Practice_Chapter 3 - Chapter 3 Markets Organizations and...

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Chapter 3 Markets, Organizations, and the Role of Knowledge A competitive equilibrium price guarantees that: A. consumers who want to buy the product at the market price are satisfied. B. producers can hoard the quantity they want to at the current market price. C. gains from trade are maximized only by the produces. D. you can get whatever you want Assume the current market price of candles is such that there is a surplus (i.e. excess supply). Which of the following best describes the adjustment process in a competitive market? A. As the price increases, the quantity demanded increases while the quantity supplied decreases. B. As the price increases, the quantity demanded decreases while the quantity supplied increases. C. As the price decreases, the quantity demanded increases while the quantity supplied decreases. D. As the price decreases, the quantity demanded decreases while the quantity supplied increases. Externalities exist when the actions of one agent: A. benefit or hurt another agent who is not part of the exchange relationship. B. hurts the agent committing the action C. benefits the agent committing the action D. benefit or hurt another agent who is a part of the exchange relationship Assume Pollutex Inc. produces paper in its plant located on Lake Ontario, half a mile away from CleanAir Camping. Pollutex employs an obsolete production process, dumping scum in the lake. The camp has experienced a steady decline in the number of attendees since Pollutex moved nearby. In particular, the owners forecast that CleanAir Camping will generate a profit of only $50,000 a year in the future, which is $150,000 less than the one generated before Pollutex moved nearby. A cleaner production process is available, which would not require dumping the scum in the lake. However, converting the plant would increase yearly costs by $100,000. Is the current situation Pareto efficient? A. Yes, since there is no alternative that would make CleanAir better off without hurting Pollutex, and vice versa.
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