Question 1 In the long run, firms will enter a market if _________ and will exit

Question

Question 1

In the long run, firms will enter a market if _________ and will exit a market if ________.

a) they can make positive accounting profit; they suffer accounting loss.
b) they can make normal profit; they suffer accounting loss.
c) they can make positive economic profit; they suffer economic loss.
d) their revenue is more than enough to cover all their explicit costs; their revenue is less than their explicit costs.

Question 2

Use the diagram below to answer the following question.The economic surplus associated with the 1500th unit sold in the market shown above equals:

a) $20
b) $25
c) $35
d) -$20

Question 3

If currently the price of a product is $10, buyer's reservation price is $8, and seller's reservation price is $4. The consumer and producer surplus associated with the good will respectively equal:

a) $2.00 and $6.00
b) -$2.00 and $6.00
c) $2.00 and -$6.00
d) $0 and $6.00

Question 4

In the long run, the price of a product in a perfectly competitive market is equal to ________ and long run supply curve is ________.

a) the minimum of AVC; horizontal
b) the maximum of AVC; horizontal
c) the minimum of ATC; upward sloping
d) the minimum of ATC; horizontal

Question 5

Use the diagram below to answer the following question.

If the government set a price ceiling equal to $40 in the market shown above, there will be:

a) an excess supply and a reduction in economic surplus.
b) an excess supply and a gain in economic surplus.
c) an excess demand and a reduction in economic surplus.
d) no excess demand or supply and no change in economic surplus.

Question 6

Use the diagram below to answer the following question.

Suppose the government administers a $1 price subsidy in the market shown above, reducing the price to $2. Which of the following statements is an accurate description of what will happen as a result?

a) consumer surplus will increase and since producer surplus doesn't change, economic surplus will also increase.
b) consumer surplus will increase, producer surplus will decrease, and economic surplus will decrease.
c) consumer surplus will increase but since the cost of the subsidy to the government is greater than the increase in consumer surplus, economic surplus will decrease.
d) consumer surplus will increase, producer surplus will remain at zero, and economic surplus will increase.

Question 7

When there are barriers to entry in a market, which of the following is true?

a) Existing firms will always make positive economic profit in the long run.
b) Economic profit can be lowered to zero if suppliers of inputs collect economic rent.
c) Economic profit could stay above zero for a long time.
d) Both B and C

Question 8

Which of the following about the invisible hand theory is NOT correct?

a) In general, the invisible hand in the market system would direct resources to their most productive uses.
b) When the invisible hand theory works, it means "smart for one, smart for all".
c) Big antlers for male elk can be used as evidence that the invisible hand theory works in biology as well.
d) In the market system, the invisible hand refers to people's profit motive.

Question 9

Use the diagram below to answer the following question.The unit tax imposed on the market is ______ and the share of tax burden on buyers is ________.

a) $20 and 50%.
b) $10 and 0%.
c) $10 and 100%.
d) $20 and 40%.

Question 10

The deadweight loss from a per-unit tax imposed on a market is:

a) smaller when the price elasticity of demand for the good is larger.
b) larger when the price elasticity of demand for the good is larger.
c) smaller if the tax is imposed on sellers instead of buyers.
d) larger if the price elasticity of supply for the good is smaller.

Explanation / Answer

C

D

B

D

A

B

D

D

A

B

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