ch 9

Question 1

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.

Answer 1

C) positive business profit.

Question 2

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

Answer 2

A) P = MC = ATC

Question 3

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.

Answer 3

D) The long-run equilibrium might be characterized by P = MC > ATC.

Question 4

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.

Answer 4

D) not able to be calculated from the information given.

Question 5

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.

Answer 5

B) $50.

Question 6

An individual’s ________ surplus is the area ________ the ________ curve and above the ________ up to the quantity ________.
A) consumer; under; demand; market price, the consumer buys
B) producer; under; supply; market price, the producer sells
C) consumer; above; supply; choke price, the consumer buys
D) producer; supply; under; choke price, the producer sells

Answer 6

A) consumer; under; demand; market price, the consumer buys

Question 7

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.

Answer 7

A) $5,000.

Question 8

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.

Answer 8

C) 12.50.

Question 9

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.

Answer 9

D) producer surplus is less than consumer surplus.

Question 10

An individual’s ________ surplus is the area ________ the ________ curve and ________ the ________ up to the quantity ________.
A) consumer; above; supply; below; market price, produced.
B) producer; above; supply; below; market price, produced.
C) consumer; below; demand; above; choke price, purchased.
D) producer; below; supply; choke price, below; the producer sells.

Answer 10

B) producer; above; supply; below; market price, produced.

Question 11

Which of the following expressions can be used to calculate the producer surplus (PS)?
A) PS = profit * output
B) PS = profit + fixed cost
C) PS = variable cost - fixed cost
D) PS = average cost * output

Answer 11

B) PS = profit + fixed cost

Question 12

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.

Answer 12

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

Question 13

In a competitive market, the demand and supply curves are Q = 12 - P and Q = 5P, respectively. If output is fixed at Q = 5, what is the change in the consumer surplus relative to a free market equilibrium?
A) -50
B) 25
C) -37.5
D) It cannot be determined without more information.

Answer 13

C) -37.5

Question 14

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.
16) Without restrictions, the market supply curve is horizontal at P = 5, and the inverse demand

Answer 14

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

Question 15

curve for taxi cab rides is P = 20 - Q in a competitive market. Subsequently, only 10 taxi cabs are allowed in the market. This results in a deadweight loss of
A) 0.
B) 5.5.
C) 12.5.
D) 25.

Answer 15

C) 12.5.

Question 16

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

Answer 16

B) long lines

Question 17

The larger the U.S. imposed per unit import tariff on a good imported and produced in the United States,
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.

Answer 17

D) All of the above.

Question 18

Tariffs and quotas create a loss in social welfare because
A) producer surplus declines.
B) revenues from tariffs are misspent.
C) consumer surplus declines.
D) All of the above.

Answer 18

C) consumer surplus declines.

Question 19

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.

Answer 19

A) tariff revenues can be used to society’s benefit.