Chapter 2: The Basic Theory Using Demand and Supply

Figure 2.1

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The figure given above shows the demand and supply
curves of a commodity.

1.
Refer
to Figure 2.1. At a price of $70, the consumer surplus equals:

$6,000,000.
$8,000,000.
$5,000,000.
$10,000,000.

2.
Refer
to Figure 2.1. At a price of $70, the producer surplus equals:

$6,000,000.
$8,000,000.
$15,000,000.
$30,000,000.

3.
To
maximize profit a perfectly competitive firm supplies a good up to the point at
which:

the marginal revenue is higher than
the marginal cost.
the marginal cost of producing the
good is zero.
the price of the good equals marginal
cost.
the average revenue equals average
cost.

4.
Which
of the following groups is most likely to be benefitted when a country engages
in free trade?

All the domestic producers of the
country
The manufacturers of exportable goods
The producers in the import-competing
industries
The workers employed in the
import-competing industries

5.
Which
of the following is an example of arbitrage?

A firm sells a box of cereal at $10
when the average cost of producing it is $6.
Thomas buys a new stock issued by a firm
on the stock exchange.
A local salon charges 5 percent more
for all its services than a competing salon in the same locality.
Romi buys a DVD from Wal-Mart at $10
and sells it on eBay for $20.

6.
An
increase in the imports of clothing into the United States from India will
benefit the _____ and hurt the _____.

U.S. clothing producers; Indian
clothing producers
Indian consumers; Indian clothing
producers
the U.S. consumers; Indian clothing
producers
the U.S. consumers; the U.S. clothing
producers

7.
Suppose
country A and country B are the only two countries in the world. Country A
imports good X from country B and exports good Y. In the absence of any
transportation cost, at the world price of good X:

country B’s export supply curve is
perfectly inelastic.
both country A’s import demand curve
and country B’s export supply curve are positively sloped.
country A’s import demand curve will
be perfectly inelastic.
country A’s import demand curve will intersect
country B’s export supply curve.