Question 1

Use the figure below to answer the following questions.
   
Figure 5.2.2
-Refer to Figure 5.2.2 If the price falls from P₁ to P₀, then the change in consumer surplus is

Accepted Answer

A) A. 
B) A + B. 
C) A + B + C. 
D) B + C. 
E) A + B + D. 
A) A. 
B) A + B. 
C) A + B + C. 
D) B + C. 
E) A + B + D.

Question 2

What method of resource allocation depends on willingness-to-pay and ability-to-pay?

Accepted Answer

A) command 
B) lottery 
C) market price 
D) first-come, first-served 
E) force 
A) command 
B) lottery 
C) market price 
D) first-come, first-served 
E) force

Question 3

When the efficient quantity is produced

Accepted Answer

A) total consumer surplus is zero. 
B) total producer surplus is zero. 
C) consumer surplus exceeds producer surplus by the greatest possible amount. 
D) producer surplus exceeds consumer surplus by the greatest possible amount. 
E) the sum of consumer surplus and producer surplus is maximized. 
A) total consumer surplus is zero. 
B) total producer surplus is zero. 
C) consumer surplus exceeds producer surplus by the greatest possible amount. 
D) producer surplus exceeds consumer surplus by the greatest possible amount. 
E) the sum of consumer surplus and producer surplus is maximized.

Question 4

At current output, the marginal social benefit from Furbys is greater than marginal social cost. To achieve an efficient allocation, which of the following must occur? (1)Furby output must increase. (2)Furby output must decrease. (3)the marginal social benefit of Furbys will rise. (4)the marginal social cost of Furbys will fall.

Accepted Answer

A) 1 and 3 
B) 1 and 4 
C) 2 and 3 
D) 2 and 4 
E) 1 only 
A) 1 and 3 
B) 1 and 4 
C) 2 and 3 
D) 2 and 4 
E) 1 only

Question 5

Sal likes to eat pizza. The ________ is the maximum amount that Sal is willing to pay for one more slice of pizza.

Accepted Answer

A) market price 
B) marginal cost 
C) consumer surplus 
D) marginal benefit 
E) producer surplus 
A) market price 
B) marginal cost 
C) consumer surplus 
D) marginal benefit 
E) producer surplus

Question 6

A new car has a sticker price of $35,000. Fred decided that he would pay no more than $32,000 for this car. He bought the car for $31,000. Fred obtained a consumer surplus of

Accepted Answer

A) $35,000. 
B) $32,000. 
C) $4,000. 
D) $3,000. 
E) $1,000. 
A) $35,000. 
B) $32,000. 
C) $4,000. 
D) $3,000. 
E) $1,000.

Question 7

Consider a downward-sloping demand curve. Consumer surplus is

Accepted Answer

A) the difference between the market price of the good and the cost of the good. 
B) greater on the last unit sold than on the first unit sold. 
C) greater on the first unit sold than on the last unit sold. 
D) equal to price multiplied by quantity sold. 
E) equal to the area below the demand curve. 
A) the difference between the market price of the good and the cost of the good. 
B) greater on the last unit sold than on the first unit sold. 
C) greater on the first unit sold than on the last unit sold. 
D) equal to price multiplied by quantity sold. 
E) equal to the area below the demand curve.

Question 8

Use the information below to answer the following questions.
Fact 5.3.1
Only 1 percent of the world supply of water is fit for human consumption. Some places have more water than they can use; some could use much more than they have. The 1 percent available would be sufficient if only it were in the right place.
-Refer to Fact 5.3.1. If there were a global market in water like there is in oil,

Accepted Answer

A) the supply of water would decrease. 
B) less water would be made available to countries that experience drought. 
C) supply and demand would determine the price of water and those who are willing to pay the equilibrium price would get the water. 
D) the demand for water would increase. 
E) countries with a shortage of water would pay an exorbitant price for water. 
A) the supply of water would decrease. 
B) less water would be made available to countries that experience drought. 
C) supply and demand would determine the price of water and those who are willing to pay the equilibrium price would get the water. 
D) the demand for water would increase. 
E) countries with a shortage of water would pay an exorbitant price for water.

Question 9

Suppose the government places a tax on business profits so that businesses decrease production and generate a deadweight loss. Revenues from the tax are used to boost the incomes of the poor. The decision to levy the tax implies that in this case the government

Accepted Answer

A) values people but not businesses. 
B) values efficiency more than its view of fairness. 
C) profits from collecting taxes. 
D) values its view of fairness more than efficiency. 
E) is unaware of the deadweight loss it is creating. 
A) values people but not businesses. 
B) values efficiency more than its view of fairness. 
C) profits from collecting taxes. 
D) values its view of fairness more than efficiency. 
E) is unaware of the deadweight loss it is creating.

Question 10

Use the figure below to answer the following question.
   
Figure 5.3.3
-Consider the demand and supply curves in Figure 5.3.3. If the market is at the competitive equilibrium, which area in the diagram indicates producer surplus?

Accepted Answer

A) ABC 
B) AEC 
C) EBC 
D) 0BCD 
E) 0ECD 
A) ABC 
B) AEC 
C) EBC 
D) 0BCD 
E) 0ECD

Question 11

Use the figure below to answer the following questions.
   
Figure 5.2.1
-Consider the demand curve in Figure 5.2.1. If the price of the good is $4, what is the consumer surplus?

Accepted Answer

A) $32.50 
B) $25.00 
C) $20.00 
D) $12.50 
E) none of the above 
A) $32.50 
B) $25.00 
C) $20.00 
D) $12.50 
E) none of the above

Question 12

Use the information below to answer the following questions.
Fact 5.3.1
Only 1 percent of the world supply of water is fit for human consumption. Some places have more water than they can use; some could use much more than they have. The 1 percent available would be sufficient if only it were in the right place.
-Refer to Fact 5.3.1. The major problem in achieving an efficient use of the world's water is

Accepted Answer

A) the lack of rain in some areas of the world. 
B) water is vital for life. 
C) to get it from the places where it is most abundant to the places in which it has the most valuable uses. 
D) markets in water are controlled by governments or private producers. 
E) the price of water is too low. 
A) the lack of rain in some areas of the world. 
B) water is vital for life. 
C) to get it from the places where it is most abundant to the places in which it has the most valuable uses. 
D) markets in water are controlled by governments or private producers. 
E) the price of water is too low.

Question 13

At the Stratford Festival Theatre no reservations are accepted on the day of the performance; at matinees, reservations are accepted; at opening night performances reservations are essential. On the day of the performance, Stratford Festival Theatre allocates seats by ________; at matinees, it allocates seats by ________; at opening night performances, it allocates seats by ________.

Accepted Answer

A) first-come, first served; a command system; a combination of first-come, first-served and a command system 
B) force; first-come, first-served; a command system 
C) personal characteristics; personal characteristics; personal characteristics 
D) a lottery; first-come, first-served; personal characteristics 
E) first-come, first served; first-come, first-served; first-come, first-served 
A) first-come, first served; a command system; a combination of first-come, first-served and a command system 
B) force; first-come, first-served; a command system 
C) personal characteristics; personal characteristics; personal characteristics 
D) a lottery; first-come, first-served; personal characteristics 
E) first-come, first served; first-come, first-served; first-come, first-served

Question 14

Consider the market for hot dogs. If this market becomes a monopoly, then there will be

Accepted Answer

A) underproduction of hot dogs. 
B) overproduction of hot dogs. 
C) a deadweight loss in the market for hot dogs. 
D) an efficient quantity of hot dogs. 
E) both A and C are correct. 
A) underproduction of hot dogs. 
B) overproduction of hot dogs. 
C) a deadweight loss in the market for hot dogs. 
D) an efficient quantity of hot dogs. 
E) both A and C are correct.

Question 15

Producer surplus is

Accepted Answer

A) the value producers place on a good minus the price of the good. 
B) the price of the good minus the value producers place on it. 
C) zero if price equals marginal cost. 
D) greater the more elastic the supply of the good. 
E) equal to consumer surplus. 
A) the value producers place on a good minus the price of the good. 
B) the price of the good minus the value producers place on it. 
C) zero if price equals marginal cost. 
D) greater the more elastic the supply of the good. 
E) equal to consumer surplus.

Question 16

If resources are allocated efficiently,

Accepted Answer

A) consumer surplus exceeds producer surplus. 
B) producer surplus exceeds consumer surplus. 
C) the sum of consumer surplus and producer surplus is maximized. 
D) marginal social benefit is maximized. 
E) marginal social cost is minimized. 
A) consumer surplus exceeds producer surplus. 
B) producer surplus exceeds consumer surplus. 
C) the sum of consumer surplus and producer surplus is maximized. 
D) marginal social benefit is maximized. 
E) marginal social cost is minimized.

Question 17

Use the figure below to answer the following questions.
   
Figure 5.3.2
-Refer to Figure 5.3.2. If the level of output is 100 units, the deadweight loss is area

Accepted Answer

A) BCF. 
B) ACG. 
C) DCE. 
D) ACH. 
E) HCG. 
A) BCF. 
B) ACG. 
C) DCE. 
D) ACH. 
E) HCG.

Question 18

Use the figure below to answer the following questions.
   
Figure 5.3.2
-Refer to Figure 5.3.2. If the level of output is 150 units, the producer surplus is area

Accepted Answer

A) BCF. 
B) ACG. 
C) DCE. 
D) ACH. 
E) HCG. 
A) BCF. 
B) ACG. 
C) DCE. 
D) ACH. 
E) HCG.

Question 19

Sam's demand curve for pizza

Accepted Answer

A) lies below his marginal benefit curve from pizza. 
B) lies above his marginal benefit curve from pizza. 
C) is the same as his marginal benefit curve from pizza. 
D) is the same as his marginal cost curve of pizza. 
E) lies below his marginal cost curve of pizza. 
A) lies below his marginal benefit curve from pizza. 
B) lies above his marginal benefit curve from pizza. 
C) is the same as his marginal benefit curve from pizza. 
D) is the same as his marginal cost curve of pizza. 
E) lies below his marginal cost curve of pizza.

Question 20

Use the figure below to answer the following questions.
   
Figure 5.3.1
-Refer to Figure 5.3.1. The efficient quantity is

Accepted Answer

A) 250 units. 
B) 200 units. 
C) 150 units. 
D) 100 units. 
E) 50 units. 
A) 250 units. 
B) 200 units. 
C) 150 units. 
D) 100 units. 
E) 50 units.

Exam 5: Efficiency and Equity

Use the figure below to answer the following questions. Figure 5.2.2 -Refer to Figure 5.2.2 If the price falls from P₁ to P₀, then the change in consumer surplus is

What method of resource allocation depends on willingness-to-pay and ability-to-pay?

When the efficient quantity is produced

Sal likes to eat pizza. The ________ is the maximum amount that Sal is willing to pay for one more slice of pizza.

A new car has a sticker price of $35,000. Fred decided that he would pay no more than $32,000 for this car. He bought the car for $31,000. Fred obtained a consumer surplus of

Consider a downward-sloping demand curve. Consumer surplus is

Suppose the government places a tax on business profits so that businesses decrease production and generate a deadweight loss. Revenues from the tax are used to boost the incomes of the poor. The decision to levy the tax implies that in this case the government

Use the figure below to answer the following question. Figure 5.3.3 -Consider the demand and supply curves in Figure 5.3.3. If the market is at the competitive equilibrium, which area in the diagram indicates producer surplus?

Use the figure below to answer the following questions. Figure 5.2.1 -Consider the demand curve in Figure 5.2.1. If the price of the good is $4, what is the consumer surplus?

Consider the market for hot dogs. If this market becomes a monopoly, then there will be

Producer surplus is

If resources are allocated efficiently,

Use the figure below to answer the following questions. Figure 5.3.2 -Refer to Figure 5.3.2. If the level of output is 100 units, the deadweight loss is area

Use the figure below to answer the following questions. Figure 5.3.2 -Refer to Figure 5.3.2. If the level of output is 150 units, the producer surplus is area

Sam's demand curve for pizza

Use the figure below to answer the following questions. Figure 5.3.1 -Refer to Figure 5.3.1. The efficient quantity is

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