micro chapter 4
The allocative function of price is to:
ensure that firms in perfectly competitive markets earn an economic profit.
A price ceiling that is set above the equilibrium price will result in
no change in total economic surplus.
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.
Consider the graph above. In the long run, there will be ________ firms in this market.
10
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. Pat's explicit costs are ________, and Pat's implicit costs are ________.
$16,000; $35,000
Refer to the figure above. If a price ceiling were imposed at $4, producer surplus would be:
4
Refer to the figure below. Suppose a $1 per unit tax is imposed on sellers. The share of the tax burden borne by consumers is _____ and the share of the tax burden borne by producers is _______
40;60 cents
Refer to the figure above. Suppose a $1 per unit tax is imposed on sellers. The deadweight loss from imposing a $1 tax on sellers is
50 cents
The more inelastic demand is, the ______ the burden of the tax borne by ______. A) smaller; consumers B) larger; consumers C) larger; producers D) smaller; government
B) larger; consumers
implicit costs
Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur
explicit costs
The actual payments a firm makes to its factors of production and other suppliers.
economic profit
a firm's total revenue minus its explicit and implicit costs
accounting profit
total revenue - explicit costs
Suppose a market is in equilibrium. The area below the market price and above the supply curve is:
producer surplus
Suppose all firms in a perfectly competitive industry are earning an economic profit. One would expect that, over time, the number of firms in the industry will ______ and the market price will ______.
rise; stay the same
The sum of producer surplus and consumer surplus is:
total surplus.
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. Pat's accounting profit is ________, and Pat's economic profit is ________. A) $15,000; -$1,000 B) $34,000; -$1,000
$34,000; -$1,000
Consider the graph above. The long-run equilibrium price in this industry is:
10
If this market is unregulated, the economic surplus received by consumers is:
16
Refer to the figure above. If this market is unregulated, the economic surplus received by producers is
16
Refer to the figure above. If a price ceiling were imposed at $4, consumer surplus would be
20
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.
In the long run, in a perfectly competitive industry:
economic profit and loss are driven to zero by entry and exit.
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 in the long run firms will
exit the market, leading the market supply curve to shift back to S2.
One difference between the long run and the short run in a perfectly competitive industry is that:
firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.
If a per unit tax is imposed, the more elastic demand is, the
larger the deadweight loss.