Question 1

Generally,______ motivate firms to enter an industry while ______ motivate firms to exit an industry.

Accepted Answer

A)  economic profits;economic losses
B)  accounting profits;accounting losses
C)  accounting profits;economic losses
D)  economic profits;accounting losses

Question 2

Which of the following would not be included in the calculation of accounting profits?

Accepted Answer

A)  Wages of workers.
B)  The salary the owner could have earned working elsewhere.
C)  Rent.
D)  Medical insurance coverage for workers.

Question 3

If owners of a business are receiving total revenues just sufficient to cover all their explicit and implicit costs,they are:

Accepted Answer

A)  doing better than their next best alternative.
B)  earning a normal profit.
C)  earning economic losses.
D)  doing worse than their next best alternative.

Question 4

Price ceilings that are below the equilibrium price result in:

Accepted Answer

A)  increased total economic surplus.
B)  shortages.
C)  surpluses.
D)  the same amount of total economic surplus with a reallocation from producers to consumers.

Question 5

Daily Supply and Demand: Oranges in Hurricane Alley 
Refer to the figure above.If the supplier sells the tenth pound of oranges to the most eager buyers for $8,the seller is _____ better off than before and the buyer is ______ better off than before.

Accepted Answer

A)  $8;$0
B)  $6;$2
C)  $4;$4
D)  $2;$6

Question 6

One assumption of the perfectly competitive model is that of free entry.This assumption most directly leads to the implication that:

Accepted Answer

A)  firms will spend significant amounts of money on advertising.
B)  positive economic profits will only be possible for in the short run.
C)  firms will compete on the basis of better service and amenities rather than price.
D)  a single firm will emerge as the industry leader.

Question 7

Unlike economic profits,economic rents:

Accepted Answer

A)  can be less than zero.
B)  can't be easily driven to zero by entry.
C)  don't involve the idea of opportunity costs.
D)  only apply to land.

Question 8

Excess demand in a market is evidence of:

Accepted Answer

A)  Pareto efficiency.
B)  the opportunity for surplus-enhancing trades.
C)  an economic pie that is too small.
D)  equilibrium.

Question 9

The cumulative difference between the price producers actually receive and the price for which they are willing to produce is:

Accepted Answer

A)  producer surplus.
B)  lost surplus.
C)  total economics surplus.
D)  consumer surplus.

Question 10

Total economic surplus is greatest when:

Accepted Answer

A)  price controls keep prices low enough that most consumers can purchase the item.
B)  consumer surplus and producer surplus are equal.
C)  consumer surplus exceeds producer surplus.
D)  the market is in equilibrium.

Question 11

According to the textbook,individual incentives have led to:

Accepted Answer

A)  the optimal number of stock market analysts because it is a competitive market with no entry barriers.
B)  too many stock market analysts because market analysis does not produce social benefits.
C)  too many stock market analysts because the individual incentive to forecast faster exceeds the social benefit of a faster forecast.
D)  too few stock market analysts because the efficient market hypothesis predicts that no analyst will do better than random chance in the long run.

Question 12

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

Accepted Answer

A)  her initial offer and her final salary,including royalties.
B)  her initial offer and what she could earn in a different film.
C)  her final salary and the average for leading actresses.
D)  her final salary and the least she would be willing to accept for a role.

Question 13

It is always true that:

Accepted Answer

A)  accounting profits are positive.
B)  economic profits are zero.
C)  economic profits are greater than or equal to accounting profits.
D)  accounting profits greater than or equal to economic profits.

Question 14

Assume that all firms in this industry have identical cost functions. 
Firms in this industry will shut down if the price is

Accepted Answer

A)  higher in the short run than in the long run.
B)  less than or equal to $15.
C)  less than or equal to $10.
D)  less than or equal to $5.

Question 15

If you were to start your own business,your implicit costs would include:

Accepted Answer

A)  rent that you have paid in advance for use of a building.
B)  the opportunity cost of your time.
C)  profit over and above normal profit.
D)  interest that you pay on your business loans.

Question 16

Normal profits occur when:

Accepted Answer

A)  accounting profits are positive.
B)  economic profits are positive.
C)  economic profits are zero.
D)  total revenues are greater than explicit and implicit costs.

Question 17

The economic theory of business behavior assumes that the goal of a firm is to:

Accepted Answer

A)  earn an accounting profit.
B)  earn an economic profit.
C)  earn maximum revenue.
D)  maximize its profit.

Question 18

Daily Supply and Demand: Oranges in Hurricane Alley 
Refer to the figure above.The price of $4.00 per pound will lead to a(n) _____ of _____ pounds of oranges per day.

Accepted Answer

A)  excess supply;20
B)  excess demand;30
C)  equilibrium quantity;20
D)  excess demand;20

Question 19

The No Cash on the Table principle means unexploited opportunities:

Accepted Answer

A)  never exist.
B)  cannot be exploited for long.
C)  can exist in equilibrium but rarely do.
D)  always exist in equilibrium.

Question 20

Which of the following would be an example of the rationing function of price?

Accepted Answer

A)  Switching from a Ph.D.in economics to finance because finance salaries are higher
B)  Bill Gates purchasing the Mona Lisa for $5 billion
C)  A firm attempting to lower its explicit costs
D)  Government price controls

Exam 7: Efficiency, Exchange, and the Invisible Hand in Action

Generally,______ motivate firms to enter an industry while ______ motivate firms to exit an industry.

Correct AnswerverifiedShow Answer

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.The price of $4.00 per pound will lead to a(n) _____ of _____ pounds of oranges per day.

Correct AnswerverifiedShow Answer

One assumption of the perfectly competitive model is that of free entry.This assumption most directly leads to the implication that:

Correct AnswerverifiedShow Answer

Assume that all firms in this industry have identical cost functions. Firms in this industry will shut down if the price is

Correct AnswerverifiedShow Answer

Which of the following would not be included in the calculation of accounting profits?

Correct AnswerverifiedShow Answer

The No Cash on the Table principle means unexploited opportunities:

Correct AnswerverifiedShow Answer

Price ceilings that are below the equilibrium price result in:

Correct AnswerverifiedShow Answer

Total economic surplus is greatest when:

Correct AnswerverifiedShow Answer

The economic theory of business behavior assumes that the goal of a firm is to:

Correct AnswerverifiedShow Answer

It is always true that:

Correct AnswerverifiedShow Answer

If you were to start your own business,your implicit costs would include:

Correct AnswerverifiedShow Answer

Which of the following would be an example of the rationing function of price?

Correct AnswerverifiedShow Answer

According to the textbook,individual incentives have led to:

Correct AnswerverifiedShow Answer

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

Correct AnswerverifiedShow Answer

The cumulative difference between the price producers actually receive and the price for which they are willing to produce is:

Correct AnswerverifiedShow Answer

Excess demand in a market is evidence of:

Correct AnswerverifiedShow Answer

Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.If the supplier sells the tenth pound of oranges to the most eager buyers for $8,the seller is _____ better off than before and the buyer is ______ better off than before.

Correct AnswerverifiedShow Answer

If owners of a business are receiving total revenues just sufficient to cover all their explicit and implicit costs,they are:

Correct AnswerverifiedShow Answer

Normal profits occur when:

Correct AnswerverifiedShow Answer

Unlike economic profits,economic rents:

Correct AnswerverifiedShow Answer

Generally, motivate firms to enter an industry while motivate firms to exit an industry.

Correct Answer
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Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.The price of $4.00 per pound will lead to a(n) _ of _ pounds of oranges per day.

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Daily Supply and Demand: Oranges in Hurricane Alley Refer to the figure above.If the supplier sells the tenth pound of oranges to the most eager buyers for $8,the seller is _ better off than before and the buyer is __ better off than before.

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