1. If the demand for a product decreases and its supply increases, which of the
ID: 1121776 • Letter: 1
Question
1. If the demand for a product decreases and its supply increases, which of the following will happen to the equilibrium price and quantity?
Select one:
a. Equilibrium Equilibrium
Price Quantity
Increase Indeterminate
b. Equilibrium Equilibrium
Price Quantity
Increase Remain Constant
c. Equilibrium Equilibrium
Price Quantity
Increase Increase
d. Equilibrium Equilibrium
Price Quantity
Decrease Indeterminate
e. Equilibrium Equilibrium
Price Quantity
Decrease Decrease
2. If the marginal product of labor is rising, the marginal cost
Select one:
a. Must be rising
b. Must be falling
c. Must remain the same
d. Could either rise or fall
3. Why is a monopoly considered to be an inefficient market?
Select one:
a. In a monopoly market, consumers gain surplus at the cost of the producer.
b. A monopoly firm produces at the level where price is equal to marginal cost.
c. A monopoly market is characterized by a deadweight loss.
d. A monopoly firm profitably increases prices irrespective of demand.
4. Firms like Uber entering the traditional taxi industry would _______ consumer surplus, ______ the amount of consumer surplus transferred to medallion owners, _____ prices per passenger mile and ______ the deadweight loss associated with restrictions on entry.
Select one:
a. Reduce: increase; increase; increase
b. Reduce; decrease; decrease; increase
c. Increase; decrease; decrease; decrease
d. Increase; increase; increase; increase
5. In the short-run, if a competitive firm finds itself operating at a loss, it will:
Select one:
a. have to shut down and exit the market.
b. continue to operate as long as price is greater than average variable cost.
c. liquidate all its assets to ensure cash flow.
d. reduce the size of its plant to lower fixed costs
6. In the short-run, if the market price is below a competitive firm’s average total cost, the firm should:
Select one:
a. shut down only if the price is above its average variable cost.
b. shut down immediately.
c. remain open as long as its price is greater than its average variable cost.
d. expand output in the short-run and expand its production capacity.
7. Which of the following will occur in the long run in response to an unexpected but permanent increase in demand in a constant-cost, competitive industry?
Select one:
a. Resources will move out of the industry.
b. The output of the industry will remain constant.
c. The output will increase with input prices remaining unchanged.
d. The existing firms will not be able to expand output sufficiently without incurring huge costs.
8. The firm's long-run average cost curve always
Select one:
a. reflects the law of diminishing returns
b. reflects constant returns to scale
c. shows the least-cost method of production for each level of output
d. horizontal
9. Issuing a fixed number of licenses to operate a taxicab in a city (that is, imposing restrictions on entry) would mean that :
Select one:
a. the number of cabs and fares are both above the efficient level- that is, the level which would maximize the sum of profits and consumer surplus.
b. the number of cabs is less than the efficient quantity and fares are above the purely competitive levels.
c. the number of cabs is above the efficient level and fares are depressed below the purely competitive level.
d. the number of cabs and fares are both below the efficient level.
10. Which of the following would change the strategy of each player in a Prisoners’ Dilemma model so that each would choose the strategy that would make both of them better off rather than choose their dominant strategy?
Select one:
a. Appeal to their social conscience
b. Refuse to play the game
c. Each player would choose an outside party (a “government”) who would punish a player who chooses their dominant strategy
d. None of the above
Explanation / Answer
1. If the demand for a product decreases and its supply increases, then the demand curve shifts leftward and the demand curve shifts rightward.
Since both the shift of the curve forces price to decrease, therefore the equilibrium price decreases surely.
But the change in the equilibrium quantity will depend on the change in the relative magnitude of the supply curve shift and demand curve shifts.
Hence the change in the equilibrium quantity is indeterminant.
Hence option d is the correct answer.
2.
Since when the MPL increases the marginal cost decrease when MPL is maximum then MC is minimum and when the MPL is decreasing then the MC is increasing.
Hence If the marginal product of labor is rising, the marginal cost must be falling.
Therefore option b is the correct answer.
3. A monopoly is considered to be an inefficient market because a monopoly firm profitably increases prices irrespective of demand.
Hence option d is the correct answer.
4. Firms like Uber entering the traditional taxi industry would Increase consumer surplus, decrease the amount of consumer surplus transferred to medallion owners, decrease prices per passenger mile and decrease the deadweight loss associated with restrictions on entry.
This is because when the Uber enters in the traditional taxi industry, then the supply of taxi increases, therefore the supply of taxi will increase in the industry. This leads to decrease in the fare of the taxi, as a result the consumer surplus decreases, and price per passenger per mile decreases. Therefore the DWL also decreases.
Hence option c is the correct answer.
Option c; Increase; decrease; decrease; decrease
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