium price would be indeterminable, and equilibrium quantity would decrease. D. Supply would shift left, demand would shift right, equilibrium price would decrease, and equilibrium quantity would increase.
B. Supply would shift right, demand would shift right, equilibrium price would be indeterminable, and equilibrium quantity would increase. Your answer is correct.
The graph on the right shows the short-run cost curves and three possible marginal revenue curves for a perfectly competitive firm. Part 2 If the firm were facing MR1, then we know that this firm should __________. Part 3 A. shut down, since it is incurring a loss and when a firm earns less than zero profit, it should shut down. B. keep producing, since it is making a profit at the profit-maximizing output. C. keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down. D. shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down.
B. keep producing, since it is making a profit at the profit-maximizing output.
Compared to the market for electric drills, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for drills than in the vintage button market. Is it then correct to assume that the outcome in the drills market is Pareto efficient while in the vintage button market it is not? Explain. A. Yes, social surplus is positively correlated with Pareto efficiency. B. No, market size has no bearing on the attainment of Pareto efficiency. C. No, both markets attain Pareto efficiency because both involve goods that have resale potential. D. Yes, the market for drills is clearly an important market while that for vintage buttons is of less significance.
B. No, market size has no bearing on the attainment of Pareto efficiency.
Assume that some of the buyers in this market are now willing to pay more for a drill than they did earlier. Does this mean that the market for drills is Pareto efficient? Explain your answer. A. No, a greater willingness to pay will unbalance the social surplus, making the outcome less than Pareto efficient. B. Yes, as long as the market equilibrium still holds, the outcome is still Pareto efficient. C. Unable to determine. It depends on the extent of the increased willingness to pay.
B. Yes, as long as the market equilibrium still holds, the outcome is still Pareto efficient.
Sara and Jim are going to lunch together and rank the restaurant options in the following way. Sara's Preferences Jim's Preferences Chipotle 4th 3rd Naf Naf 1st 4th Panera 2nd 5th Potbelly 3rd 2nd Blaze 5th 1st Part 2 Which of the following restaurant choices are Pareto efficient for Sara and Jim? A. Panera B. Chipotle C. Naf Naf D. Blaze An outcome is Pareto efficient if no individual can be made better off without making someone else worse off.
C. Naf Naf D. Blaze An outcome is Pareto efficient if no individual can be made better off without making someone else worse off. In the given scenario, the Pareto efficient outcomes occur when both Sara and Jim choose Naf Naf and Blaze. As there is no other allocation or bundle of restaurant, which is preferred over Naf Naf and Blaze; both are ranked the highest.
The concept of diminishing marginal benefits means that __________. A. each additional unit consumed is worth more to you than the previous one, but the additional benefit grows at a diminishing rate. B. as you consume more of a good, your willingness to pay for that good increases faster than the benefit you receive. C. each additional unit consumed is worth less to you than the previous one. D. the more of a good that you consume, the lower is your overall benefit from that good.
C. each additional unit consumed is worth less to you than the previous one.
Market demand is derived by __________. Part 2 A. fixing the quantity and adding up the prices that each buyer pays. B. adding up both the prices each buyer pays and the quantities that each buyer demands. C. fixing the price and adding up the quantities that each buyer demands. D. dividing each buyer's demand by the total number of consumers in the market.
C. fixing the price and adding up the quantities that each buyer demands.
If the firm were facing MR2, then we know that this firm should __________. Part 5 A. keep producing, since it is making a profit at the profit-maximizing output. B. shut down, since it is incurring a loss and when a firm earns less than zero profit, it should shut down. C. keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down. D. shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down.
C. keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down.
In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _________. A. see a small decrease in its number of customers. B. see no change in its number of customers. C. lose all or almost all of its customers. D. All of the above are equally likely.
C. lose all or almost all of its customers.
A competitive market will A. create excess supply because producers want profits. B. create excess demand because wants exceed needs. C. move towards equilibrium quantity because both producers and consumers act in their own best interest. Your answer is correct. D. move towards equilibrium because producers set the prices.
C. move towards equilibrium quantity because both producers and consumers act in their own best interest.
The diagram on the right shows the demand and supply for sneakers. Calculate consumer surplus, producer surplus, and social surplus in this market. Consumer surplus is $ Producer surplus is $
Consumer surplus is measured by the area under the demand curve and above the equilibrium price line. Consumer surplus is measured by the area under the demand curve and above the equilibrium price line. In the graph on the right, this is the area shaded in green. The area is found using: 12×(Base of triangle×Height of triangle) For the values shown, we get: CS = 12×(90×(70−50)) = $900 Producer surplus is measured by the area above the supply curve and under the equilibrium price line. Producer surplus is $0 Producer surplus is measured by the area above the supply curve and under the equilibrium price line. In the graph on the right, this is the area shaded in pink. The area is found using: 12×(Base of triangle×Height of triangle) For the values shown, we get: PS = 12×(90×(50−20)) = $1,350 The social surplus is the sum of consumer and producer surplus. It is the area that lies between the demand and supply curves from 0 to the equilibrium quantity. Social surplus is measured by the area that lies between the demand and supply curves from 0 to the equilibrium quantity. In the graph on the right, this is the area shaded in gray. The area is found using the following formula twice: 12×(Base of triangle×Height of triangle) Alternatively, given the prior calculations of consumer and producer surplus, these two only need to be summed: SS = CS + PS = $900 + $1,350 = $
Which of the following would not be considered a market by an economist? A. An online auction site such as ebay B. A dating website C. Your corner gas station D. All of the above are examples of a market.
D. All of the above are examples of a market.
Two airlines serve the route between Tampa and Houston. What will happen to one airline if the other one raises its prices? A. There will be a movement upward, to the left, along its initial demand curve. B. There will be a movement downward, to the right, along its initial demand curve. C. Its demand curve will shift to the left. D. Its demand curve will shift to the right.
D. Its demand curve will shift to the right.
The graph on the right shows the long-run average cost curve and marginal cost curve for a firm in a perfectly competitive market. Based on the graph to the right, the long-run supply curve is __________. Part 2 A. segment AB, since it is the lowest cost segment of the marginal cost curve. B. segment AC, since the long-run supply curve includes all segments of the marginal cost curve above average variable cost. C. the same as the average total cost curve, since it represents the lowest costs in the long run. D. segment BC, since at prices below B the firm would shut down in the long run.
D. segment BC, since at prices below B the firm would shut down in the long run.
There are four hospitals (consumers in this example) willing to pay the following amounts for a ventilator: Hospital W Hospital X Hospital Y Hospital Z $90,000 $50,000 $25,000 $60,000 There are producers that can produce at most one ventilator each and at the following costs: Producer A Producer B Producer C Producer D $20,000 $30,000 $60,000 $10,000 What is the most surplus that can be realized if only one ventilator can be produced? Which firm should produce it, and which hospital should consume it? If only one ventilator can be produced, it should be made by Producer ▼ ABCD and consumed by Hospital ▼ WXYZ, resulting in a maximum surplus of $enter your response here. (Enter your answer as a whole number.)
If only one ventilator can be produced, it should be made by Producer D and consumed by Hospital W , resulting in a maximum surplus of $80,000 If only one ventilator can be produced, it should be made by the company that can produce it most efficiently, at the lowest cost. It should be purchased by the hospital that values it most and has the highest reservation price. This means Producer D should make the ventilator and the ventilator should be purchased by Hospital W. The most surplus that could arise from this is the difference between the reservation price of the hospital and the reservation price (marginal cost) of the producer. The most surplus is $90,000−$10,000=$80,000. The highest possible surplus that can be realized in this market occurs when those who produce ventilators most efficiently sell to those hospitals who value the ventilators most. This means Producer D should sell to Hospital W, resulting in a surplus of $80,000. Producer A should then sell to Hospital Z, resulting in a surplus of $40,000, and Producer B should sell to Hospital X, resulting in a surplus of $20,000. Producer C will not sell to Hospital Y, since the price it charges is greater than the reservation price of the hospital. Thus, we see three ventilators should be produced and sold with Hospitals W, X, and Z purchasing the ventilators and Producers A, B, and D making them. The social surplus is the sum of the surpluses from each transaction. Social surplus is $140,000.
Given the supply and demand curves on the right, when the price of the good is $20, we say that the market is in competitive equilibrium. At this price, we know that the quantity supplied is equal to the quantity demanded. Part 2 Using the graph on the right, illustrate the impact of an increase in the price of the good from $20 per unit to $30 per unit, assuming everything else in the economy remains the same. Part 3 1.) Using the point drawing tool, place a point at the quantity supplied when the price is $30 per unit. Label this point 'A'. 2.) Using the point drawing tool, place a point at the quantity demanded when the price is $30 per unit. Label this point 'B'. If the only change in the market was that the price increased to $30, then we know that the quantity supplied will be greater than the quantity demanded, resulting in an excess supply, which is also k
competitive equilibrium, equal to greater than, an excess supply, a surplus
1. Using the point drawing tool, plot each of the points in the demand schedule above on the graph to the right. 2. Using the line drawing tool, draw and properly label Chloe's demand curve.
graph
Appendectomy is a life-saving operation that some people need. Regardless of the price, the quantity demanded is 300,000 every year. Using the line drawing tool, draw the demand curve for appendectomies. Label the line as 'Demand'. Carefully follow the instructions above, and only draw the required objects.
graph
New York decides to reduce the consumption of sugary soda by imposing a minimum price of $2.50 per soda. The current equilibrium price is $1.50. Part 2 Using the double arrow line tool, show the difference between the quantity supplied and quantity demanded when the market price of soda is $2.50. Properly label this difference.
graph
There is only one buyer in a particular market. For any price above $100, this buyer wants nothing. For any price at or below $100, this buyer wants exactly 20 units. Using the line drawing tool, draw the demand curve that reflects the information provided. Label the line as 'Demand'.
graph
Suppose there is a product that is being sold in a perfectly competitive market. If the market price of the product rises, producer surplus will ▼ increase decrease since this change results in a higher price, which means there is ▼ less more area between the supply curve and the market price for the good.
increase , more
A group of economic agents who are trading a good or service would define a _______. Price takers exist throughout _____________ markets.
market, competitive
We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in ___________________________ .
only the price of a good
A supply curve has a positive slope due to the Law of Supply. The Law of Supply states that supplies increase as price increases.
positive
Producer surplus is the difference between the ▼ price consumers pay, demand curve and the ▼ demand curve, supply curve, price consumers pay.
price consumers pay, supply curve
FIND ALL ?'S You are given the following information about the ABC Widget Company's short-run costs. Using what you have learned, fill in the missing values in the table. Quantity of Widgets: 0, 1, 2, 3, 4, 5, 6 Total Fixed Cost: $10, ?, ?, ?, ?, ?, $10 Total Variable Cost ?, $1, $3, $6, $10, $21 Total Cost ?, ?, $13, $16, ? $25, ? Given the table above, the average total cost of producing the fourth unit is $. The marginal cost of producing the sixth unit is $6
total fixed cost always $10 avg tc= tc/quantity marginal cost tvc unit 6 - tvc unit 5 The marginal cost of producing the third unit is less than the average total cost of the third unit. This means that producing the third unit causes the average total cost to decrease (case by case)
hw #4 q 8: Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its profit? A. Produce until marginal cost is furthest below average total cost. B. Produce until the additional revenue from one extra unit equals the additional cost of each unit Produce up to the point where price equals average total cost. All of the above.
B. Produce until the additional revenue from one extra unit equals the additional cost of each unit
Larry Krovitz is a salesman who works at a used-car showroom in Sydney, Australia. It's the last week of July, but he is yet to meet his sales target for the month. A customer, Harold Kumar, who wants to buy a Ford Fiesta, walks into the showroom. After taking one of the cars for a test drive, Harold decides to buy it. While $11,000 was the least that Larry would have been willing to accept for that car, he quotes a price of $17,000. After some bargaining, the car is sold for $16,000. In this case, the producer surplus is $5,000 If the cost of the car to Larry is $11,000, his profit is $5,000
$5,000 Producer Surplus=Minimum Acceptable Price−Actual Selling Price Producer Surplus=$11,000−$16,000=−$5,000Producer Surplus=$11,000−$16,000=−$5,000 $5,000 Profit=Selling Price−Cost Profit=$16,000−$11,000=$5,000
What is meant by holding all else equal and how is this concept used when discussing movements along the demand curve? Part 2 A. All variables that can affect the demand for the good are held constant. B. All variables in the model are set to equal values. C. everything else in the economy is held constant, including the price of the good. D. All of the above.
A. All variables that can affect the demand for the good are held constant.
Which of the following is not one of the three conditions that characterizes a perfectly competitive market? A. Firms have pricing power and can set their prices freely. Your answer is correct. B. Buyers are price takers and cannot influence the price charged. C. There are no barriers to entry or exit in the market. D. Sellers in the market produce identical goods.
A. Firms have pricing power and can set their prices freely. Your answer is correct.
Which of the following statements regarding producer surplus are not true? (Check all that apply.) A. It is not possible to calculate the total producer surplus in the market. This is the correct answer. B. It is the area below the marginal cost curve. This is the correct answer. C. It is the difference between total cost and total revenue. This is the correct answer. D. It arises from selling units at a price that is higher than the marginal cost.
A. It is not possible to calculate the total producer surplus in the market. This is the correct answer. B. It is the area below the marginal cost curve. This is the correct answer. C. It is the difference between total cost and total revenue. This is the correct answer.
In a perfectly competitive market, all of the following are true except: A. The market supply cannot affect the retail price. Your answer is correct. B. Sellers are price-takers. C. The products sold are basically homogeneous. D. Entry into the market is unrestricted.
A. The market supply cannot affect the retail price. Your answer is correct.
Which of the following statements is not true? A. The short-run supply curve of a firm is the portion of its marginal cost (MC) curve that lies below AVC. B. A firm should continue operating in the short-run if the market price is between average total cost (ATC) and AVC. C. Sunk costs do not affect current and future production decisions. D. A firm should shut down if average variable cost (AVC) is greater than the market price.
A. The short-run supply curve of a firm is the portion of its marginal cost (MC) curve that lies below AVC.
Which of the following would maximize social surplus? A. Trade at the competitive market equilibrium. B. Enforce trade beyond the equilibrium quantity. C. Restrict the quantity sold in the market below the equilibrium quantity. D. Set price floors above the equilibrium price.
A. Trade at the competitive market equilibrium.
A firm is producing goods in a market where the market price is less than the firm's average total cost but greater than its average variable cost. At this point the firm should: A. continue to operate at a loss. B. decrease production. C. increase price. D. shutdown production.
A. continue to operate at a loss.
In the long run, if Toland Fisheries would like to increase the productivity of its workers, it will need to ____________. A. increase its amount of capital and equipment. B. charge more for its services. C. charge less for its services. D. hire more workers.
A. increase its amount of capital and equipment.
An outcome is Pareto efficient if A. no individual can be made better off without making someone else worse off. B. buyers could do better at the expense of sellers. C. all individuals can be made better off without making someone worse off. D. sellers could do better at the expense of buyers.
A. no individual can be made better off without making someone else worse off. ch. 7.1
Holding all else constant, if the number of cell phone manufacturers suddenly decreased due to increased regulations, then A. supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease. Your answer is correct. B. supply would shift rightwards, equilibrium price would decrease, and equilibrium quantity would increase. C. supply would shift leftwards, equilibrium price would decrease, and equilibrium quantity would decrease. D. supply would shift rightwards, equilibrium price would increase, and equilibrium quantity would decrease.
A. supply would shift leftwards, equilibrium price would increase, and equilibrium quantity would decrease.
The market for electric drills in a certain country is characterized by a large number of buyers. The market for drills is in equilibrium. Does this also mean that it is Pareto efficient? Explain your answer. A. Yes, with the market in equilibrium, no one participant can be made better off without someone else being harmed. B. No, an outcome can only be Pareto efficient if equity is also achieved. C. No, a Pareto efficient outcome occurs only when every buyer and seller engages in a transaction. D. Yes, a Pareto efficient outcome occurs with the market in equilibrium since everyone is pleased with the outcome.
A. Yes, with the market in equilibrium, no one participant can be made better off without someone else being harmed.
Salmon fishing in Alaska is a seasonal business; May through September is the best time to bait salmon and halibut. Toland Fisheries, a small equipment. However, the fishery what is likely to happen to the marginal product of each new worker in the short run? A. It will be increasing at a decreasing rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired. B. It will be increasing at an increasing rate, meaning each additional worker will have a higher marginal product of labor than the previous one hired. C. It will be the same as the previous workers hired, meaning each additional worker will have the same marginal product of labor as the previous one hired. D. It will change cyclically, meaning that it will cycle up and down as more workers are hired.
A. It will be increasing at a decreasing rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired.
In which of the following examples, will the demand curve shift to the right? (Check all that apply.) A. Jason's demand for butter increases due to a decrease in the price of bread. Your answer is correct. B. Robert's demand for a normal good increases due to a decrease in his income. C. Mike's willingness to buy beer increases due to a decrease in its price. D. Ron's demand for an inferior good increases due to a decrease in his income.
A. Jason's demand for butter increases due to a decrease in the price of bread. D. Ron's demand for an inferior good increases due to a decrease in his income.
A list of economic terms is shown below. Match each term with its definition. A. Production B. Physical Capital C. Short run D. Long run E. Marginal product F. Specialization G. Law of diminishing returns - Increases in inputs eventually lead to less additional output. - Machines and equipment that can be used for production. - Period of time when at least one of a firm's inputs is fixed. - The process of transforming inputs into output. - The change in total production associated with using one more unit of input. - The result of workers developing a certain skill set in order to increase total productivity. - Period of time when all of a firm's inputs can be varied.
A. Production The process of transforming inputs into output. B. Physical Capital Machines and equipment that can be used for production. C. Short run Period of time when at least one of a firm's inputs is fixed. D. Long run Period of time when all of a firm's inputs can be varied. E. Marginal product The change in total production associated with using one more unit of input. F. Specialization The result of workers developing a certain skill set to increase total productivity. G. Law of diminishing returns Increases in inputs eventually lead to less additional output.
How would the equilibrium price in a market be affected if there were a small leftward shift in the demand curve and a large leftward shift in the supply curve? A. The equilibrium price increases. B. The equilibrium price would remain the same. C. The equilibrium price decreases. D. More information is needed. It may increase, decrease, or remain the same.
A. The equilibrium price increases.
Which of the following equations calculates the profits of a firm? Part 2 A. Total revenues−Total costs B. Total revenues + Total costs C. Total costs−Fixed costs D. Total revenues−Fixed costs When comparing the accounting profit with economic profit, it must be true that the accounting profit is ▼ less than or equal to greater than or equal to exactly equal to economic profit.
A. Total revenues−Total costs, greater than or equal to
If the number of people over the age of 16 in the country increased significantly, then the demand for the Toyota Rav4 SUV would A. increase (shift right). B. remain unchanged. C. decrease (shift left).
A. increase (shift right).
The figure on the right displays the market for video game consoles, where nine buyers are interacting with nine sellers. Part 2 According to this figure, the equilibrium price is $enter your response here, and at that price, the equilibrium quantity is enter your response here. When the market is in equilibrium, social surplus is $enter your response here. If the number of consoles is restricted to two less than the equilibrium quantity, social surplus is Alternatively, if the government mandated that one more video game console than equilibrium be transacted, social surplus is now $enter your response here. Alternatively, if the government mandated that one more video game console than equilibrium be transacted, social surplus is now $900 (right side is neg everything will be subtracted for every addition of video gm)
According to this figure, the equilibrium price is $250 and at that price, the equilibrium quantity is 5 ��1=450−50=400SS1=450−50=400 ��2=400−100=300SS2=400−100=300 ��3=350−150=200SS3=350−150=200 ��4=300−200=100SS4=300−200=100 ��5=250−???=???SS5=250−???=??? (Please provide the seller's reservation value for the 5th trade) Now, sum up all the social surpluses to get the total social surplus: Total Social Surplus=��1+��2+��3+��4+��5Total Social Surplus=SS1+SS2+SS3+SS4+SS5 From this analysis, it can be concluded that a market in competitive equilibrium maximizes social surplus.
In a perfectly competitive market, a seller cannot choose to raise the price of its good since all sellers in the market produce identical goods, so raising the price would result in losing all its customers. Part 2 All firms in a perfectly competitive market are said to be __________. Part 3 A. price neutral. B. price takers. Your answer is correct. C. price leaders. D. profitable in the long run.
B. price takers. Your answer is correct.
Question content area Part 1 Suppose one firm accounts for 55 percent of the global market share for a product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and sellers, is this market likely to be competitive? Part 2 A. Yes, a competitive market is characterized by having many firms, regardless of size. B. No, even though there are many firms in the market, there is one firm large enough to influence the market price. Your answer is correct. C. Yes, markets are only competitive if there is at least one firm large enough to act as a price setter for all other firms. D. No, even with such a large number of buyers and sellers, there must be barriers to entry for this market to stay competitive.
B. No, even though there are many firms in the market, there is one firm large enough to influence the market price. Your answer is correct.
Is producer surplus always equal to profit? Part 4 A. Producer surplus can never equal profit, since profit and producer surplus are based off of different curves. B. Producer surplus is equal to profit when marginal cost is equal to fixed costs. C. Producer surplus equals profit when marginal cost and average total cost can be represented with the same curve. D. Producer surplus will always equal profit, since both profit and producer surplus measure the same concept.
C. Producer surplus equals profit when marginal cost and average total cost can be represented with the same curve.
The market for economics textbooks is in equilibrium. The government decides to relax export restrictions on paper, leading to an increase in the demand for paper. How does social surplus in the market for textbooks change? Why? Part 2 A. The social surplus increases, and both consumer and producer surplus increase. B. The change in social surplus is indeterminate because an increase in producer surplus is accompanied by a decrease in consumer surplus. C. The social surplus decreases, producer surplus may increase or decrease, and consumer surplus decreases. D. The social surplus decreases because producer surplus increases less than the accompanying decrease in consumer surplus.
C. The social surplus decreases, producer surplus may increase or decrease, and consumer surplus decreases.
If the graph on the right represents the market supply and demand curves for pizza, what do we know about the demand curve for an individual pizza shop if the pizza market is in perfect competition? Part 3 A. The individual shop's demand curve is the same as the market demand curve. B. The shop's demand curve is to the left of the market demand curve but has the same slope. C. The shop's demand curve is horizontal at exactly $8. D. The shop's demand curve is steeper than the market demand curve.
C. The shop's demand curve is horizontal at exactly $8.
All of the following would cause a shift in the supply curve for orange juice, except A. a freeze over all of Florida for three nights in a row. B. tax credits for citrus farmers. C. a new medical discovery about the benefits of citrus. Your answer is correct. D. new machinery that speeds up the picking process.
C. a new medical discovery about the benefits of citrus. Your answer is correct.
In the long run, the supply curve for a perfectly competitive firm is represented by __________. A. the portion of the average variable cost curve below marginal cost. B. the portion of the average variable cost curve above marginal cost. C. the portion of the marginal cost curve above average total cost. D. the portion of the marginal cost curve above average variable cost.
C. the portion of the marginal cost curve above average total cost.
If Jay's Fruit Stand is able to charge considerably higher prices than other fruit stands with the same produce, it is likely that A. Jay's is a price taker. B. there are a lot of fruit stands in close proximity to Jay's. C. there are no fruit stands in close proximity to Jay's. D. Jay's accepts the market prices.
C. there are no fruit stands in close proximity to Jay's.
Assume that the market for chocolates is perfectly competitive. Which of the following statements would be true in this case? A. Pam wants to produce chocolates but she is unable to as Roy controls all the cocoa farms in the region. B. Terry uses soy milk for producing his chocolates, while Donna uses almond milk for producing hers. C. Jessica, a chocolate seller, sometimes sets her price lower or higher than the price at which other sellers sell their chocolates. D. Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price.
D. Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price.
Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in? A. When you buy the first battery. B. When you buy the second battery. C. When you buy the third battery. D. When you buy the fourth battery.
D. When you buy the fourth battery.
Social surplus is maximized when the ___________. A. competitive market is in equilibrium. B. buyers and sellers as distinct groups are doing as well as they possibly can. C. highest-value buyers are making a purchase and the lowest-cost sellers are selling. D. all of the above.
D. all of the above.
If the firm were facing MR3, then we know that this firm should __________. Part 7 A. keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down. B. shut down, since it is incurring a loss and when a firm earns less than zero profit, it should shut down. C. keep producing, since it is making a profit at the profit-maximizing output. D. shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down.
D. shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down.
Are all markets perfectly competitive? A. No, there are also command and control markets that are run by a central government. B. No, in other types of markets, sellers offer identical goods and simply accept the market price. C. Yes, any economic system with a market structure is by definition perfectly competitive. D. No, there are other market types where firms have considerable power to control the price.
D. No, there are other market types where firms have considerable power to control the price.
Does the shape of the market demand curve differ from the shape of an individual demand curve? Part 4 A. No, they both tend to be upward-sloping curves. B. Yes, individual demand curves tend to be downward-sloping, while market demand curves are upward-sloping. C. Yes, individual demand curves tend to be upward-sloping, while market demand curves are horizontal. D. No, they both tend to be downward-sloping curves.
D. No, they both tend to be downward-sloping curves.
Which of the following is not one of the five major factors that shifts the demand curve when it changes? A. The number of buyers. B. The price of complementary goods. C. Tastes and preferences. D. Prices of inputs used to produce the good. When one of the five major factors changes, causing an increase in demand, the demand curve shifts ____________________.
D. Prices of inputs used to produce the good. rightward The graph to the right illustrates the demand for smartphones in a country. If people expect future price increases, how would the demand for a normal good be impacted? 1.) Using the line drawing tool, depict how this increase will impact the demand for smartphones. Label the new curve 'D2'.
Consider a perfectly competitive market as shown in the given graph. Suppose the initial price of a product is $1.40 per unit. At this price, the marginal revenue (MR) curve faced by a firm is ▼ . If the market price increases from $1.40 to $2.70 per unit, the firm would ▼ decrease increase production from enter your response here to enter your response here units. If the market price decreases from $1.40 to $0.80 per unit, the firm would produce enter your response here units because at this price ▼ MR 2 equals MCMR2=MCMR 1 equals MR 2MR1=MR2MR 2 equals MR 3MR2=MR3MR 1 equals MCMR1=MC.
MR 1, If the market price increases from $1.40 to $2.70 per unit, the firm would increase production from 272272 to 350350 units. If the market price decreases from $1.40 to $0.80 per unit, the firm would produce 200200 units because at this price MR 2 equals MCMR2=MC. The firm expands production until MR=MC. MR equals price in a perfectly competitive market. Therefore, by linking the market price to the MC curve, we can determine how a competitive firm changes its output in the short run when the market price changes. At the initial market price of $1.40 per unit, the MR curve faced by a firm is MR1. Therefore, the firm equates MR1 and MC and, produces 272 units. If the market price increases from $1.40 to $2.70 per unit, the MR curve faced by a firm changes to MR3 Subscript . Therefore, the firm equates MR3 and MC and, produces 350 units. Similarly, at the market price of $0.80 per unit, the firm equates MR2 and MC and produces 200 units. We can trace out the firm's supply curve by completing this exercise for various price levels.
In the given graph, the horizontal price line intersects the demand curve at a point labeled with a dot. At this intersection, where the quantity demanded of the product is 40 units, the buyers' willingness to pay is equal to the market price of the product. For a quantity below 40 units the buyers' willingness to pay is _____________ the market price, so the buyers would ___________ by purchasing more of the product. For a quantity above 40 units the buyers' willingness to pay is ________________ the market price, so the buyers would __________ by purchasing more of the product.
above, gain below, lose
You own a lemonade stand. For any price above $1 per cup, absolutely nobody will buy your lemonade, but for any price at or below $1 per cup, you find that you are able to sell as much lemonade as you like. Using the line drawing tool, draw the demand curve for lemonade. Label the line as 'Demand'.
graph
