Download Practice Quiz #12

Chapter 12: Practice Quiz
The Partial Equilibrium Competitive Model
1.
The market demand curve for any good is
a.
independent of individuals’ demand curves for the good.
b.
the vertical summation of individuals’ demand curves.
c.
the horizontal summation of individuals’ demand curves.
d.
derived from the firm’s marginal cost of production.
2.
An increase in the price of good x will be accompanied by
a.
a shift in the market demand curve for good x.
b.
a shift in the market demand curve for good y (a substitute for good x).
c.
a movement along the market demand curve for good x.
d.
both b and c.
3.
A change in the distribution of income that leaves total income constant will not shift the
market demand curve for a product providing
a.
everyone has an income elasticity of demand of zero for the product.
b.
everyone has the same income elasticity of demand for the product.
c.
individuals have differing income elasticities for the product, but the average
income elasticity for income gainers is equal to the average income elasticity for
income losers.
d.
any of the above conditions occur.
4.
In the very short run
a.
new firms may enter an industry.
b.
existing firms may change the quantity they are supplying.
c.
price and quantity supplied are absolutely fixed.
d.
quantity supplied is absolutely fixed.
5.
The short-run market supply curve is
a.
the horizontal summation of each firm’s short-run supply curve.
b.
the vertical summation of each firm’s short-run supply curve.
c.
the horizontal summation of each firm’s short-run average cost curve.
d.
the vertical summation of each firm’s short-run average cost curve.
6.
A demand curve will shift out for any of the following reasons except
a.
preference for a good increases.
b.
price of a substitute falls.
c.
income rises.
d.
price of a complement falls.
Chapter 11/Applying the Competitive Model 
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7.
If a 1 percent increase in price leads to a .7 percent increase in quantity supplied, the
short-run supply curve is
a.
elastic.
b.
inelastic.
c.
unit elastic.
d.
perfectly inelastic.
8.
If the market for hula-hoops is characterized by a very inelastic supply curve and a very
elastic demand curve, an inward shift in the supply curve would be reflected primarily in
the form of
a.
higher prices.
b.
higher output.
c.
lower prices.
d.
lower output.
9.
If the market for bottled spring water is characterized by a very elastic supply curve and a
very inelastic demand curve, an outward shift in the supply curve would be reflected
primarily in the form of
a.
higher prices.
b.
higher output.
c.
lower prices.
d.
lower output.
10.
Suppose that the price elasticity of demand for a product is –1 and that the price elasticity
of supply is +1. Assume also that the income elasticity of demand is +2. Then an
increase in income of 10% will raise equilibrium price by
a.
10%.
b.
5%.
c.
20%.
d.
an annual amount that cannot be determined.
11.
Under perfect competition, if an industry is characterized by positive economic profits in
the short run,
a.
firms will leave the market in the long run and the short-run supply curve will
shift outward.
b.
firms will enter the market in the long run and the short-run supply curve will
shift outward.
c.
firms will enter the market in the long run and the short-run supply curve will
shift inward.
d.
firms will leave the market in the long run and the short-run supply curve will
shift inward.
12.
For an increasing cost industry, the long-run supply curve has a(n) _____________
elasticity of supply
a.
infinite.
b.
negative.
c.
positive.
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d.
zero.
13.
Long-run elasticity of supply is defined as
a.
percentage change in quantity demanded in the long run divided by percentage
change in price.
b.
percentage change in price divided by percentage change in quantity demanded in
the long run.
c.
percentage change in quantity supplied in the long run divided by percentage
change in price.
d.
percentage change in price divided by percentage change in quantity demanded in
the long run.
14.
Long-run producer surplus in a perfectly competitive industry accrues mainly to
a.
suppliers of inputs with inelastic supply curves.
b.
suppliers of inputs with elastic supply curves.
c.
firms’ owners.
d.
marginal consumers.
The following two questions refer to a market with 1000 firms in the short run in which every
firm’s cost function is given by
C(q) = 400 + q2
And market demand is given by
P(Q) = 6000 – Q/100
15.
The short run equilibrium price will be
a.
100.
b.
200.
c.
5800.
d.
cannot be determined from the information given.
16.
Which of the following statements about long run equilibrium in this market are true?
I.
firms will enter the market in the long run.
II.
the long run equilibrium price will be 20.
III.
each firm will produce 40 units in the long run.
a.
b.
c.
d.
e.
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I.
II.
I and II.
I and III.
I, II and III.
Chapter 11/Applying the Competitive Model 
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The following two questions refer to a market with 300 firms in the short run in which every
firm’s cost function is given by
C(q) = 300 + 3q2
And market demand is given by
P(Q) = 300 – Q/10
17.
The short run equilibrium price will be
a.
10.
b.
50.
c.
60.
d.
cannot be determined from the information given.
18.
Which of the following statements about long run equilibrium in this market are true?
I.
firms will enter the market in the long run.
II.
the long run equilibrium price will be 60.
III.
each firm will produce 10 units in the long run.
a.
b.
c.
d.
e.
I.
II.
I and III.
II and III.
I, II and III.
19.
In a competitive market, an efficient allocation of resources is characterized by
a.
a price greater than the marginal cost of production.
b.
the possibility of further mutually beneficial transactions.
c.
the largest possible sum of consumer and producer surplus.
d.
a value of consumer surplus equal to that of producer surplus.
20.
A deadweight loss of consumer and/or producer surplus occurs when
a.
producers fail to maximize profits.
b.
mutually beneficial transactions cannot be completed.
c.
consumers do not maximize their utility.
d.
the price of inputs increases.
21.
Price controls
a.
are always popular with consumers because they lower prices.
b.
create shortages.
c.
increase producer surplus because firms can now sell a greater quantity of a good
at a lower price.
d.
are necessary to preserve equity.
22.
“Missing markets” result from
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a.
b.
c.
d.
high costs of the establishment of such markets.
strict price controls.
the inability of producers to gain economies of scale.
foreign countries dominating a domestic market for a product.
23.
In the short run, a sales tax is
a.
wholly absorbed by the producer.
b.
shared between the consumer and the producer.
c.
deferred until the market is able to re-establish an equilibrium price.
d.
wholly absorbed by the consumer.
24.
In the long run, the greater burden of a specific tax will usually be absorbed by
a.
consumers.
b.
the party—consumers or producers—with the more elastic demand/supply curve.
c.
the party with the least elastic demand/supply curve.
d.
shareholders and employees of the firm in the form of reduced dividends and
wages.
25.
In the short run, specific taxes on a firm result in
a.
price increases which may not persist in the long run.
b.
an increase in consumer surplus because the tax permits spending in additional
government services.
c.
shortages of the good being taxed.
d.
an increase in producer surplus because of the rise in price.
26.
The excess burden of a tax is
a.
the amount by which the price of a good increases.
b.
the loss of consumer and producer surplus that is not transferred elsewhere.
c.
The amount by which a person’s after-tax income decreases as a result of the new
tax.
d.
the welfare costs to firms forced to leave the market due to an inward shift of the
demand curve.
27.
One way to minimize the excess burden resulting from a specific tax is to
a.
tax only wealthy firms and individuals.
b.
spread the tax over many goods and services.
c.
tax goods for which either supply or demand is inelastic.
d.
tax luxury items such as yachts and sports cars.
28.
If quantity supplied is either greater or less than the equilibrium quantity, then all of the
following are true except:
a.
total loss of surplus will depend on the shape of the demand and supply curves.
b.
the resulting loss of consumer surplus will depend on the price of the good.
c.
total loss of surplus will depend on the price of the good.
d.
there will be an inefficient allocation of resources.
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Chapter 11/Applying the Competitive Model 
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29.
In the opening of free trade, if world prices of a good are less than domestic prices of that
same good,
a.
domestic consumers will experience a loss of surplus.
b.
domestic prices will drop to the world price level.
c.
all domestic producers of that good will try to find another market because they
can’t compete with foreign producers.
d.
domestic producers will increase the quantity supplied in order to crowd out the
foreign-produced good.
30.
Quotas that limit the quantity of imports of a foreign good provide an incentive for
foreign suppliers to
I.
provide higher quality goods.
II.
seek more open markets elsewhere.
III.
lower prices to be more competitive.
IV.
stop all trade with the country imposing the quotas.
Which of the above statements are true?
a.
I and II
b.
I and III
c.
II and IV
d.
I, III, and IV
e.
III only
31.
When a quota/trade barrier is instituted, the loss of domestic consumer surplus may be
transferred to all of the following except:
a.
foreign consumers.
b.
domestic producers.
c.
foreign producers.
d.
consumers of other domestic products.
32.
If price elasticity of demand is -1.2 and price elasticity of supply is 0.6 and a tax of
$30/unit is applied to the market, the burden of the tax will be divided:
a.
$15 on each the consumer and supplier.
b.
$20 on supplier and $10 on consumer.
c.
$25 on the consumer and $5 on the supplier.
d.
none of the above.
33.
If supply and demand are given by QS = 2P – 20 and QD = 100 – 2P then:
a.
consumer surplus at the equilibrium is $1400.
b.
the burden of a per unit tax will be borne equally by consumers and producers.
c.
a price ceiling of $25 will result in a dead weight loss of $50.
d.
all of the above.
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