Chapter 9 Flashcards
As new firms enter an industry, what will happen to the supply of the product in question and its price?
Supply will increase and the price will fall.
What effect will more innovative technology have on an economy?
it will make it grow.
An increase in demand can lead to growth for a firm especially if _____ are present.
Economies of scale
Technological change will lead to a(n) ____ in production costs and a(n) _____ in profits.
decrease; increase
If the current firms are making _____, new firms will enter into the market place in the long run.
Economic profits
As the price of a product falls and companies are forced out of the industry, what kind of companies will be the first to go?
Those that did not adopt cost saving technology.
What is the relationship between competitive markets and innovation?
Competitive markets encourage innovation.
An increase in demand for a product will lead to a(n) _____ in market price and a(n) _____ in the profits of the firms producing the product.
increase; increase
Given perfect competition, what kind of profits are not possible in the long run?
Economic
Technological change will lead to a(n) ____ in production and a(n) _____ in profits.
increase; increase
If there are economic profits being made in the short-run, what will happen in the industry?
New firms will enter the industry and the industry will grow,
Which of the following will happen if the average firm in a perfectly competitive industry is making economic profits?
Industry capacity will rise
Market price will fall
Market supply will increase
What is true in the long run of competitive firms?
They are not able to make economic profits.
What kind of profits will encourage firms to expand their scale but will disappear in the long run?
Economic
In competitive markets, in the long run, the price will be equal to which three things?
Short-run average cost
Long-run average cost
Marginal cost
If the current firms are making _____, new firms will enter into the market place in the long run.
economic profits
The capacity of a perfectly competitive industry will if the average firm is currently making economic profits.
Increase
__________ efficiency means that products are produced in a way that minimizes both short and long run average costs.
Productive
In the long run competitive firms may make economic profit.
False
In the long run, consumers benefit from productive efficiency by paying the ______ price for a product causing firms to earn only ______ profit.
lowest; a normal
________ efficiency means that resources are distributed among firms and industries to yield a mix of products and services that is most wanted by society.
Allocative
In competitive markets the long run, what is equal to the minimum points on the short and long run average costs curves as well as the marginal cost?
The price
When are society’s resources allocated efficiently?
When perfectly competitive firms produce a quantity of output where price is equal to marginal cost (MC).
Productive efficiency requires that _____.
goods be produced in the least costly way.
Graphically, what is the area below the price but above the market supply curve?
Producer surplus
When consumer and producer surplus has been maximized what is occurring with the allocative and productive efficiency?
Both have been achieved.
Allocative efficiency requires that _____.
resources be apportioned among firms and industries to yield the mix of products and services that is most wanted by society
The equality of P, MC and minimum ATC _____.
ensures that productive and allocative efficiency is achieved
In perfect competition, society’s resources are allocated efficiently when:
firms produce output to the point where price or marginal revenue (MR) and marginal cost (MC) are equal
What is the difference between the amount a producer is willing to sell a good for and the price they receive for it?
Producer surplus
When allocative and productive efficiency is achieved, what is true about consumer surplus and producer surplus?
They are maximized.
What is the administration cost involved in a perfectly competitive market system?
Zero
What is being achieved at an output where the price (P), equals marginal cost (MC) and also equals minimum average total cost (ATC)?
The firm is achieving productive and allocative efficiency
What was Adam Smith referring to when he wrote: “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men.”?
Economic freedom
Which of the following is NOT a strength of a perfectly competitive market system?
It guarantees equality.
The idea that perfect competition does not guarantee equality, may admit forces that destroy competition, and they are often unstable are all examples of _____.
market failures
The equality of P, MC and minimum ATC _____.
ensures that productive and allocative efficiency is achieved
Some economists suggest that capitalism promises freedom.
False
Which of the following is NOT a strength of a perfectly competitive market system?
It minimizes economic surplus.
An externality resulting in an underallocation of resources to the market is a type of ____.
Market failure
In 1997 the top ten percent of Canadian families earned 16.2 times the amount earned by the lowest ten percent. By 2017, this figure had increased to ______?
19.2
True or false: Since wealth is sometimes a result of parentage, competitive markets can sustain inequality.
True
Which of the following countries has the greatest amount of income disparity (biggest difference between the richest and poorest)?
Namibia
Adam Smith believed that business people would conspire to raise prices if not prevented from doing so.
True
True or false: The ideal of a perfectly competitive market may NOT be possible given the dynamics of the actual market.
True
A ________ good is one which would not otherwise be produced because it would not be profitable to private firms.
Public
Which of the following is true about business cycles?
They are unpredictable.
They are the ups and downs of an economy
What has occurred throughout the twentieth century that has made it difficult for a perfectly competitive market to exist?
An increase in the number of large firms.
Why do private companies not produce certain public goods like a lighthouse?
There is no profit in it.
The rider problem occurs when a person benefits from a good for which he or she has not paid.
Free
Which of the following statements best describes the government and the provision of goods?
The government produces both public and private goods.
Which of the following is the best example of a public good?
national defense
A good that could be produced by the market system but government provides it is called a _____.
quasi-public good
Examples of quasi-public goods include _____
schools
highways
health services
Difficulty in collecting revenue as one of the reasons governments provide quasi-public goods.
True
In which of the following industries would competition be inefficient since it would involve wasteful duplication?
Electricity distribution
What, arguably, is the most important reason governments provide quasi-public goods, such as health and education services?
Because the external benefits to society as a whole are extensive
Which of the following is NOT an example of a quasi-public good?
Policing
Why do private businesses NOT build urban and suburban streets?
It would be too costly to collect any sort of revenue.
What are external costs?
Costs that are incurred by people other than the producer or consumer.
What kind of benefits are enjoyed by people other than those who produce or consumer the product?
External benefits
An externality causes some of the benefits or costs of a market transaction to be passed on to a _____.
third party
market
_____ occurs when the competitive market system produces externalities, a situation where not all of the benefits or costs are incorporated into supply and/or demand.
Failure
Automobile pollution is a good example of an external _____
cost in consumption
When an international company opens a production facility in a new country and their suppliers relocate as well, what is this an example of?
An external benefit in production
The marginal social cost is the extra cost to both the producer and to _____ of producing additional quantities of a product.
society
Which of the following is an example of an external cost in production?
The noise pollution from an international airport.
Cigarette smoking is a good example of an external _____
cost in consumption
Which of the following is NOT one of the types of market failures?
A market is a poor source of tax revenue for the government.
Which of the following describes an external benefit resulting from an individual’s purchase of a flu shot?
A flu shot reduces the likelihood that others will catch the flu from you.
Which of the following is NOT a way in which the government can integrate external costs into the production process?
Subsidies
The symbiotic relationship between an orange orchard and a honey farm is a good example of an external _____
benefit in production
What is the term that includes both the internal and external cost that is incurred as a result of increasing production by one additional unit?
Marginal social cost
The direct way to reduce negative externalities from a certain activity is _____.
to pass legislation limiting that activity
Which of the following are types of market failures?b
The market ignores externalities.
A market creates gross inequalities of income and wealth.
Which of the following will increase the price of a good and decrease its quantity such that the cost of the pollution will be internalized?
A pollution tax.
Introducing laws in order to reduce negative externalities from a certain activity is known as control.
legislative
If an external cost is not taken into account, then the market price is too _____ and the output is too _____.
low; high
A tax _____ the external cost will produce an efficient price and quantity.
Equal
Why have legislative controls NOT been successful in curtailing pollution?
Because offenders are often very difficult to prosecute.
The offenses are difficult to detect.
Who receives the revenue from a pollution tax?
The government
A specific tax applied to the producer of a good in order to correct a negative externality will cause what changes in the market?
Supply curve shifts left and the price increases.
A cap-and-trade policy pollution by allowing pollution rights to be bought and sold.
Reduces
If a tax equal to the external cost is put in place then what can be said about the price and quantity?
The price and quantity will be at an efficient level.
Which of the following best describes how pollution rights are traded?
Businesses are issued pollution rights which they may use or sell at the market price.
Cap-and-trade program have been less successful than direct controls.
False
The market demand curve reflects which of the following?
The direct, private benefits to to those who buy the product.
Some individuals do not directly consume a product but derive indirect benefits from others who do consume it. If there is no government intervention, what is the result?
There is an under-allocation of resources to the production of the beneficial product
If a subsidy equal to the external benefit is given what can be said about the price and quantity?
The price and quantity will be at an efficient level.
The ______ curve reflects the direct private benefit to the individuals who consume the product.
Market demand
Because private markets ignore positive externalities the result is that they produce too units which results in producers -allocating resources to that product.
Few
Under
When government subsidizes consumers in order to correct an underallocation of resources in a market, government is attempting to _____.
shift demand to the right
When government subsidizes producers, it is attempting to _____.
increase the supply
