Microeconomics- Test 4 Ch. 7

The figure below shows the supply and demand curves for oranges in Smallville. What is the marginal cost of producing the tenth pound of oranges?

$4

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

Economic theory assumes that a firm's goal is to:

maximize its economic profit.

Unlike economic profit, economic rent:

may not be driven to zero by competition.

Explicit costs:

measure the payments made to the firm's factors of production.

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.

Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:

often lead to the most efficient allocation of resources.

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:

producer surplus.

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 and sellers.

Professor Plum, who earns $100,000 per year, read in the paper today that the university pays its basketball coach one million dollars per year in exchange for his agreement to remain at the university for at least three more years. The coach earns more than Professor Plum because:

the coach is able to earn economic rent due to his unique talents.

If a firm is earning zero economic profit, then:

the firm's accounting profit is equal to the firm's implicit costs.

Efficiency is an important goal because when markets are efficient:

there are more resources available to achieve other goals.

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. With no subsidy, the equilibrium price of sugar is ______ per ton, and the equilibrium quantity is ______ tons per day.

$1,500; 8

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. If the government provides a subsidy of $500 per ton, the equilibrium price of sugar will be ______ per ton, and the equilibrium quantity will be ______ tons per day.

$1000; 12

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, the equilibrium price will be _____ per gallon, and each firm's profit-maximizing quantity will be ______ gallons per week.

$15; 3 hundred

If this market is unregulated, the economic surplus received by consumers is:

$16

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. For Pat to earn normal profit, Pat's accounting profit would have to be ______.

$35,000

When the market is unregulated, consumer surplus is represented by the area:

ABC

Which of the following is an example of the rationing function of price?

Bill Gates purchasing the Mona Lisa for $5 billion.

If a price ceiling were imposed at point G, the loss in total economic surplus would be represented by the area ______.

FEC

If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______.

GAEF

Which of the following is NOT an example of an explicit cost?

The income the owner could have earned in his or her next best employment opportunity.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S1, then in the long run firms will:

enter the market, leading the market supply curve to shift out to S2.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S3, then we would expect firms to:

exit the market in the long run.

E-commerce and an internet presence are important to many firms, requiring employees with specialized skills that are in short supply. The invisible hand solves the employment problem by:

giving workers an incentive to acquire the necessary skills on their own in order to receive higher wages.

Mary Jane is willing to babysit for $6 an hour. Her neighbor has asked her to babysit for $8 an hour. Assuming Mary Jane accepts the offer:

her economic rent will be $2 per hour.

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. If the government provides a subsidy of $500 per ton, then relative to before the subsidy, consumer surplus will ______ by ______ per day.

increase; $5000

The No-Cash-on-the-Table Principle states that there are:

never unexploited opportunities available to individuals in equilibrium.

A price ceiling that is set above the equilibrium price will result in:

no change in total economic surplus.

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. Economists would consider the environmental damage that results from the production of cotton to be a(n):

relevant cost of production.