6. “Consumers understandably like lower prices, but they should understand there
ID: 1207629 • Letter: 6
Question
6. “Consumers understandably like lower prices, but they should understand there is a great difference between a lower price produced by government price ceiling and a lower price that comes about through normal market channels, one benefits the consumer, the other may not.”
a. This statement is not true, Consumers are benefited when the government lowers the price and the consumers are benefited when businesses lower the price.
b. This is because when the government forces prices down, there is a shortage and reduction in total surplus. Lower prices through markets don’t create shortage but they do benefit consumers.
c. this is because the government forces prices down, there is a surplus and reduction in total surplus. Lower prices through markets don’t create surpluses but they do benefit consumers
d. This is because when markets force the prices down, there is a shortage and reduction in total surplus. Lower prices through government actions don’t create shortages but they do benefit consumers
e. None of the above
7. How does an increase in the price of a variable input affect the AC and the MC curves?
a. MC shifts to the right and AC increases.
b. MC shifts to the left and AC increases
c. MC shifts to the right and AC does not change
d. MC does not change but AC increases
e. none of the above
8. Which of the following is a characteristic of a perfectly competitive market?
a. Firms are price setters.
b. There are few sellers in the market.
c. Firms can exit and enter the market freely.
d. All of the above are correct.
9. In a perfectly competitive market, the process of entry or exit ends when
a. firms are operating with excess capacity.
b. firms are making zero economic profit.
c. firms experience decreasing marginal revenue.
d. price is equal to marginal cost.
10. The relative price of two goods is shown by:
a. the slope of an indifference curve
b. the slope of the budget line
c. the diminishing marginal rate of substitution
d. the slope of the income-consumption curve
e. none of the above
Explanation / Answer
(6) The correct answer is option (A). Consumers are benefited when the government lowers the price and the consumers are benefited when businesses lower the price.
(7) The correct answer is option (A). MC shifts to the right and AC increases.
(8) The correct answer is option (A). Firms are price setters.
(9) The correct answer is option (B). Firms are making zero economic profit.
(10) The correct answer is option (A). The slope of an indifference curve.
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