Chapter 7 Economics 1010

The figure on the right displays the market for video game​ consoles, where nine buyers are interacting with nine sellers. According to this​ figure, the equilibrium price is ​$____​, and at that​ price, the equilibrium quantity is ___. When the market is in​ equilibrium, social surplus is ​$________. If the number of consoles is restricted to two less than the equilibrium​ quantity, social surplus is ​$_____. ​Alternatively, if the government mandated that one more video game console than equilibrium be​ transacted, social surplus is now ​$______. From this​ analysis, it can be concluded that a market in competitive equilibrium _________ social surplus.

$250, 5,$1000,$900,$900, maximizes

In a competitive market​ equilibrium, the allocation of the social surplus is such that​ ____________. A.no individual can be made better off without making someone else worse off. B.all participants are equally satisfied with the outcome. C.no individual can be made better off or worse off. D.equity among the participants is attained.

A

A market where sellers orally state asks and buyers orally state offers is known as​ a: A.double oral auction. B.silent auction. C.blind auction. D.trade and sell auction.

A.double oral auction.

An outcome is Pareto efficient if A.no individual can be made better off without making someone else worse off. Your answer is correct. B.all individuals can be made better off without making someone worse off. C.buyers could do better at the expense of sellers. D.sellers could do better at the expense of buyers.

A.no individual can be made better off without making someone else worse off.

All of the following are issues faced by central planners in a command​ economy, except: A.setting quantity targets of production. B.aligning the interests of the agents. C.coordination problems. D.incentive problems.

A.setting quantity targets of production. The coordination problem of bringing agents together to trade is a difficult one for central planners. After solving the coordination​ problem, central planners must tackle the incentive​ problem, which is aligning the interests of the agents. In planned​ economies, rewards are based on meeting quantity targets.

Social surplus is the​ ____________. A.total value from trade in a markettotal value from trade in a market. B.excess of aggregate demand over aggregate supply. C.difference between consumer surplus and producer surplusdifference between consumer surplus and producer surplus. D.difference between the amount that buyers actually pay and what they wish to pay.

A.total value from trade in a markettotal value from trade in a market

Does price gouging have the same effect as setting prices above equilibrium​ level? A.​No, price gouging is actually an equilibrium​ outcome, while the setting of prices above equilibrium is not. B.​No, price gouging harms​ buyers, while prices set above equilibrium damages sellers. C.​Yes, both result in unjustifiably high prices given underlying supply and demand conditions. D.​Yes, both produce an excess of quantity supplied over quantity demanded.

A.​No, price gouging is actually an equilibrium​ outcome, while the setting of prices above equilibrium is not.

From the positions the curves hold in each​ graph, it can be deduced that the​ older, less efficient facility is ____. If video games are produced in a competitive market and the current price is $90​, production in Beta_____ thousand units and production in Alpha______thousand units. If management sought to transfer 10 thousand units of Alpha​'s production to Beta​, the​ firm's overall profits would ________​, since for those 10 thousand additional units MC Subscript Alpha Baseline less than MC Subscript BetaMCAlpha< MCBeta.

Alpha, Beta is 80,Alpha is 70 decrease MC alpha < MC beta

The government of a certain country decides that all its citizens should be equally well off. It decides to redistribute money so that each person has a roughly equal share of the total income. How would this policy affect economic activity in the​ country? A.It would be adversely affected since the poor are generally incapable of wisely investing money. B.It would be adversely affected since incentives to work or seek profits would be greatly diminished. C.It would be enhanced by the euphoria and sense of unity brought about by the creation of an egalitarian society. D.It would be boosted since the poor will now be spending funds the rich would have otherwise saved.

B.It would be adversely affected since incentives to work or seek profits would be greatly diminished

Which of the following would maximize social​ surplus? A.Enforce trade beyond the equilibrium quantity. B.Trade at the competitive market equilibrium. C.Restrict the quantity sold in the market below the equilibrium quantity. D.Set price floors above the equilibrium price.

B.Trade at the competitive market equilibrium. For social surplus to be​ maximized, the​ highest-value buyers are making a purchase and the​ lowest-cost sellers are selling. In this​ way, buyers as distinct​ groups, are doing as well as they possibly canlong dash—they are optimizing. Social surplus is maximized at the competitive market equilibrium.

Assume there are two industries in our​ economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC​ curve, ____________. A.firms currently making calzones will switch to making pizza. B.firms currently making pizza will switch to making calzones. C.firms will continue making their current product since demand curves will adjust to equilibrate prices in both markets. D.firms will increase their productivity to lower their marginal costs. When firms switch from making pizza to making​ calzones, the price of pizza will _________and the price of calzones will ___________ .

B.firms currently making pizza will switch to making calzones increase;decrease

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. A.coordination B.incentive C.alignment D.integration

B.incentive

Bilateral negotiations often lead to prices​ that: A.are often lower than the theoretical equilibrium price. B.are often higher than the theoretical equilibrium price. C.approach the theoretical equilibrium price. D.are the same as the theoretical equilibrium price.

C.approach the theoretical equilibrium price.

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. A.collaboration B.communication C.coordination D.incentive

C.coordination

In a perfectly competitive​ market, a firm with multiple production plants will minimize total costs of production when A.the cost of production for all plants is equal. B.each plant produces at maximum capacity. C.each plant produces where marginal revenue equals marginal cost. D.closing older plants with less advanced production technologies.

C.each plant produces where marginal revenue equals marginal cost.

In a perfectly competitive​ market, when firms enter and exit competitive​ markets: A.the market is not working well because the market price is too high. B.the market is not working well because firms are leaving the market. C.it is a good sign the market is working. D.the market is not working well because the market price is too low.

C.it is a good sign the market is working.

In assessing the performance of a perfectly competitive​ market, we can say that​ ____________. 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

Social surplus is maximized when the​ ___________. A.buyers and sellers as distinct groups are doing as well as they possibly can. B.competitive market is in equilibrium. C.highest-value buyers are making a purchase and the​ lowest-cost sellers are selling. D.all of the above.

D

During peak​ demand, service-based companies using a​ surge-pricing model often charge more than during less busy times in order to A.decrease the amount of supply. B.increase the amount of supply. C.decrease the amount demanded. D.move the market to equilibrium.

D.move the market to equilibrium

The price at which a sellerseller is indifferent between making a salesale and not doing so is known as hishis ​____________. A.willingness-to-sellsell value. B.breakeven point. C.reservation price. D.all of the above. E.A and C only.

E

In a economy, a central authority determines the goods and services produced while a economy is based on price signals and strong economic incentives.

command;market

A deadweight loss is the in social surplus that results from a market

decrease; distortion A deadweight loss is the decrease in social surplus that results from a market distortion.

When economists speak of a deadweight​ loss, they are referring to a _______________ in ________________caused by a market distortion. Consider the figure on the right that shows a market with a​ government-imposed price control at Upper P Subscript Upper CPC. At this​ price, the transacted level of the product is Upper _____ units. Since this market is prevented from attaining​ equilibrium, the result is a deadweight​ loss, which is measured by area _________.

decrease; social surplus ;Q2;C + E

Two manufacturing plants operate at Acme​ Corporation: Plant A and Plant B. If Plant A uses older technology than Plant​ B, it is likely to have a ________ marginal cost than Plant B. In this​ case, Plant A requires a market price that is ▼ higher thanlower thanthe same as Plant B in order to produce. At the market​ price, Plant A will produce ▼ more thanless thanthe same as plant B and will earn ▼ a lowera higherthe same economic profit.

higher; Higher than; Less than; a lower

The figure on the right shows the typical firm in a perfectly competitive industry. Equilibrium in the market is currently yielding a price of $70. At this​ price, the typical firm earns a _______ economic profit. As a consequence of the current​ short-run conditions in this​ industry, it may be expected that firms will ________ this market. As this movement of firms​ occurs, economic profits for the typical firm will __________.

positive; enter; approach zero

A​ non-market price imposition is a ___________. In the figure on the​ right, the imposition of price Upper P Subscript Upper CPC results in a ____________in the market. If the imposed price Upper P Subscript Upper CPC were​ removed, market forces would rectify the mismatch between quantity demanded and quantity supplied by pushing the price ___________. This price adjustment would eliminate the mismatch by ____________ market participants to change their behavior.

price control; shortage; upward; incentivizing

In a market​ economy, the alignment of interests is accomplished through the use of ____________ .

prices