Micro theory, Ch. 9

In the short run, if a firm operates, it earns a profit of $500. The fixed costs of the firm are $100. This firm has a producer surplus of A) $500. B) $100. C) $400. D) $600.

$600.

If a market produces a level of output that exceeds the competitive equilibrium output, then A) social welfare will be higher. B) producer surplus will be higher. C) marginal cost will exceed price. D) All of the above.

marginal cost will exceed price

The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone). If the price were zero, consumer surplus equals A) $301.00. B) $924.50. C) $1,225.50. D) $1,250.00.

$1,250.00.

If a city decides to restrict the number of pizza parlors A) the price of pizza will increase. B) pizza parlors will make higher profits. C) total welfare will decrease. D) All of the above.

All of the above.

The difference between producer surplus and profit is always the associated A) opportunity costs. B) total costs. C) variable costs. D) fixed costs.

fixed costs.

What is one reason activists might lobby the government to force firms to produce more output than they normally would in a perfectly competitive market? A) They value consumer surplus more than producer surplus. B) They value producer surplus more than consumer surplus. C) They seek to avoid future regulation. D) They seek to minimize total surplus.

They value consumer surplus more than producer surplus.

Mary purchased a stuffed animal toy for $5. After a few weeks, someone offered her $100 for the toy. Mary refused. One can conclude that Mary's consumer surplus from the toy is A) less than $5. B) at least $95. C) at least $100. D) $105.

at least $95.

The cost of lobbying for an import quota in a perfectly competitive market A) increases the welfare loss of the quota. B) decreases the deadweight loss of the quota. C) shifts the supply curve of the good to the left. D) increases the consumer surplus

increases the welfare loss of the quota.

Consumers seek to A) maximize profits. B) maximize expected consumer surplus. C) minimize expenditures. D) maximize choice.

maximize expected consumer surplus.

Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Smith's consumer surplus is A) $5,000. B) $15,000. C) $20,000. D) not able to be calculated from the information given.

not able to be calculated from the information given.

Producer surplus is equal to A) the area under the supply curve. B) the difference between price and average cost for all units sold. C) the difference between price and marginal cost for all units sold. D) the firm's profit when fixed costs exist.

the difference between price and marginal cost for all units sold

If a firm is in a perfectly competitive world but decides to charge a higher price than its competitors, A) the firm's profits will be zero or negative and the firm will fail in the long-run. B) the firm's profits will be zero or negative and the firm will fail in the short-run. C) the firm's profits will be positive or negative and the firm will fail in the short-run. D) the firm's profits will be positive or negative and the firm will fail in the long-run.

the firm's profits will be zero or negative and the firm will fail in the long-run.

If activists successfully lobbied government to force firms to produce more output than they normally would in a perfectly competitive market, A) consumer surplus would decline. B) producer surplus would increase. C) taxation would solve the problem. D) total surplus in the market would decline.

total surplus in the market would decline.

Economists claim that measuring society's welfare as CS + PS A) is inappropriate since ultimately everyone is a consumer. B) is valid only when the same person could be either a consumer or a producer. C) treats the gains to consumers and producers equally. D) is not commonly accepted.

treats the gains to consumers and producers equally.

If a city government enacts a maximum price on rent A) quantity supplied will decrease. B) quantity demanded will increase. C) allocational problems develop. D) All of the above.

All of the above

What is one reason it might be difficult to dissuade people from pirating music off the internet? A) Consumer surplus is very high when music is pirated. B) In general, consumers get a rush from "stealing." C) Consumers mistakenly believe that the internet is public domain. D) Producer surplus is very low when music is pirated.

Consumer surplus is very high when music is pirated.

Before the DVD, the VCR was a popular format for taping and replaying video. When the DVD was introduced, which of the following most accurately describes the long-run adjustment process in the VCR industry? A) Costs increased, price increased, demand decreased, quantity decreased, profit decreased. B) Demand increased, costs increased, price increased, quantity increased, profit decreased. C) Demand decreased, quantity decreased, price decreased, profit decreased. D) Demand decreased, price decreased, quantity decreased, profit decreased.

Demand decreased, quantity decreased, price decreased, profit decreased.

What is one reason perfectly competitive firms wish to be ever more efficient? A) Individual firms are awarded by the tax code to be more efficient. B) Individual firms can more control their costs than the price they can charge. C) Individual firms can more control their costs than their output levels. D) Individual firms don't need to be efficient, government policies do not reward efficiency.

Individual firms can more control their costs than the price they can charge.

Which of the following is a potential result of a price ceiling? A) Excess supply. B) Long lines. C) Higher quality output. D) Higher marginal costs.

Long lines.

In economics, welfare analysis focuses on A) income transfer programs. B) food stamp programs. C) international aid programs. D) None of the above.

None of the above.

Assume government policy increases the demand for corn. A) The consumer surplus of corn buyers will increase. B) The producer surplus of corn growers will decrease. C) The producer surplus of corn growers will increase. D) The producer surplus of corn growers will not change.

The producer surplus of corn growers will increase.

You enter a store and buy a bottle of soda. Do you usually receive consumer surplus? A) Yes, because you wouldn't buy the soda if your willingness to pay would be less than the price. B) Yes, because you are thirsty. C) No, because you value other drinks more. D) No, because you have less money after the transaction.

Yes, because you wouldn't buy the soda if your willingness to pay would be less than the price.

Long-run economic rent or profit does not exist for fixed factors like land because A) bidding drives up the price of the factor until no economic rent exists. B) there is no market for such factors. C) these factors have L-shaped isoquants. D) these factors will earn economic profits.

bidding drives up the price of the factor until no economic rent exists

Deadweight loss occurs when A) producer surplus is greater than consumer surplus. B) the maximum level of total welfare is not achieved. C) consumer surplus is reduced. D) an inferior good is consumed.

the maximum level of total welfare is not achieved.

Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Jones' producer surplus is A) $5,000. B) $15,000. C) $20,000. D) not able to be calculated from the information given.

$5,000.

Joe's demand for spring water can be represented as p = 10 - Q (where p is measured in $/gallon and Q is measured in gallons). He recently discovered a spring where water can be obtained free of charge. His consumer surplus from this water is A) $0. B) $50. C) $100. D) unknown based upon the information provided.

$50.

The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone). At the current price of $0.35 per minute, consumer surplus equals A) $301.00. B) $924.50. C) $1,225.50. D) $1,250.00.

$924.50.

As the price of a good increases, the loss in consumer surplus is larger, A) the more elastic demand is. B) the more money previously spent on the good. C) the less money previously spent on the good. D) the smaller the price increase

the more money previously spent on the good.

In the long run, competitive firms MUST be profit maximizers because if they do not maximize profits A) they will not survive. B) they will not be price takers. C) they will attract entry. D) the profits that they do earn will only cover variable costs.

they will not survive.

What is one reason firms might lobby to prevent entry into their market? A) The long run equilibrium might be characterized by P=MC=ATC B) The long run equilibrium might be characterized by P=MC<ATC C) The long run equilibrium might be characterized by P>MC=ATC D) The long run equilibrium might be characterized by P=MC>ATC

The long run equilibrium might be characterized by P=MC>ATC

Suppose consumers of cigarettes can be classified into two groups: heavy users and light users. Heavy users purchase more cigarettes and are less sensitive to price changes relative to light users. To determine whether a heavy user suffers a greater loss of consumer surplus than a light user does when the price of cigarettes increases, one would need to know A) each group's average income. B) the actual quantities purchased by each. C) each individual's price elasticity of demand. D) no additional information.

no additional information.

A firm that generates zero economic profit usually has A) negative business profit. B) zero business profit. C) positive business profit. D) business profit equal to half the total revenue.

positive business profit.

In the long-run equilibrium in perfect competition, consumer surplus is A) positive. B) negative. C) zero. D) less than producer surplus.

positive.

A minimum wage is an example of a A) price floor. B) price ceiling. C) quantity quota. D) free market equilibrium.

price floor.

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then consumer surplus will most likely A) increase. B) decrease. C) remain unchanged. D) There is not enough information to answer.

decrease.

Sarah and David both have linear demand curves for lemonade. Sarah's demand curve for lemonade intersects David's demand curve at a price of 50 cents per glass. Sarah's demand curve is more inelastic than David's. A change in the price of lemonade from 50 cents to 25 cents per glass will A) decrease Sarah's consumer surplus more than David's. B) decrease David's consumer surplus more than Sarah's. C) increase Sarah's consumer surplus more than David's. D) increase David's consumer surplus more than Sarah's.

increase David's consumer surplus more than Sarah's.

Rent seeking in the form of lobbying for an increase in import tariffs by domestic producers A) increases consumer surplus. B) increases total welfare. C) increases the deadweight loss. D) None of the above.

increases the deadweight loss.

A competitive market maximizes social welfare because in a competitive market A) profits are zero. B) price equals marginal cost of the last unit produced. C) price equals average cost of the last unit produced. D) there is free entry and exit.

price equals marginal cost of the last unit produced.

If an economist states that not enough of a good is being produced, she usually means that A) not everyone can afford the good. B) price exceeds marginal cost. C) consumer surplus equals zero. D) at equilibrium, some people who still wish to sell the good cannot find a buyer.

price exceeds marginal cost.

In the long-run equilibrium in perfect competition A) producer surplus is positive. B) producer surplus is negative. C) producer surplus is greater than consumer surplus. D) producer surplus is less than consumer surplus.

producer surplus is less than consumer surplus.

In 2007, the National Collegiate Athletic Association put a moratorium on new Football Bowl Series (formerly Division IA) teams. This policy will A) protect the producer surplus of existing football programs. B) ensure that when entry occurs, producer surplus will not be zero. C) ensure that when entry occurs, producer surplus will be positive. D) ensure that consumer surplus is greater in the future.

protect the producer surplus of existing football programs.

Firms are ________ with an economic profit of zero, they will ________ in the industry if they ________ be better off in another industry. A) satisfied, stay, won't B) unsatisfied, leave, will C) satisfied, leave, will D) unsatisfied, stay, won't

satisfied, stay, won't

Suppose the market supply curve is p = 5Q. At a price of 10, producer surplus equals A) 50. B) 25. C) 12.50. D) 10.

10.

Suppose the market supply curve is p = 5 + Q. At a price of 10, producer surplus equals A) 50. B) 25. C) 12.50. D) 10.

12.50.

Assume the price of tomatoes increases. Which of the following cause would correspond to greater producer surplus? A) An increase in supply. B) An increase in costs. C) A decrease in supply. D) An increase in demand.

An increase in demand.

Giving presents of Christmas does NOT generate a deadweight loss if A) all gift are money. B) everybody gets exactly want she wants. C) nobody can be made better off by returning the gift and purchasing a different one. D) All of the above.

All of the above.

Producer surplus equals A) total revenue minus total variable cost. B) total revenue minus the sum of all marginal cost. C) profit plus fixed cost. D) All of the above.

All of the above.

The larger the U.S. imposed per unit import tariff on a good imported and produced in the U.S. A) the smaller the U..S consumer surplus. B) the larger the U.S. producer surplus. C) the larger the government revenue. D) All of the above.

All of the above.

Sally is shopping for textbooks at the beginning of the semester. What is one reason she might decide to not purchase a textbook? A) Her expected producer surplus is positive. B) Her expected consumer surplus is negative. C) Her expected consumer surplus is positive. D) Her expected profits are positive.

Her expected consumer surplus is negative.

What is one reason existing firms might lobby the government to increase regulation in their industry? A) It increases entry and exit costs, thereby reducing producer surplus to existing firms. B) It increases entry and exit costs, thereby potentially increasing producer surplus to existing firms. C) It increases entry and exit costs, but has no impact on producer surplus. D) Firms cannot be trusted to treat their customers fairly and ethically.

It increases entry and exit costs, thereby potentially increasing producer surplus to existing firms.

Which of the following is not a potential result of a price floor? A) Excess supply. B) Price greater than free-market equilibrium price. C) Lower quality inputs are used which increases marginal cost D) All of the above.

Lower quality inputs are used which increases marginal cost

Which of the following characterizes long-run equilibrium in perfect competition? A) P=MC=ATC B) P=MC<ATC C) P>MC=ATC D) P=MC>ATC

P=MC=ATC

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur? A) Consumer surplus will increase. B) Producer surplus will increase. C) Entry of new brokers will increase. D) Social welfare will increase.

Producer surplus will increase.

Sarah's demand curve for shoes has the same slope as Pete's; however, it lies to the right of Pete's. An increase in the price of shoes will cause A) Sarah to incur a greater loss of consumer surplus than Pete will. B) Pete to incur a greater loss of consumer surplus than Sarah will. C) Sarah and Pete to incur the same loss of consumer surplus. D) Sarah's demand curve to shift closer to Pete's.

Sarah to incur a greater loss of consumer surplus than Pete will.

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur? A) The supply curve of real estate brokers will shift to the left. B) The supply curve of real estate brokers will shift to the right. C) Social welfare will remain unchanged. D) The supply curve will remain unchanged.

The supply curve of real estate brokers will shift to the left.

What is one reason activists might lobby the government for regulation limiting the production of a product to less than would normally be in a perfectly competitive market? A) They value consumer surplus more than producer surplus. B) They value producer surplus more than consumer surplus. C) They seek to avoid future regulation. D) They seek to minimize total surplus.

They value producer surplus more than consumer surplus.

Does a competitive long-run equilibrium require cost-minimization? A) Yes, if firms fail to be as efficient as their competitors they are driven out of the market. B) No, in the long-run firms make zero profits. C) Yes, if they didn't even less efficient firms would enter the industry. D) No, because competition ensures their survival.

Yes, if firms fail to be as efficient as their competitors they are driven out of the market.

If lower-income households spend a greater share of their income on cigarettes than do higher-income households, then a tax that raises the price of cigarettes will A) cause lower-income households to incur a greater loss of consumer surplus than that incurred by higher-income households. B) cause higher-income households to incur a greater loss of consumer surplus than that incurred by lower-income households. C) raise consumer surplus among higher-income households. D) cause consumer surplus to decline among smokers, but the relative impact cannot be determined from the given information.

cause consumer surplus to decline among smokers, but the relative impact cannot be determined from the given information.

The total welfare associated with a market that includes a government sales tax equals A) consumer surplus plus producer surplus. B) consumer surplus plus producer surplus minus government tax revenue. C) consumer surplus plus producer surplus plus government tax revenue. D) the government tax revenue.

consumer surplus plus producer surplus plus government tax revenue.

Consumers often purchase products that, afterward, they regret purchasing. This can be explained by A) consumers trying products to determine if their consumer surplus increases. B) consumers trying products to determine if firm advertising is honest. C) consumers trying to minimize expenditures. D) consumers trying to maximize choice.

consumers trying products to determine if their consumer surplus increases.

A ban on imports, a tariff, or a quota raise the price to domestic consumers. This means that consumers will buy less of the product at a higher price. The loss associated with this is called A) production associated loss. B) productive consumption loss. C) consumption distortion loss. D) consumer misperception loss.

consumption distortion loss.

The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then social welfare will most likely A) not change but there will be a transfer from consumer to producer. B) not change but there will be a transfer from producer to consumer. C) decrease although producers are made better off. D) decrease although consumers are made better off.

decrease although producers are made better off.

A new law applied to a competitive market that requires laid off workers be paid a large severance payment will A) not generate a deadweight loss. B) increase total welfare. C) increase consumer surplus in the market. D) decrease consumer surplus in the market.

decrease consumer surplus in the market.

The United States and many other countries often impose trade sanctions on other countries. These sanctions A) decrease producer and consumer surplus in both the sanctioned and sanctioning countries. B) tend to increase total welfare. C) tend to decrease the deadweight loss. D) tend to decrease consumer and producer surplus only in the sanctioned country.

decrease producer and consumer surplus in both the sanctioned and sanctioning countries.

In economics, welfare analysis is useful to A) gauge the validity of "mend it, don't end it." B) determine who should receive income transfers. C) determine who gains and who loses in a particular policy option. D) prove which policy option is "best."

determine who gains and who loses in a particular policy option.

Assume a consumer has a horizontal demand curve for a product. His consumer surplus from buying the product A) is maximized. B) can't be calculated. C) equals zero. D) Need more information.

equals zero.

Survivability in a perfectly competitive world requires that A) firms minimize average total cost. B) firms produce new and different products. C) firms maximize profit. D) firms maximize revenue.

firms maximize profit.

If a firm enjoys producer surplus in perfectly competitive Market A of $1000 and would enjoy producer surplus in perfectly competitive Market B of $1200, the firm would consider moving to Market B if A) fixed costs are greater than $100 in Market A. B) fixed costs are less than $200 in Market B. C) fixed costs are less than $300 but greater than $200 in Market B. D) fixed costs in Market B are less than the fixed costs in Market A plus $200

fixed costs in Market B are less than the fixed costs in Market A plus $200

If a market produces a level of output below the competitive equilibrium, then A) social welfare is not maximized. B) consumer surplus might still be maximized. C) the actual price will be below the equilibrium price. D) social welfare might still be enhanced if a price ceiling keeps price below the competitive price.

social welfare is not maximized.

If in a market the last unit of output was sold at a price higher than marginal cost A) producer is better off producing more. B) consumers are better off if less of the product is sold. C) social welfare is not maximized. D) the unit increased total profit.

social welfare is not maximized.

Advocates of steel tariffs to protect U.S. steel firms realize that when imposing such tariffs the gains of firms are outweighed by the losses to consumers.. This implies that A) such advocates value producer surplus more than consumer surplus. B) want to help consumers. C) such advocates value consumer surplus more than producer surplus. D) such advocates value producer surplus and consumer surplus equally.

such advocates value producer surplus more than consumer surplus.

The deadweight loss associated with output less than the competitive level can be determined by A) subtracting the competitive level producer surplus from the producer surplus associated with less output. B) subtracting the consumer surplus from the producer surplus associated with less output. C) summing the consumer and producer surplus associated with less output. D) summing the change in the total consumer and producer surplus from moving from the competitive level of output to less output.

summing the change in the total consumer and producer surplus from moving from the competitive level of output to less output.

The welfare loss from an import quota is greater than that of an equivalent tariff because A) tariff revenues can be used to society's benefit. B) the loss in consumer surplus is not as large. C) domestic producers gain more from a quota than from a tariff. D) tariff revenues represent an additional deadweight loss.

tariff revenues can be used to society's benefit

The owners of sports franchises often complain that free-agency (open bidding for player services) threatens their profitability and thus their long-run viability. Given your knowledge of perfect competition, which of the following is correct? A) team owners might be correct in as much as free-agency bids up the price of players so that economic profits from those players equal zero. B) team owners might be correct in as much as free-agency bids up the price of players so that economic profits from those players is negative. C) team owners are lying, as free-agent salaries are still much too low. D) team owners are telling the truth, as free-agent salaries are much too high.

team owners might be correct in as much as free-agency bids up the price of players so that economic profits from those players equal zero.

Suppose when a market has four firms, average profit is $1,000 per month. When the market has five firms, the average profit is -$50 per month. This suggests that A) the long-run equilibrium number of firms is between four and five. B) the long-run equilibrium number of firms is four. C) the long-run equilibrium number of firms is five. D) there is no long-run equilibrium in this market as profits can never be zero.

the long-run equilibrium number of firms is between four and five.