Question 1

It is essential to establish specific criteria to judge the performance of any economic system. One such criterion is

Accepted Answer

Efficiency is a fundamental criterion for judging the performance of an economic system because it measures how well the system uses resources to meet the needs and wants of its population.

Question 2

Because most people prefer smartphones to flip phones, firms can improve efficiency by

Accepted Answer

Firms can improve efficiency by aligning their production with consumer preferences. Since most people prefer smartphones, shifting production from flip phones to smartphones would better meet market demand, thus improving efficiency.

Question 3

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow.  Figure 12.1
-Refer to Figure 12.1. The firm is

Accepted Answer

Producing at point A is more efficient than at point B because point A is on a lower point of the Average Total Cost (ATC) curve, indicating lower costs per unit of output.

Question 4

Assume that an economy producing two products, skateboards and in‐line skates, is initially in equilibrium, and that skateboards and in‐line skates are substitutes. If consumer preferences shift away from skateboards and toward in‐line skates, which of the following will not occur?

Accepted Answer

When consumer preferences shift away from skateboards and toward in-line skates, it is expected that the demand for skateboards will decrease while the demand for in-line skates will increase. This shift in demand will likely lead to losses for skateboard producers and profits for in-line skate producers. Over time, capital will move towards the more profitable in-line skate production rather than skateboard production, making option D incorrect.

Question 5

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow.  Figure 12.1
-Refer to Figure 12.1. This firm is currently at Point B on the ATC curve. If this firm moves toward Point A, this will make the

Accepted Answer

Moving toward Point A on the ATC (Average Total Cost) curve implies that the firm is reducing its average total costs, which typically means it is becoming more productive or efficient in its operations. This increase in efficiency can lead to lower prices for consumers and better allocation of resources in the economy, making the economy more efficient.

Question 6

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow.  Figure 12.1
-Refer to Figure 12.1. This competitive firm is currently at Point A on the ATC curve. The firm's move toward an output where ATC will be at point B will make the economy

Accepted Answer

Moving from point A to point B on the ATC curve indicates an increase in average total cost, which implies a less efficient allocation of resources, as the firm is not minimizing costs.

Question 7

Efficiency occurs when

Accepted Answer

Efficiency in an economic context refers to the optimal production and distribution of resources, meaning the economy is producing what people want at the least possible cost. This involves minimizing waste and allocating resources where they are most valued by consumers, without necessarily addressing income distribution, market equilibrium in all sectors, or specific macroeconomic conditions like unemployment and price stability.

Question 8

Refer to the information provided in Figure 12.2 below to answer the question(s) that follow.  Figure 12.2
-Refer to Figure 12.2. A technological advance causes the supply of personal computers to increase. The graph of this situation represents a

Accepted Answer

The correct answer is a partial equilibrium analysis because it focuses on the effects within a single market (the personal computer market) without considering the broader economy or other markets.

Question 9

Which of the following questions is not answered by general equilibrium analysis?

Accepted Answer

General equilibrium analysis focuses on how equilibria in different markets interact and affect each other, ensuring that all markets can be in equilibrium simultaneously and examining the impact of changes in one market on others. It does not address normative questions about what outcomes are most desirable for society, which are typically the domain of welfare economics or political philosophy.

Question 10

A new technology is developed for producing microwave ovens that reduces production costs by 10%. Which of the following is the most likely consequence of this technological change?

Accepted Answer

Firms must adopt the new technology to remain efficient because it reduces production costs, allowing them to produce the same amount of goods at a lower cost or more goods at the same cost, thus staying competitive in the market.

Question 11

To conduct a general equilibrium analysis of a change in consumer preferences away from beef and toward chicken, you must consider

Accepted Answer

General equilibrium analysis involves considering all markets and their interactions simultaneously. Therefore, a change in consumer preferences would affect not only the equilibrium prices and quantities of beef and chicken (A) but also the allocation of resources to their production (B) and the prices of those resources (C).

Question 12

A gas tax holiday would

Accepted Answer

A gas tax holiday would lower the price of gasoline, which could lead to an increase in demand for gasoline, potentially affecting the market for air travel as people may choose to drive instead of fly for short distances. Additionally, with more people opting to drive due to lower gas prices, the level of congestion on roads could increase.

Question 13

Preferences have just shifted away from beef and into mutton. If you are a sheep rancher, the best profit-maximizing strategy is to

Accepted Answer

Given the shift in preferences towards mutton, as a sheep rancher, producing as much as possible to meet the increased demand is the best strategy to maximize profits in the short run. This takes advantage of the higher prices and demand for mutton.

Question 14

Examining the equilibrium conditions of individual markets and for households and firms separately is referred to as

Accepted Answer

Partial equilibrium analysis focuses on the equilibrium in a single market or for a single entity (like a household or firm) in isolation, without considering the interactions with other markets or sectors.

Question 15

A technological change in the production of cars will

Accepted Answer

Technological changes in car production can lead to changes in the demand for inputs (like materials and labor), potentially altering their markets. Additionally, improvements in technology can affect the output market by changing the cost and features of cars, influencing consumer choices and potentially impacting related industries (e.g., fuel, parts suppliers, and service industries).

Question 16

Initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. If you are a cattle rancher, the best profit-maximizing strategy is to

Accepted Answer

When preferences shift away from beef and into mutton, demand for beef decreases, leading to a potential surplus at the current price and equilibrium quantity. For a cattle rancher, decreasing output can help align supply with the new, lower demand, helping to stabilize prices and minimize short-run losses. Increasing output or maintaining the same level of production could exacerbate the surplus, potentially leading to even lower prices and greater losses. Shifting capacity into cattle raising (option C) does not apply as they are already cattle ranchers. Shutting down (option A) is an extreme response that might not be necessary if adjustments in output can mitigate the impact of the shift in preferences.

Question 17

Suppose there is a permanent shift of consumer preferences away from pretzels and toward potato chips. The most likely result would be

Accepted Answer

When consumer preferences shift toward a product, in this case, potato chips, demand for that product increases. This increased demand, especially if unexpected or sudden, can lead to higher prices and short-run profits for producers as they adjust to the new market conditions. The other options do not logically follow from a shift in consumer preferences toward potato chips.

Question 18

Resources are allocated efficiently when

Accepted Answer

Efficient allocation of resources occurs when the market produces goods and services that are in demand by consumers, meaning that resources are used in a way that meets consumer preferences and needs most effectively.

Question 19

Refer to the information provided in Figure 12.2 below to answer the question(s) that follow.  Figure 12.2
-Refer to Figure 12.2. The graph of this situation represents a partial equilibrium analysis because it

Accepted Answer

Partial equilibrium analysis focuses on a single market or sector in isolation, without considering the interactions with other markets or the economy as a whole. In this case, considering only the personal computer industry without accounting for potential effects on or from other industries or markets is why it's a partial equilibrium analysis.

Question 20

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow.  Figure 12.1
-Refer to Figure 12.1. The firm is

Accepted Answer

The answer of Refer to the information provided in Figure...

Quiz 12: General Equilibrium and the Efficiency of Perfect Competition