quiz for principles of economics

what happens When the Average Total Cost (ATC) is greater than the Price (P) (ATC > P) in perfect compatitive market.

• Firm earns profit

• Firm earns loss

• It is breakeven point

• Nothing happens

what happens When the Average Total Cost (ATC) is less than the Price (P) (ATC < P).

• Firm earns profit

• Firm earns loss

• It is breakeven point

• Nothing happens

Sunk Cost is

• A cost that has already been incurred and cannot be recovered.

• A cost that varies with the level of production.

• A cost that remains constant regardless of production levels.

• A cost incurred only when production increases.

Fixed Cost is

• A cost that varies directly with production output.

• A cost that is incurred only when production stops.

• A cost that remains unchanged regardless of production levels.

• A cost that can be recovered if operations are halted.

Carefully analyze the graph below and answer the following questions: What do points D and B represent?

• Consumer surplus

• Producer surplus

• Deadweight loss

• Equilibrium

Price ceiling: A legally determined minimum price that sellers may receive.

• True

• False

Perfectly inelastic demand refers to a situation where the quantity demanded is completely unresponsive to price changes, and the price elasticity of demand equals zero.

• True

• False

Which of the following is a characteristic of a perfectly competitive market?

• Few buyers and many sellers

• Product differentiation

• Free entry and exit of firms

• Significant barriers to entry

What is a negative externality?

• A cost that affects people not directly involved in the transaction

• A benefit enjoyed only by the buyer

• A price increase in the market

• A reduction in production costs

What is a likely consequence of a price floor being set above the equilibrium price?

• Shortage

• Surplus

• Efficiency

• Increase in consumer surplus