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