question
Refer to the figure above. When the demand curve for gas is D2 and the supply curve for gas is S, the surplus in the market when price is $8 is:
answer
50 Gallons
question
Other things remaining same, a right shift in the demand curve will lead to:
answer
an increase in the equilibrium price and the equilibrium quantity.
question
Which of the following relationships correctly identifies the profit maximization condition of a firm in a perfectly competitive market?
answer
Marginal cost = Price = Marginal revenue
question
A firm will maximize profit at the level of output where:
answer
its marginal revenue equals marginal cost.
question
Which of the following statements about the short run and long run is true?
answer
The short-run average cost curves lies below the long-run average cost curves.
question
The entry and exit of firms in a perfectly competitive market is mostly dependent on:
answer
profitability
question
When price is less than the firmsʹ minimum average total cost, ________.
answer
existing firms will leave the market
question
In a perfectly competitive market:
answer
the long-run market price is equal to the minimum average cost of the industry because of free entry and exit of firms.
question
A firm sells 30 units of its product at a price of $5 per unit. It incurs a fixed cost of $100 and a variable cost of $20. The firmʹs profit is:
answer
$30.
question
A firm has an average total cost of $40. If it sells 20 units of its product at $50 each, what is its profit?
answer
$200
question
A firm earns $600 of total revenue from selling its product at $200 per unit. If the per-unit cost of producing the good is $150, the firm sells ________ units(s) of the good.
answer
3
question
12) The equilibrium price of a good sold in a competitive market is $10. If an individual firm decides to sell its product at a price higher than $10, ________.
answer
the firm will lose all its consumers
question
13) Marginal cost is the change in the:
answer
total cost associated with producing one more unit of output.
question
16) An optimizing consumer has to choose between two goods-Good A priced at PA and Good B priced at PB.Given that MBA is the marginal benefit from consuming Good A and MBB is the marginal benefit from consuming Good B, the consumerʹs well-being will be maximized at the point where:
answer
MBA/PA = MBB/PB.
question
17) ________ is the difference between the willingness to pay and the price paid for a good.
answer
Consumer surplus
question
18) John is ready to pay $6 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $3.5. Johnʹs consumer surplus from the purchase is ________.
answer
$2.50
question
19) Refer to the figure above. A change in the budget constraint from B1 to B3 indicates:
answer
a decrease in the price of jeans and increase in the consumer's income.
question
21) Elasticity is:
answer
the ratio of the percentage change in two variables.
question
22) Which of the following best describes a good with perfectly elastic demand?
answer
Even the smallest increase in the price of the good will cause consumers to stop consuming it completely.
question
23) When the price of milk is $3 per bottle, Steve purchases 20 bottles of milk. When the price increases to $6, Steveʹs consumption falls to 15 bottles. Steveʹs arc elasticity of demand for milk is:
answer
-0.25.
question
24) Scenario: When the price of wine is $10 per bottle, Thomas purchases 30 bottles every month. Later, the government introduces a 50% tax on all alcoholic beverages, which is to be completely borne by consumers. This reduces Thomasʹs consumption to 20 bottles of wine a month. Refer to the scenario above. Thomasʹs arc elasticity of demand for wine is:
answer
-1.
question
25) If a 1% change in the price of a good causes a 5% change in the quantity demanded, the good has an elasticity of demand:
answer
greater than 1.
question
26) If a good has a price elasticity of demand of 1.5, it implies that:
answer
if the price of the good increases by 1%, the quantity demanded of the good will decrease by 1.5%.
question
27) Which of the following goods is likely to have the highest price elasticity of demand?
answer
Potato chips
question
28) The price elasticity of demand for a good that is a necessity is likely to be:
answer
inelastic.
question
29) Gary consumes 10,000 units of electricity when his income is $500. When his income increases to $1,000, his consumption of electricity increases to 18,000 units. What is Garyʹs income elasticity of demand for electricity?
A) 0.5
A) 0.5
answer
0.8
question
30) A lot of American action movies are quests to eliminate a villain. If in real life villains are elastically supplied, should we care whether the hero captures a particular villain?
answer
No
question
31) A lot of American action movies are quests to eliminate a villain. If in real life villains are elastically supplied, should we care whether the hero captures a particular villain?
answer
No
question
32) If a sellerʹs marginal cost is $15, and the price at which the good is sold is $30, the producer surplus is ________.
answer
) $15
question
33) Social surplus is:
answer
social surplus is maximized
question
35) If the producer surplus in a market for a good is $36 and the consumer surplus in the market for the same good is $9, the social surplus in the market is ________.
answer
$45 *CS + PS = SS
question
100 is to be divided among two individuals Mary and Jenna. Which of the following allocations is Pareto efficient?
answer
Mary receives $1, and Jenna receives $99.
question
37) For social surplus to be maximized, the ________ buyers are actually making a purchase and the ________ sellers are selling the products.
answer
highest-value; lowest-cost
question
38) If restrictions on entry and exit of firms are introduced in free markets, ________.
answer
resources in the market are not allocated efficiently
question
39) Suppose that the producers of soft drinks have to pay $2 tax per gallon of drink. Assuming that the market of soft drinks is competitive (and in the long run equilibrium before the change), how the market price of soft drinks will change in short run?
answer
The price will increase, but by less than $2 per gallon.
question
40) Suppose that the governments asks all the producers of soft drinks to pay $10 mln license fee per year to stay in business. How will it affect the companies' short-run and long-run profits? Assume that the market is competitive, all firms have identical costs, and the market is in long-run equilibrium before the policy is applied.
answer
Short run profits will drop by less than $10 mln, while long-run profits will remain the same.
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