Econ 102 Homework 7 Assignment 2015

1. In a market with voluntary trade and exchange, where does
producer surplus (PS) come from?
A) Firms forcing consumers to pay prices higher than they
are willing to pay

B) Firms charging higher prices because there are no
substitute goods for consumers to buy

C) Firms selling a good at a price that is greater than the
marginal cost of producing the good

D) All of the above

2.
Suppose a binding price control is placed on a competitive market. What is the
reason that deadweight loss (DWL) is created?
A) The government is deciding the allocation of goods

B) Consumers are now paying lower prices

C) Producers are now receiving higher prices

D) The number of trades in the market is reduced

3.
Suppose a market has the following demand and supply functions:
Qd = 40 – 2P
Qs = –8 + 4P
Using the equations, solve for equilibrium price and quantity.
You may want to double check your math just to be sure.
A) Q* = 16, P* = 16

B) Q* = 29, P* = 5.3

C) Q* = 13, P* = 5.3

D) Q* = 24, P* = 16

E) Q* = 28, P* = 6

F) Q* = 29, P* = 8

G) Q* = 24, P* = 8

H) Q* = 24, P* = 20

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4.

Notice that I have provided the graph of these functions,
although it is not necessarily drawn to scale. I have provided the vertical
intercepts for the supply and demand functions for you. What is the consumer
surplus at this equilibrium price?
A) CS = $8

B) CS = $20

C) CS = $24

D) CS = $72

E) CS = $144

F) CS = $288

5. What
is the producer surplus at this equilibrium price?
A) PS = $2

B) PS = $8

C) PS = $24

D) PS = $72

E) PS = $144

F) PS = $36
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6.

Now, suppose that the government imposes a price floor on the
market for this good. The price floor is PF = $12. See the provided picture.
First, we need to find the number of trades actually occurring at this price.
The number of trades occurring is labeled “A” on the graph. You must find “A”
by plugging in the PF price into the demand curve.
A) A = 8

B) A = 12

C) A = 16

D) A = 20

7. At
this quantity “A” that you just found, find B, the height of the supply curve.
Do this by plugging in a quantity “A” into the supply function and solving for
price (which is the height of the supply curve).
A) B = $6

B) B = $7

C) B = $8

D) B = $9

8. What
is consumer surplus with the price floor?
A) CS = $80

B) CS = $320

C) CS = $160

D) CS = $64

E) CS = $96

F) CS = $128

9. What
is producer surplus with the price floor?
A) PS = $64

B) PS = $128

C) PS = $192

D) PS = $96

E) PS = $216

F) PS = $144

10. What
is deadweight loss with the price floor?
A) DWL = $24

B) DWL = $36

C)
DWL = $48

D) DWL = $64

E) DWL = $72

F) DWL = $96

11. On the
previous graph, why did the price floor decrease number of trades from Q* to A?
A) The government didn’t allow as many goods to be sold

B) The firms wanted to sell more goods

C) The consumers didn’t want to buy as many goods

D) The profit of the firms became too high

12. Your
local farmer has many competitors and exists in a market structure known as
perfect competition. This means that price is determined outside of the
individual farmer’s ability to charge a price higher than the going market for
a bushel of wheat, hence the farmer is
A) a price maker and can therefore charge different
customers different prices.

B) always able to price produce above the competition and
earn a larger profit.

C) never able to make a profit in this industry

D) a price taker and cannot affect the market price of
wheat.

13. A
perfectly competitive market has
A) high barriers to entry or exit

B) homogeneous products

C) to do a lot of advertising to attract buyers

D) few firms

14. Which
of the following statements is correct?
A) The demand curve of the perfectly competitive industry
is elastic as are the demand curves facing the individual firms.

B) The market demand curve of perfect competition is
inelastic because the individual consumers are buying a homogeneous product.

C) The market demand curve of the perfectly competitive
industry is downward sloping while the demand curve of an individual firm is
horizontal with a height equal to the product price.

D) The market demand curve of the perfectly competitive
industry is downward sloping, so the demand curves of the individual firms are
also downward sloping.

15.

Pictured here is Axel, who started a Halloween costume business,
hoping to make profits. Axel noted that there are many small firms here, and
it’s easy to enter. Does this mean that Halloween costume stores would fit the
model of perfect competition?
A) No – because the costumes are only sold during a few
weeks out of the year

B) No – because the products sold are not homogenous and
may differ from store to store

C) Yes – with many firms, they will be price takers

D) Yes – since these firms advertise, consumers have
perfect price information

E) Both [A] and [B]

F) Both [C] and [D]

16.
True or False: “Free
entry” in the Halloween costume business means it costs zero dollars up front
to start the business.
A) True – but there will be marginal costs involved with
producing output

B) True – a firm doesn’t need any physical capital when it
first starts

C) False – free entry means that government pays for new
firms to promote competition

D) False – free entry means there are no serious barriers
for an individual to start a business

E) Both [A] and [B]

F) Both [C] and [D]

17.

After Halloween ended, Axel ate some candy and decided to start
a leaf raking business. The leaf raking industry is perfectly
competitive. Perfect competition in leaf raking means that:
A) Axel’s business sells an identical service offered by
other leaf rakers

B) There is a going market price charged by all businesses

C) Consumers and producers have perfect information with
regards to the market price

D) Anyone can enter the leaf raking business

E) All of the above

18.
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Refer to the above table. Axel’s leaf raking firm operates in a
perfectly competitive market in which the market price is $10 per yard raked
(total output refers to total yards raked). What is its profit-maximizing rate
of production? Hint: There are two ways to solve this (total and marginal).
A) 104 yards raked

B) 106 yards raked

C) 108 yards raked

D) 110 yards raked

19.

Refer to the above table. Axel’s firm operates in a perfectly
competitive market in which the market price is $10/yard. What is true when the
Axel rakes 103 yards?
A) Total revenue equals $5,060.

B) Total costs exceed total revenue by $403.

C) Marginal revenue is less than marginal cost.

D) Total profit is $524.

20.
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Suppose that the lawn mowing industry is also perfectly
competitive. (I don’t have a picture of Axel operating a lawn mower). Consider
the cost structure of the perfectly competitive lawn mowing firm in the above
figure. If the market price is $15 per yard mowed, the firm
A) mows 10 lawns.

B) mows 12 lawns.

C) shuts down operations.

D) mows 11 lawns.

21. In the
above lawn mowing figure, if the market price is $15, the firm’s profit will be
A) $0 (breaks even)

B) $10

C) $15

D) $20

E) a negative number (loss), but we don’t know how much
based on the graph

22.
In the above lawn mowing figure, suppose that the break-even
price is $13.50 (not directly labeled on graph). If the market price is less
than $13.50, the profit-maximizing firm will
A) still continue to produce output

B) shut down

C) raise the price of the good

D) either [A] or [B] could be correct, depending on the
price

E) none of the above

23. Which
of the following is NOT a characteristic of perfect competition?
A) There are large numbers of buyers and sellers.

B) The firms in an industry produce goods that are
different from each other.

C) There are no barriers to entry or exit

D) Both buyers and sellers have equally good information.

24. In a
perfectly competitive market structure any firm can enter or leave the industry
without serious impediments. This implies
A) the products sold will be alike.

B) firms will move labor and capital in pursuit of
profit-making opportunities to whatever business venture gives them the highest
return on their investment.

C) no one buyer or seller has any influence on price.

D) consumers are able to find out about lower prices
charged by other firms.

25. In a
perfectly competitive market, if P > ATC, there is likely to be
A) entry of new firms into the market in the long run

B) an accounting loss for existing firms.

C) exiting of existing firms out of the market in the long
run

D) an upward pressure on price.

E) an incentive for firms to try and differentiate their
products

26.
Economic profits and losses are true market signals because they
A) convey true information to some people and false
information to others

B) convey information about rewards people should
anticipate experiencing by shifting resources from one activity to another.

C) convey information to public officials about how to
control prices

D) cause people to move into careers in both undesirable
and desirable industries with equal ease.

.

 

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