Test Bank of Microeconomics 7th Edition Jeffrey M. Perloff Microeconomics, 7e (Perloff) Chapter 1 Introduction
1.1 Microeconomics: The Allocation of Scarce Resources
1) Microeconomics studies the allocation of 1.
A) decision makers.
2.
B) scarce resources.
3.
C) models.
4.
D) unlimited resources.
2) Microeconomics is often called 1.
A) price theory.
2.
B) decision science.
3.
C) scarcity.
4.
D) resource theory.
3) Most microeconomic models assume that decision makers wish to 1.
A) make themselves as well off as possible.
2.
B) act selfishly.
3.
C) make others as well off as possible.
4.
D) None of the above.
4) Society faces trade-offs because of 1.
A) government regulations.
2.
B) profit motive.
3.
C) faceless bureaucrats.
4.
D) scarcity.
5) A market 1.
A) always involves the personal exchange of goods for money.
2.
B) allows interactions between consumers and firms.
3.
C) always takes place at a physical location.
4.
D) has no influence on prices.
6) What links the decisions of consumers and firms in a market? 1.
A) the government
2.
B) prices
3.
C) coordination officials
4.
D) microeconomics
7) The price of a good is 1.
A) always equal to the cost of producing the good.
2.
B) never affected by the number of buyers and sellers.
3.
C) usually determined in a market.
4.
D) None of the above.
8) Who or what is responsible for bringing together scarce resources to produce most of the goods and services in the U.S.? 1.
A) the U.S. government
2.
B) the United Nations
3.
C) the Federal Reserve Bank
4.
D) markets and prices
9) Which of the following is a fundamental topic addressed by microeconomics? 1.
A) whether to extend unemployment insurance
2.
B) determining how many new iPhones the Apple company should produce
3.
C) the level of inflation in the country
4.
D) the impact of interest rates on savings in the economy
10) A "twinkie tax" on fatty foods would aim to 1.
A) reduce the consumption of fatty foods.
2.
B) reduce the production of fatty foods.
3.
C) raise tax revenues for other uses.
4.
D) All of the above.
11) Which choice below illustrates the tradeoff faced by surfboard manufacturers after Clark foam shut down in 2005, eliminating 80% of the world's foam blanks used to shape surfboards? The firms decide to 1.
A) substitute foam blanks for balsa wood blanks as used in the 1940s.
2.
B) advertise their new surfboard wax.
3.
C) offer surf classes.
4.
D) B and C
12) In the Soviet Union, which boasted about giving every worker a job, some workers were given the task of digging holes and filling them again. What function of microeconomic analysis did this policy address? 1.
A) What goods/services to produce
2.
B) How to produce the goods and services
3.
C) Who gets the goods and services
4.
D) A and B
13) The objective of creating a permit trading system for SO2 (sulfur dioxide) is to 1.
A) employ environmental protection agency (EPA) workers.
2.
B) create a market in which one did not previously exist.
3.
C) make annual company tax reporting more difficult.
4.
D) increase the incidence of acid rain.
14) Under most circumstances, the application of taxes on goods will only affect who gets the goods.
15) Most modern financial centers use computers to match buyers and sellers. This absence of personal contact contradicts the definition of a market.
16) Governments do not respond to prices.
17) Explain how a market helps determine which goods and services will be produced, how to produce them, and who gets them.
1.2 Models
1) The purpose of making assumptions in an economic model is to 1.
A) force the model to yield the correct answer.
2.
B) minimize the amount of work an economist must do.
3.
C) simplify the model while keeping important details.
4.
D) express the relationship mathematically.
2) Einstein was quoted saying "Everything should be made as simple as possible, but not simpler." When it comes to economic models this means that 1.
A) models shouldn't be too complex.
2.
B) models shouldn't be too simple.
3. C) models should have a level of abstraction appropriate to the topic investigated. 4.
D) all of the above
3) Economists tend to judge a model based upon 1.
A) the reality of its assumptions.
2.
B) the accuracy of its predictions.
3.
C) its simplicity.
4.
D) its complexity.
4) Which of the following is an example of a normative statement? 1.
A) A higher price for a good causes people to want to buy less of that good.
2.
B) A lower price for a good causes people to want to buy more of that good.
3.
C) To make the good available to more people, a lower price should be set.
4.
D) If you consume this good, you will be better off.
5) Every economic model should include money as a variable. This statement is 1.
A) true, because every transaction in the economy uses money.
2.
B) true, because the federal reserve is very important.
3. C) false, because some transactions in the economy are accomplished without money. 4.
D) false, because a model can get unnecessarily complex if it includes money.
6) Which of the following is an example of a normative statement? 1.
A) Since this good is bad for you, you should not consume it.
2.
B) This good has bad health effects.
3.
C) If you consume this good, you will get sick.
4.
D) People usually get sick after consuming this good.
7) Which of the following is an example of a positive statement? 1.
A) Since this good is bad for you, you should not consume it.
2.
B) If this good is bad for you, you should not consume it.
3.
C) If you consume this good, you will get sick.
4.
D) None of the above.
8) If an important assumption is omitted from an economic model 1.
A) the model's predictions will be accurate 50% of the time.
2.
B) the model's predictions will be inaccurate.
3.
C) the model will not predict anything.
4.
D) the model will be rejected by other economists.
9) Economic models are most useful in 1.
A) predicting changes in one variable due to a change in one or more other variables.
2.
B) predicting the direction of the stock market.
3.
C) explaining the future with the past.
4.
D) generating untestable hypotheses.
10) Economic modeling requires 1.
A) mathematics.
2.
B) logic.
3.
C) calculus.
4.
D) trigonometry.
11) Economic models are most often tested 1.
A) using computer simulations.
2.
B) using data from the distant past.
3.
C) using data from the real world.
4.
D) using logic alone.
12) Which of the following is not considered an ingredient to an economic model? 1.
A) Assumptions
2.
B) Logic
3.
C) Hypotheses
4.
D) Experience
13) Economists make simplifying assumptions to 1.
A) understand extremely complex phenomenon.
2.
B) build a model that is as close to the real world as possible.
3.
C) focus on the variables that are important to an economic theory.
4.
D) A and C
14) Economists will use a model such as the law of demand 1.
A) forever, ignoring all criticism.
2.
B) until it is refuted by someone.
3.
C) until the model produces the same results with added complexity.
4.
D) until every microeconomic courses uses the model.
15) Which of the following is an example of a positive statement? 1.
A) Prices determine what goods and services are produced in a market economy.
2.
B) The government of the Soviet Union determined the three fundamental questions of microeconomics (i.e., what is produced, how it is produced, who receives the product).
3.
C) The production of goods and services should be determined by market prices.
4.
D) A and B
16) Which of the statements below is/are normative? 1.
A) Economists need to include more reality in their models.
2.
B) Economists will use a model until it is refuted by someone.
3.
C) Microeconomists study economic growth.
4.
D) B and C
17) Normative analysis offers decision makers the most valuable information when choosing among alternatives.
18) If a model fits reality but doesn't generate testable predictions, it is of little value to economists.
19) If actual experience supports two competing theories, then both theories are proven to be true.
20) Normative statements are easily debated whereas positive statements are simply rhetorical.
21) Legislators argue that a minimum wage law is instituted to help poor people. Economists can attack the minimum wage law on two fronts. First, some argue that government should not help the poor. Second, some argue that minimum wage laws actually hurt the poor because it creates unemployment. Which argument is normative and which is positive?
1.3 Uses of Microeconomic Models
1) Economic policy of the government is often based on 1.
A) microeconomic models.
2.
B) educated guessing.
3.
C) intuitive reasoning.
4.
D) hints.
2) Microeconomic models are used to 1.
A) make predictions.
2.
B) explain real-life phenomena.
3.
C) evaluate policy alternatives.
4.
D) All of the above.
3) A microeconomic model CANNOT be used to 1.
A) evaluate the impact of a price change on a firm's revenue.
2.
B) predict the impact of an increase in the minimum wage on unemployment.
3.
C) evaluate the fairness of a proposal to nationalize health insurance.
4. D) evaluate the effect of an increase in stadium size on the price of a sport team's tickets.
4) The testing of economic models facilitates 1.
A) proving a model is false.
2.
B) proving a model is true.
3.
C) proving that one person's opinion is morally incorrect.
4.
D) proving that one society's legal structure is better than another country's.
5) Economic models are only useful in analyzing government policy. 1.
A) True, individuals are irrational and therefore economic models are useless.
2.
B) False, economic models can be used to predict individual and firm behavior.
3.
C) True, economists only model those questions for which they are hired.
4.
D) False, economic models are not even useful in analyzing government policy.
6) Economic models are only applicable to free-market countries. 1.
A) False. Economic models are applicable wherever there is scarcity.
2. B) True. Economic models are applicable only when private citizens are free to make their own decisions. 3. C) False. Economic models are applicable in all countries with more than one million people, regardless of political structure. 4. D) True. Economic models are only applicable when government is small relativeto the rest of the economy.
7) Governments use microeconomic models to 1.
A) predict the impact of a policy before adopting it.
2.
B) consider the tradeoff between clean air and a high level of GDP.
3.
C) determine the tradeoff between equity and efficiency.
4.
D) All of the above.
8) Individuals use microeconomic models to determine 1.
A) their optimal consumption of beer given an increase in inflation.
2.
B) their optimal amount of leisure.
3.
C) whether or not to go to college given current student loan interest rates.
4.
D) All of the above.
9) Firms do NOT use microeconomic models to 1.
A) determine what inputs will be used for production.
2.
B) determine whether they should advertise in the newspaper or on the radio.
3.
C) strategically raise profits over competitors.
4.
D) None of the above.
10) Microeconomics can be used by governments to predict the impacts of a policy and suggest solutions to problems.
11) One million automobiles have a defect that could cause the car to explode; however, only one of those cars will actually explode. Nobody knows which one car it is. When the car does explode, the victim's family will sue the automaker for $1 million and win. The defect costs $2 per car to repair. What does economics predict about the automaker's decision to repair the defect?
12) Describe in words the anatomy of an economic model.
Microeconomics, 7e (Perloff) Chapter 2 Supply and Demand
2.1 Demand
1) According to the Law of Demand, the demand curve for a good will 1.
A) shift leftward when the price of the good increases.
2.
B) shift rightward when the price of the good increases.
3.
C) slope downward.
4.
D) slope upward.
2) Assuming plasma TVs are a normal good, an increase in consumer incomes will lead to 1.
A) a rightward shift of the demand curve for plasma TVs.
2.
B) a movement upward along the demand curve for plasma TVs.
3.
C) a rightward shift of the supply curve for plasma TVs.
4.
D) no change of the demand curve for plasma TVs.
3) Consider the demand function Qd = 150 - 2P. The effects of other determinants of Qd is reflected in
1.
A) the intercept of the function.
2.
B) the slope of the function.
3.
C) neither the slope nor the intercept of the function.
4.
D) in both the slope and the intercept of the function.
4) Consider the demand functions: A) Qd = 250 - 2P B) Qd = 300 - 3P. Which of the demand functions reflects a higher level of consumer incomes? 1.
A) A
2.
B) B
3.
C) A and B reflect the same consumer incomes.
4.
D) More information is needed.
5) Holding all other factors constant, consumers demand more of a good the
1.
A) higher its price.
2.
B) lower its price.
3.
C) steeper the downward slope of the demand curve.
4.
D) steeper the upward slope of the demand curve.
6) As the price of a good increases, the change in the quantity demanded can be shown by 1.
A) shifting the demand curve leftward.
2.
B) shifting the demand curve rightward.
3.
C) moving down along the same demand curve.
4.
D) moving up along the same demand curve.
7) If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely 1.
A) shift leftward.
2.
B) shift rightward.
3.
C) remain unchanged.
4.
D) become steeper.
8) If the price of automobiles were to decrease substantially, the demand curve for automobiles would most likely 1.
A) shift rightward.
2.
B) shift leftward.
3.
C) remain unchanged.
4.
D) become steeper.
9) If the price of automobiles were to decrease substantially, the demand curve for public transportation would most likely
1.
A) shift right.
2.
B) shift left.
3.
C) remain unchanged.
4.
D) remain unchanged while quantity demanded would change.
10) An increase in the demand curve for orange juice would be illustrated as a 1.
A) leftward shift of the demand curve.
2.
B) rightward shift of the demand curve.
3.
C) movement up along the demand curve.
4.
D) movement down along the demand curve.
11) The term "inverse demand curve" refers to 1.
A) a demand curve that slopes upward.
2.
B) expressing the demand curve in terms of price as a function of quantity.
3.
C) the demand for "inverses."
4.
D) the difference between quantity demanded and supplied at each price.
12) If the demand for oranges is written as Q = 100 - 5p, then the inverse demand function is 100.
A) Q = 5p - 100.
101.
B) Q = 20 - .2p.
102.
C) p = 20 - 5Q.
103.
D) p = 20 - .2Q.
13) To determine the total demand for all consumers, sum the quantity each consumer demands 1.
A) at a given price.
2.
B) at all prices and then sum this amount across all consumers.
3.
C) Both A and B will generate the same total demand.
4.
D) None of the above.
14) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than 1.
A) $0.
2.
B) $5.
3.
C) $12.
4.
D) $14.
15) The above figure shows a graph of the market for pizzas in a large town. If the price falls from $10 to $7 per pizza, the quantity of pizzas demanded will 20.
A) increase by 20.
21.
B) decrease by 30.
22.
C) increase by 30.
23.
D) decrease by 10.
16) If a yet-to-be released video game receives a positive review in a popular gaming magazine, 1.
A) the demand curve is expected to shift to the right.
2.
B) the demand curve is expected to shift to the left.
3.
C) the demand curve is not expected to change.
4. D) for those who read the review, demand shifts to the left. For those who don't read the review, demand shifts to the right.
17) Which of the following cultural events likely increased the demand for the associated product? 1.
A) the banning of cigarette advertising on television
2.
B) the inclusion of Reese's Pieces in the movie E.T.
3. C) increased environmental awareness about the impacts of sport utility vehicles (SUVs) 4.
D) concerns over "Mad Cow" disease in beef
18) The law of demand 1.
A) was passed by the 102nd U.S. Congress.
2.
B) is a natural law, much like the law of gravity.
3. C) is considered a "law" in economics because of the overwhelming empirical evidence that supports its logic. 4. D) is considered a "law" in economics in order to force economic models to operate fully.
19) If on Tuesday the perceived price of studying for an exam is $4 per hour but on Saturday the perceived price of studying for an exam is $10, the law of demand predicts 1.
A) more studying on Saturday and less on Tuesday.
2.
B) more studying on Tuesday and less on Saturday.
3.
C) the same amount of studying on Tuesday and Saturday.
4.
D) no studying on Tuesday or Saturday.
20) Which of the following would not change demand? 1.
A) the price of the product
2.
B) information about the product's health effects
3.
C) the income of the consumers
4.
D) the price of related products
21) If a demand curve shifts left, it implies 1.
A) as a group, consumers are willing and able to pay less for the product.
2.
B) as a group, consumers are willing and able to pay more for the product.
3.
C) government has regulated how many people can purchase the product.
4.
D) the profit motive of the firms is making the price too high.
22) If the price of gasoline were $5, many people would stop buying gasoline while others would continue to do so. This would indicate 1.
A) those who are buying gasoline value it at least $5 per gallon.
2.
B) those who are not buying gasoline value it more than $5 per gallon.
3.
C) only those who are extremely wealthy are buying gasoline.
4.
D) the price of gasoline needs to be regulated by the Federal Government.
23) Suppose the market demand curve for pizza can be expressed as QD = 100 - 2P + 3Pb, where QD is the quantity of pizza demanded, P is the price of pizza, and Pb is the price of a burrito. What is the relationship between burritos and pizza, from the point of view of consumers? 1.
A) They are independent.
2.
B) They are complements.
3.
C) They are substitutes.
4.
D) Not enough information to answer the question.
24) If the price is $5 and the quantity demanded is 100 units, then at a price of $10, the quantity demanded will be 1.
A) less than or equal to 100 units.
2.
B) greater than or equal to 100 units.
3.
C) less than or equal to 1000 units.
4.
D) equal to 100 units.
25) Assume the price of a movie is $10. Jenna demands 2 movies per week, Sam demands 3 movies per week, and Jordan demands 8 movies per week. From this information we can conclude that
1.
A) the market quantity demanded at a price of $10 is at least 13 movies per week.
2.
B) Jordan is obviously more wealthy than either Sam or Jeanna.
3.
C) Sam is irrational compared to Jenna or Jordan.
4.
D) the movie industry is unprofitable.
26) Assume Joe is only willing to pay $5 for a Ferrari sports car. 1.
A) Joe is not considered part of the demand for Ferraris.
2.
B) Joe most likely will not be sold a Ferrari.
3.
C) Joe is not considered rational.
4.
D) Joe's willingness to pay is not indicative of how much he values the Ferrari.
27) A downward sloping demand curve indicates that 1.
A) individuals all have the same valuation of the same product.
2.
B) individuals have different valuations of the same product.
3.
C) individuals have no valuations of a particular product.
4.
D) certain individuals are uninformed about certain aspects of the product.
28) The demand function for tickets to Ireland is expressed as Qd = 1600 - 0.005P + 2 PEngland + 3rain + 2Y, where P is the price for tickets to Ireland, PEngland is the price of tickets to England, rain is the inches of rain Ireland receives annually, and Y is annual household income. Assuming PEngland is $1000, rain is 30 inches per year, and income is 40,000, how much would the price of tickets to Ireland have to fall for consumers to be willing to buy one more trip per year? 1.
A) $15
2.
B) $20
3.
C) $50
4.
D) $200
29) If a good is not produced, then there is no demand for it.
30) Because people prefer name-brand pain-relieving drugs over store-brand painrelieving drugs, demand curves do not slope downward for pain-relieving drugs.
31) The quantity of a good that consumers demand depends only on the price of the good.
32) During the winter of 1997-1998, the northeastern United States experienced warmer than usual conditions. The price of home heating oil was less than it was during the previous winter, but people bought less home heating oil. This contradicts the Law of Demand.
33) Suppose an individual inverse demand curve is given as P = 2 - 1/2 qi, where qi is the quantity demanded by individual i. There are 50 individual consumers with this identical, individual inverse demand curve. Solve for the market demand curve.
34) Suppose the market demand curve for pizza can be expressed as QD = 100 - 2P + 3Pb, where QD is the quantity of pizza demanded, P is the price of a pizza, and Pb is the price of a burrito. What is the slope of this demand function, and what information does the slope provide?
35) Suppose the demand for a particular product can be expressed as Q = 100/p. Calculate the total amount spent on this good when p = 10, 20, and 50. Can you make a generalization about the mathematical form of this demand curve and consumer behavior in this market?
2.2 Supply
1) Suppose the demand curve for a good shifts rightward, causing the equilibrium price to increase. This increase in the price of the good results in 1.
A) a rightward shift of the supply curve.
2.
B) an increase in quantity supplied.
3.
C) a leftward shift of the supply curve.
4.
D) a downward movement along the supply curve.
2) An increase in the price of oil will 1.
A) shift the supply curve of oil to the left.
2.
B) shift the supply curve of oil to the right.
3.
C) leave the supply curve of oil unchanged.
4.
D) not enough information to answer the question.
3) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be supplied unless the price is above 1.
A) $0.
2.
B) $5.
3.
C) $12.
4.
D) $14.
4) Supply curves 1.
A) slope upward.
2.
B) slope downward.
3.
C) are horizontal.
4.
D) can have many shapes.
5) Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply 10 rags at any price. The market supply curve will be a 10.
A) vertical line where Q = 10.
11.
B) vertical line where Q = 100.
12.
C) vertical line where Q = 1000.
13.
D) horizontal line where Q = 1000.
6) The expression "increase in quantity supplied" is illustrated graphically as a 1.
A) leftward shift in the supply curve.
2.
B) rightward shift in the supply curve.
3.
C) movement up along the supply curve.
4.
D) movement down along the supply curve.
7) If the supply curve of a product changes so that sellers are now willing to sell 2 additional units at any given price, the supply curve will
1.
A) shift leftward by 2 units.
2.
B) shift rightward by 2 units.
3.
C) shift vertically up by 2 units.
4.
D) shift vertically down by 2 units.
8) The market supply curve is found by 1.
A) horizontally summing all individual supply curves.
2.
B) vertically summing all individual supply curves.
3.
C) Either A or B above since they both give the same answer.
4.
D) None of the above.
9) Technological innovation in the production of computers has led to
1.
A) a decrease in the quantity demanded for computers.
2.
B) a rightward shift of the supply curve for computers.
3.
C) a decrease in the quantity supplied of computers.
4.
D) None of the above.
10) Horizontally summing different supply curves assumes 1.
A) that individual firms cannot influence the good's price.
2.
B) that all firms operate in collusion.
3.
C) that only firms who volunteer are included in the summation.
4.
D) all firms produce the same amount of output.
11) If two firms produce the same product but have different supply curves, 1.
A) this would indicate that some other variable differs across the two firms.
2.
B) this would indicate that all variables are the same across the two firms.
3.
C) this would indicate that one or both of the firm's managers are misinformed.
4.
D) this would indicate a need for government regulation.
12) The supply curve is influenced by 1.
A) the income of consumers.
2.
B) the number of customers in the market.
3.
C) the prices of the inputs required to produce the product.
4.
D) the expectations of future profit.
13) The price of crude oil increased to $100 per barrel in early 2008. What would we expect to see happen to the supply of gasoline, which is produced using crude oil? 1.
A) The supply of gasoline will increase.
2.
B) The supply of gasoline will decrease.
3. C) The supply of gasoline will stay the same because the government requires gasoline producers to meet statutory minimum production levels. 4. D) The supply of gasoline will stay the same because of the profit motives of gasoline producers.
14) If ethanol production is expected to increase the price of corn, U.S. farmers will likely 1.
A) shift the supply of corn to the left.
2.
B) shift the supply of corn to the right.
3. C) reduce the production of corn by sliding down the corn supply curve, all else equal. 4. D) increase the production of corn by sliding up the corn supply curve, all else equal.
15) Suppose society wants to increase the number of teachers in society but doesn't want to pay teachers any more in salary and benefits. This could only occur by
3) If a market produces a level of output below the competitive equilibrium, then 1.
A) social welfare is not maximized.
2.
B) consumer surplus might still be maximized.
3.
C) the actual price will be below the equilibrium price.
4. D) social welfare might still be enhanced if a price ceiling keeps price below the competitive price.
4) If in a market the last unit of output was sold at a price higher than marginal cost, 1.
A) producers are better off producing more.
2.
B) consumers are better off if less of the product is sold.
3.
C) social welfare is not maximized.
4.
D) the unit increased total profit.
5) A competitive market maximizes social welfare because in a competitive market, 1.
A) profits are zero.
2.
B) price equals marginal cost of the last unit produced.
3.
C) price equals average cost of the last unit produced.
4.
D) there is free entry and exit.
6) If a market produces a level of output that exceeds the competitive equilibrium output, then 1.
A) social welfare will be higher.
2.
B) producer surplus will be higher.
3.
C) marginal cost will exceed price.
4.
D) All of the above.
7) If an economist states that not enough of a good is being produced, she usually means that 1.
A) not everyone can afford the good.
2.
B) price exceeds marginal cost.
3.
C) consumer surplus equals zero.
4.
D) at equilibrium, some people who still wish to sell the good cannot find a buyer.
8) Deadweight loss occurs when 1.
A) producer surplus is greater than consumer surplus.
2.
B) the maximum level of total welfare is not achieved.
3.
C) consumer surplus is reduced.
4.
D) an inferior good is consumed.
9) 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 amount of the resulting deadweight loss? 1.
A) 0
2.
B) 5
3.
C) 10
4.
D) It cannot be determined without more information.
10) In a competitive market, the demand and supply curves are Q = 12 - P and Q = 5P, respectively. If output is fixed at Q = 11, what is the amount of the resulting deadweight loss? 1.
A) 0
2.
B) 0.6
3.
C) 11.4
4.
D) 15
11) Giving presents at Christmas does NOT generate a deadweight loss if 1.
A) all gift are money.
2.
B) everybody gets exactly what they want.
3. C) nobody can be made better off by returning the gift and purchasing a different one. 4.
D) All of the above.
12) The deadweight loss associated with output less than the competitive level can be determined by 1.
A) subtracting the competitive level producer surplus from the producer surplus associated with less output.
2.
B) subtracting the consumer surplus from the producer surplus associated with less output.
3.
C) summing the consumer and producer surplus associated with less output.
4.
D) summing the change in the total consumer and producer surplus from moving from the competitive level of output to less output.
13) If activists successfully lobbied government to force firms to produce more output than they normally would in a perfectly competitive market, 1.
A) consumer surplus would decline.
2.
B) producer surplus would increase.
3.
C) taxation would solve the problem.
4.
D) total surplus in the market would decline.
14) What is one reason activists might lobby the government for regulation limiting the production of a product to less than would normally be in a perfectly competitive market? 1.
A) They value consumer surplus more than producer surplus.
2.
B) They value producer surplus more than consumer surplus.
3.
C) They seek to avoid future regulation.
4.
D) They seek to minimize total surplus.
15) What is one reason activists might lobby the government to force firms to produce more output than they normally would in a perfectly competitive market? 1.
A) They value consumer surplus more than producer surplus.
2.
B) They value producer surplus more than consumer surplus.
3.
C) They seek to avoid future regulation.
4.
D) They seek to minimize total surplus.
16) As the quantity produced of a good increases, the social welfare generated by that good increases.
17) While producing less than the competitive output decreases social welfare, the same cannot be said about producing more than the competitive output.
18) Explain why the competitive output maximizes welfare.
19) Suppose a consumer advocacy group has convinced legislators that vitamin pills should be free to consumers. Such a policy would enhance the health of the citizenry, they argue. Assuming a downward-sloping linear demand curve and a horizontal longrun supply curve, determine the resulting output and social welfare from such a policy. Compare this result to the competitive equilibrium. onsumer surplus is maximized when price equals zero. Output will be the quantity where the demand curve hits the quantity axis. The social welfare is less than the competitive result because for quantities beyond the competitive equilibrium, producers incur a cost for which they are not reimbursed. Some of this loss represents a transfer to consumers (the area under the demand curve to the right of the equilibrium quantity). The area above the demand curve and below the supply curve for quantities beyond the equilibrium quantity represents the deadweight loss.
20) Suppose an industry trade group has convinced legislators that a price floor should be used so that producer surplus is maximized in the market for milk. The group argues that such a policy would save the "family farm." Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve, determine the resulting price, output and social welfare from such a policy. Compare this result to the competitive equilibrium.
9.5 Policies That Shift Supply Curves
1) 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? 1.
A) The supply curve of real estate brokers will shift to the left.
2.
B) The supply curve of real estate brokers will shift to the right.
3.
C) Social welfare will remain unchanged.
4.
D) The supply curve will remain unchanged.
2) 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? 1.
A) Consumer surplus will increase.
2.
B) Producer surplus will increase.
3.
C) Entry of new brokers will increase.
4.
D) Social welfare will increase.
3) 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, then consumer surplus will most likely 1.
A) increase.
2.
B) decrease.
3.
C) remain unchanged.
4.
D) There is not enough information to answer.
4) 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, then social welfare will most likely 1.
A) not change, but there will be a transfer from consumer to producer.
2.
B) not change, but there will be a transfer from producer to consumer.
3.
C) decrease, although producers are made better off.
4.
D) decrease, although consumers are made better off.
5) A new law applied to a competitive market that requires laid off workers be paid a large severance payment will 1.
A) not generate a deadweight loss.
2.
B) increase total welfare.
3.
C) increase consumer surplus in the market.
4.
D) decrease consumer surplus in the market.
6) If a city decides to restrict the number of pizza parlors, 1.
A) the price of pizza will increase.
2.
B) pizza parlors will make higher profits.
3.
C) total welfare will decrease.
4.
D) All of the above.
7) Without restrictions, the market supply curve is horizontal at P = 5, and the inverse demand 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 1.
A) 0.
2.
B) 5.5.
3.
C) 12.5.
4.
D) 25.