ECONOMICS

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Table 6-4

The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose

sellers of the good successfully lobby Congress to impose a price floor $3 above the equilibrium price in this

market.

Price Quantity

Demanded

Quantity

Supplied

$0 15 0

$1 13 3

$2 11 6

$3 9 9

$4 7 12

$5 5 15

$6 3 18

93. Refer to Table 6-4. Following the imposition of a price floor $3 above the equilibrium price, irate buyers

convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The

resulting shortage is

a. 0 units.

b. 4 units.

c. 5 units.

d. 10 units.

Figure 6-3

94. Refer to Figure 6-3. Which of the following price floors would be binding in this market?

a. $6.

b. $8.

c. $10.

d. $12.

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95. Refer to Figure 6-3. Which of the following statements is correct?

a. A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be

binding.

b. A price floor set at $8 would be binding, but a price ceiling set at $8 would not be

binding.

c. A price ceiling set at $9 would result in a surplus.

d. A price floor set at $11 would result in a surplus.

96. If a tax is levied on the sellers of a product, then there will be a(n)

a. downward shift of the demand curve.

b. upward shift of the demand curve.

c. movement up and to the left along the demand curve.

d. movement down and to the right along the demand curve.

97. A tax on the buyers of TVs

a. leads sellers to supply a smaller quantity at every price.

b. leads buyers to demand a smaller quantity at every price.

c. leads buyers to demand a larger quantity at every price.

d. Both (a) and (b) are correct.

98. If the government levies a $500 tax per car on buyers of cars, then the price received by sellers of cars would

a. decrease by more than $500.

b. decrease by exactly $500.

c. decrease by less than $500.

d. increase by an indeterminate amount.

Figure 6-91. One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces

where

a. marginal cost equals price, while a monopolist produces where price exceeds marginal

cost.

b. marginal cost equals price, while a monopolist produces where marginal cost exceeds

price.

c. price exceeds marginal cost, while a monopolist produces where marginal cost equals

price.

d. marginal cost exceeds price, while a monopolist produces where marginal cost equals

price.

2. Which of the following are necessary characteristics of a monopoly?

(i) The firm is the sole seller of its product.

(ii) The firm’s product does not have close substitutes.

(iii) The firm generates a large economic profit.

(iv) The firm is located in a small geographic market.

a. (i) and (ii) only

b. (i) and (iii) only

c. (i), (ii), and (iii) only

d. (i), (ii), (iii), and (iv)

3. Which of the following is an example of a barrier to entry?

(i) A key resource is owned by a single firm.

(ii) The costs of production make a single producer more efficient than a large number

of producers.

(iii) The government has given the existing monopolist the exclusive right to produce the

good.

a. (i) and (ii) only

b. (ii) and (iii) only

c. (i) only

d. (i), (ii), and (iii)

4. Which of the following is a characteristic of a natural monopoly?

a. Marginal cost declines over large regions of output.

b. Average total cost declines over large regions of output.

c. The product sold is a natural resource such as diamonds or water.

d. All of the above are correct.

2

Figure 15-1

5. Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier

to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the

figure?

a. ownership of a key resource by a single firm

b. natural monopoly

c. government-created monopoly

d. a patent or copyright monopoly

6. Refer to Figure 15-1. Considering the relationship between average total cost and marginal cost, the marginal cost

curve for this firm

a. must lie entirely above the average total cost curve.

b. must lie entirely below the average total cost curve.

c. must be upward sloping.

d. does not exist.

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Figure 15-2

7. Refer to Figure 15-2. Which of the following statements is correct?

a. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel B

represents the typical demand curve for a monopoly.

b. Panel B represents the typical demand curve for a perfectly competitive firm, and Panel C

represents the typical demand curve for a monopoly.

c. Panel A represents the typical demand curve for a perfectly competitive firm, and Panel B

represents the typical demand curve for a monopoly.

d. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel D

represents the typical demand curve for a monopoly.

8. Refer to Figure 15-2. Which of the following statements is correct?

a. Panel C represents the typical demand curve for a perfectly competitive industry.

b. Panel B represents the typical demand curve for a monopoly.

c. Panel B represents the typical demand curve for a perfectly competitive firm.

d. All of the above are correct.

9. A monopoly is an inefficient way to produce a product because

a. it can earn both short-run and long-run profits.

b. it faces a downward-sloping demand curve.

c. the cost to the monopolist of producing one more unit exceeds the value of that unit to

potential buyers.

d. it produces a smaller level of output than would be produced in a competitive market.

4

Figure 15-6

10. Refer to Figure 15-6. A benevolent social planner would have the monopoly operate at an output level

a. less than Q0.

b. greater than Q0.

c. equal to Q0.

d. equal to zero.

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