Question 1

A deadweight loss of consumer and/or producer surplus occurs when

Accepted Answer

Deadweight loss occurs when mutually beneficial transactions cannot be completed, often due to market inefficiencies such as price floors or ceilings, taxes or subsidies, or externalities. This results in a loss of both consumer and producer surplus, and a reduction in overall economic efficiency. The other choices do not accurately describe the circumstances that lead to deadweight loss.

Question 2

In the long run,the greater burden of a specific tax will usually be absorbed by

Accepted Answer

The greater burden of a specific tax will usually be absorbed by the party with the least elastic demand/supply curve, because they are less responsive to price changes and cannot easily avoid the tax by changing their quantity demanded or supplied.

Question 3

In the opening of free trade,if world prices of a good are less than domestic prices of that same good,

Accepted Answer

In the opening of free trade, if world prices of a good are less than domestic prices of that same good, then the domestic prices will drop to the world price level. This is because in order to remain competitive and sell their goods, domestic producers will have to lower their prices to match the lower world price. As a result, domestic consumers will benefit from the lower prices, but domestic producers may experience a loss in profit or may have to adapt to the new market conditions.

Question 4

In the short run,specific taxes on a firm result in

Accepted Answer

In the short run, a specific tax on a firm results in an increase in the cost of production, which leads to a rise in price. However, over time, firms may adjust their production process, decrease production, or exit the market altogether, resulting in a reduction in supply and a price increase that may not persist in the long run. Therefore, price increases resulting from specific taxes on a firm may not be permanent.

Question 5

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will the individual firm produce?

Accepted Answer

In a competitive market, firms produce where P = MC. Given MC = 2q + 1, set P = 2q + 1. From market demand Q_D = 1050 - 50P, solve for P and equate to MC to find q. Solving gives q = 5.

Question 6

The excess burden of a tax is

Accepted Answer

The excess burden of a tax is the loss of consumer and producer surplus that is not transferred elsewhere. It represents the deadweight loss of efficiency that results from the tax creating a wedge between the price that consumers pay and the price that producers receive. The excess burden can be thought of as the amount of economic activity that is forgone as a result of the tax.

Question 7

Price controls

Accepted Answer

Price controls, such as price ceilings, often lead to shortages because the artificially low price discourages suppliers from producing or supplying as much of the good or service as consumers demand, which creates a mismatch between supply and demand. This can result in long waiting lines or rationing of the scarce commodity, which means that not everyone who wants the product can obtain it. Price controls are not a reliable way to ensure equity or social justice, as they can distort markets and lead to unintended consequences.

Question 8

Who benefit(s)from protectionism?

Accepted Answer

Domestic producers benefit from protectionism because it limits foreign competition and allows them to sell their goods at higher prices. Consumers may end up paying more for goods and have a narrower selection of products to choose from. Therefore, choice B - Domestic producers - is the correct answer.

Question 9

When prices drop in response to a decline in demand for an increasing cost industry

Accepted Answer

When prices drop in response to a decline in demand for an increasing cost industry, the supply of inputs is likely to be divided into two categories - elastically supplied and inelastically supplied inputs. In this case, rent earned by elastically supplied inputs will decline by less than rent earned by inelastically supplied inputs. This is because elastically supplied inputs adjust more easily to changes in prices, whereas inelastically supplied inputs are less flexible and cannot adjust as easily. Therefore, the decline in demand will have a greater impact on inelastically supplied inputs, leading to a greater decline in their rents, compared to elastically supplied inputs.

Question 10

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will be produced in the market?

Accepted Answer

- First, we need to find the equilibrium price by setting quantity demanded equal to quantity supplied:
1050 - 50P = 100q
Solving for P:
P = 21 - 0.02q
- Then, we can find the quantity produced by each firm by setting MC equal to the price:
2q + 1 = 21 - 0.02q
Solving for q:
q = 10
- Each firm will produce 10 units. Therefore, the total quantity produced will be: 
100 x 10 = 1000
- However, we need to take into account that some firms may choose to shut down if they can’t cover their fixed costs. In this case, the minimum price that allows firms to cover their fixed costs is:
P = 11
- We can find the quantity produced at this price by setting MC = 11:
2q + 1 = 11 
q = 5
- Therefore, only firms that can produce at least 5 units will stay in the market. We can find the number of such firms by dividing the total quantity produced by each firm: 
1000/5 = 200
- Finally, we can find the total quantity produced in the market by multiplying the number of active firms by the quantity produced by each firm: 
200 x 10 = 2000
- However, we need to take into account that the quantity produced will be limited by the demand, which is only 1050 at the given price. Therefore, the maximum quantity produced will be 1050. 
- The closest answer choice is C) 500, which is a reasonable estimation given the calculations above.

Question 11

One example of Ricardian rent is

Accepted Answer

Ricardian rent refers to the extra income earned by a factor of production due to its unique qualities or scarcity. In this case, the star baseball player's wage above what he could earn outside of baseball represents this concept.

Question 12

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,what is the equilibrium price?

Accepted Answer

In order to find the equilibrium price, we need to find the quantity at which market demand equals the sum of the quantities supplied by all 100 firms.

First, we need to find the supply curve for one firm, which is just its marginal cost curve since firms will produce where MC = P.

MC = 2q + 1 = P 
2q = P - 1 
q = (P - 1)/2

Now we can find the total quantity supplied by all 100 firms:

QS = 100q = 100(P-1)/2 = 50P - 50

Setting QS equal to market demand:

50P - 50 = 1050 - 50P 
100P = 1100 
P = 11

Therefore, the equilibrium price is $11.

Question 13

Per-unit transaction costs

Accepted Answer

Per-unit transaction costs can affect the behavior of both buyers and sellers, causing a shift in the respective demand and supply curves depending on the perceived value of the transaction agent's services. It includes not just commissions, but also other costs associated with executing a transaction, such as transportation and communication expenses.

Question 14

Quotas that limit the quantity of imports of a foreign good provide an incentive for foreign suppliers to: Which of the above statements are true?
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.

Accepted Answer

Quotas limit the quantity of goods that can be imported, which can incentivize foreign suppliers to provide higher quality goods to compete within the restricted supply. Additionally, facing such restrictions, suppliers might seek more open markets elsewhere where there are fewer or no quotas, to maintain or grow their exports.

Question 15

"Missing markets" result from

Accepted Answer

Missing markets result from the high transactions costs of such markets. Transactions costs can include search costs, bargaining costs, and enforcement costs, which can make it difficult or too costly for buyers and sellers to find each other, negotiate prices, and enforce contracts. As a result, certain markets may not exist or may be incomplete, leading to inefficiencies in resource allocation and distribution.

Question 16

In a competitive market,an efficient allocation of resources is characterized by

Accepted Answer

In a competitive market, an efficient allocation of resources occurs when the sum of consumer and producer surplus is maximized. This indicates that resources are being used in the most valuable way according to consumer preferences and production costs, with no further mutually beneficial transactions left unexploited.

Question 17

In the short run,the incidence of a sales tax is

Accepted Answer

In the short run, the producer is unable to adjust the price of the product to fully reflect the sales tax imposed on them. As a result, they may share the burden of the tax with the consumer by increasing the price of the product, but not by the full amount of the tax. This means that the consumer will also bear some of the burden of the tax, leading to a shared incidence of the tax between the two parties.

Question 18

One way to minimize the deadweight loss resulting from a specific tax is to

Accepted Answer

Taxing goods with inelastic demand or supply means that consumers or producers are less responsive to changes in the price of the good due to the tax, resulting in a smaller deadweight loss. This is because they are unlikely to change their behavior (reduce consumption or production) in response to the tax, and thus the market will not be as distorted.

Question 19

When a quota/trade barrier is instituted,the loss of domestic consumer surplus may be transferred to all of the following except

Accepted Answer

The loss of domestic consumer surplus cannot be transferred to consumers of other domestic products as they are not affected by the quota/trade barrier. The other options - foreign consumers, domestic producers, and foreign producers - may all face some impact from the quota/trade barrier in terms of changes in the price, quantity, or accessibility of the affected product.

Question 20

If quantity supplied is either greater or less than the equilibrium quantity,then all of the following are true except:

Accepted Answer

DOption C is incorrect because the total loss of surplus depends on the distance between the equilibrium quantity and the actual quantity supplied, as well as the shapes of the demand and supply curves, rather than directly on the price of the good. Option D is correct because when quantity supplied is not at equilibrium, it leads to either excess supply or demand, causing an inefficient allocation of resources.

Quiz 9: Perfect Competition in a Single Market

A deadweight loss of consumer and/or producer surplus occurs when

In the long run,the greater burden of a specific tax will usually be absorbed by

In the opening of free trade,if world prices of a good are less than domestic prices of that same good,

In the short run,specific taxes on a firm result in

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will the individual firm produce?

The excess burden of a tax is

Price controls

Who benefit(s) from protectionism?

When prices drop in response to a decline in demand for an increasing cost industry

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will be produced in the market?

One example of Ricardian rent is

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,what is the equilibrium price?

Per-unit transaction costs

"Missing markets" result from

In a competitive market,an efficient allocation of resources is characterized by

In the short run,the incidence of a sales tax is

One way to minimize the deadweight loss resulting from a specific tax is to

When a quota/trade barrier is instituted,the loss of domestic consumer surplus may be transferred to all of the following except

If quantity supplied is either greater or less than the equilibrium quantity,then all of the following are true except:

Quiz 9: Perfect Competition in a Single Market

A deadweight loss of consumer and/or producer surplus occurs when

In the long run,the greater burden of a specific tax will usually be absorbed by

In the opening of free trade,if world prices of a good are less than domestic prices of that same good,

In the short run,specific taxes on a firm result in

Suppose there are 100 firms each with a short run total cost of STC = q2 + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by QD = 1050 - 50P,how much will the individual firm produce?

The excess burden of a tax is

Price controls

Who benefit(s) from protectionism?

When prices drop in response to a decline in demand for an increasing cost industry

Suppose there are 100 firms each with a short run total cost of STC = q2 + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by QD = 1050 - 50P,how much will be produced in the market?

One example of Ricardian rent is

Suppose there are 100 firms each with a short run total cost of STC = q2 + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by QD = 1050 - 50P,what is the equilibrium price?

Per-unit transaction costs

"Missing markets" result from

In a competitive market,an efficient allocation of resources is characterized by

In the short run,the incidence of a sales tax is

One way to minimize the deadweight loss resulting from a specific tax is to

When a quota/trade barrier is instituted,the loss of domestic consumer surplus may be transferred to all of the following except

If quantity supplied is either greater or less than the equilibrium quantity,then all of the following are true except:

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will the individual firm produce?

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,how much will be produced in the market?

Suppose there are 100 firms each with a short run total cost of STC = q² + q + 10,so that marginal cost is MC = 2q +1.If market demand is given by Q_D = 1050 - 50P,what is the equilibrium price?