Economic Efficiency and Market Equilibrium Quiz

Efficiency occurs when

• the economy is producing what people want at least possible cost.

• the economy has a fair and just distribution of income.

• all markets are in equilibrium.

• unemployment is low and prices are stable.

Because most people prefer smartphones to flip phones, firms can improve efficiency by

• stopping production of flip phones and starting production of smartphones.

• starting production of flip phones and stopping production of smartphones.

• increasing production of both flip phones and smartphones.

• stopping production of both flip phones and smartphones.

A new technology is developed for producing microwave ovens that reduces production costs by 10%. Which of the following is the most likely consequence of this technological change?

• Firms will continue to operate efficiently as long as no firm adopts this new technology.

• Firms must adopt this new technology to remain efficient.

• This new technology will not affect efficiency, but it will change the equilibrium price and quantity for this industry.

• If firms do not adopt this new technology, then the economy will remain in general equilibrium, because firms will not change their price and output decisions.

To conduct a general equilibrium analysis of a change in consumer preferences away from beef and toward chicken, you must consider

• changes in the equilibrium prices and quantities of beef and chicken.

• changes in the amount of resources allocated to the production of beef and chicken.

• changes in the price of resources allocated to the production of beef and chicken.

• all of the above

A technological change in the production of cars will

• affect only the markets for inputs used to produce cars.

• affect only the way cars are produced.

• have no effect on consumers.

• affect input and output markets in the automobile industry and other related industries.

Assume that an economy producing two products, skateboards and in‐line skates, is initially in equilibrium, and that skateboards and in‐line skates are substitutes. If consumer preferences shift away from skateboards and toward in‐line skates, which of the following will not occur?

• In the short run, firms producing skateboards will incur losses.

• In the short run, firms producing in‐line skates will earn a profit.

• Additional capital will begin to flow into in‐line skates production in the long run.

• Additional capital will begin to flow into skateboard production in the long run.

Initially the beef and mutton markets are in equilibrium, then preferences shift away from beef and into mutton. If you are a cattle rancher, the best profit-maximizing strategy is to

• shut down.

• increase output so as to increase your market share.

• shift some of your ranching capacity into cattle raising.

• decrease output so as to minimize short run losses.

Refer to Figure, The DVD industry is a constant-cost industry. As the demand for DVD players shifts from D to , which of the following is least likely to result?

• More resources will be allocated to produce DVD players.

• The demand for DVDs will increase.

• If the market for DVD players is competitive, the price will increase to $5.00 in the short and long run.

• If the market for DVD players is perfectly competitive, economic profits in this industry will increase in the short run, but will fall back to zero in the long run.

The condition that exists when all markets in an economy are in simultaneous equilibrium is known as

• market equity.

• Pareto efficiency.

• partial equilibrium.

• general equilibrium.

________ occurs when the economy is producing what people want at least possible cost.

• Efficiency

• Equity

• Stability

• Maximum profit