Question 1

If a market is in equilibrium,then we know that price equals marginal benefit because

Accepted Answer

A) the market supply curve reflects marginal cost. 
B) marginal benefit never changes. 
C) the market demand curve reflects marginal benefit. 
D) consumers are required by law to equate marginal benefit to price. 
E) every consumer experiences the same benefits. 
A) the market supply curve reflects marginal cost. 
B) marginal benefit never changes. 
C) the market demand curve reflects marginal benefit. 
D) consumers are required by law to equate marginal benefit to price. 
E) every consumer experiences the same benefits.

Question 2

The sum of producer and consumer surplus is maximized when

Accepted Answer

A) the difference between marginal benefit and marginal cost is at its maximum. 
B) producers produce at the point where marginal cost is equal to zero. 
C) equity is achieved. 
D) consumers buy to the point that marginal benefit is equal to zero. 
E) marginal benefit and marginal cost are equal. 
A) the difference between marginal benefit and marginal cost is at its maximum. 
B) producers produce at the point where marginal cost is equal to zero. 
C) equity is achieved. 
D) consumers buy to the point that marginal benefit is equal to zero. 
E) marginal benefit and marginal cost are equal.

Question 3

In a market,buyers and sellers are coordinated through

Accepted Answer

A) the government. 
B) the information about price. 
C) personal communication with each other. 
D) information gained from outside the market. 
E) collective bargaining in large groups. 
A) the government. 
B) the information about price. 
C) personal communication with each other. 
D) information gained from outside the market. 
E) collective bargaining in large groups.

Question 4

Exhibit 7-1  
-Refer to Exhibit 7-1.Firm A has much higher costs of production,and under no circumstances should it produce when Firm B is already producing.

Accepted Answer

A) True 
 B)False

Question 5

What three conditions for Pareto efficiency are met when market equilibrium is reached?

Accepted Answer

(1) Marginal cost equals margi

Question 6

The price system has information advantages over nonmarket systems only when buyers and sellers can personally communicate their marginal benefits or marginal costs to each other.

Accepted Answer

A) True 
 B)False

Question 7

Deadweight loss is the amount of benefits transferred from consumers to producers.

Accepted Answer

A) True 
 B)False

Question 8

Deadweight loss

Accepted Answer

A) is a problem only when more than the equilibrium quantity is produced. 
B) is a loss of producer and consumer surplus. 
C) is a problem only when less than the equilibrium quantity is produced. 
D) occurs when Pareto efficiency is achieved. 
E) is typically an example of market failure. 
A) is a problem only when more than the equilibrium quantity is produced. 
B) is a loss of producer and consumer surplus. 
C) is a problem only when less than the equilibrium quantity is produced. 
D) occurs when Pareto efficiency is achieved. 
E) is typically an example of market failure.

Question 9

Exhibit 7-13  
-Refer to Exhibit 7-13.Calculate the government's tax revenue from imposing a tax of $10 per unit on producers.

Accepted Answer

$5,000 
Consumers continue to

Question 10

Draw a supply and demand diagram and identify (1)equilibrium price and equilibrium quantity and (2)producer surplus and consumer surplus.Can you identify a place in the diagram where the sum of producer surplus and consumer surplus is greater than at equilibrium?

Accepted Answer

Refer to the diagram below. @#IMG-DLM& (1) Equilib

Question 11

The best way to achieve income equality and efficiency is to regulate prices so that everyone can afford what they need.

Accepted Answer

A) True 
 B)False

Question 12

Without market coordination,

Accepted Answer

A) prices are entirely ignored. 
B) only that which is good for a society as a whole is produced. 
C) it is difficult for individuals to communicate costs and benefits. 
D) money is not used. 
E) self-interest ceases to be a motivating factor. 
A) prices are entirely ignored. 
B) only that which is good for a society as a whole is produced. 
C) it is difficult for individuals to communicate costs and benefits. 
D) money is not used. 
E) self-interest ceases to be a motivating factor.

Question 13

Competitive markets lead to Pareto efficiency but not necessarily income equality.

Accepted Answer

A) True 
 B)False

Question 14

What is the first theorem of welfare economics?

Accepted Answer

The competitive mark

Question 15

Friedrich Hayek

Accepted Answer

A) believed that central planning would break down mainly due to problems associated with information gathering. 
B) argued that central planning could be informationally efficient. 
C) believed that only a democratic government,where individuals can make their preferences known by voting,could be informationally efficient. 
D) criticized the market system as informationally inefficient. 
E) argued that informational inefficiency would be the market's undoing. 
A) believed that central planning would break down mainly due to problems associated with information gathering. 
B) argued that central planning could be informationally efficient. 
C) believed that only a democratic government,where individuals can make their preferences known by voting,could be informationally efficient. 
D) criticized the market system as informationally inefficient. 
E) argued that informational inefficiency would be the market's undoing.

Question 16

In a market,

Accepted Answer

A) buyers and sellers must know how the other group thinks to succeed in maximizing their own group's self-interest. 
B) information is unnecessary. 
C) trade must take place at a single location or economic coordination breaks down. 
D) each individual participant knows only a small fraction of the total information produced in the market. 
E) income equality results. 
A) buyers and sellers must know how the other group thinks to succeed in maximizing their own group's self-interest. 
B) information is unnecessary. 
C) trade must take place at a single location or economic coordination breaks down. 
D) each individual participant knows only a small fraction of the total information produced in the market. 
E) income equality results.

Question 17

Exhibit 7-12  
-Refer to Exhibit 7-12.Calculate the deadweight loss of a government program that establishes a minimum price of $7 per unit and requires that the government buy the resulting surplus.

Accepted Answer

$4 million Area of t

Question 18

Income equality is usually defined as a state of the world in which all individuals have

Accepted Answer

A) the same abilities. 
B) basically the same income. 
C) the same amount of wealth. 
D) the same education. 
E) an equal vote in government. 
A) the same abilities. 
B) basically the same income. 
C) the same amount of wealth. 
D) the same education. 
E) an equal vote in government.

Question 19

Realistically speaking,complete income equality can be achieved only when

Accepted Answer

A) government taxes high incomes and redistributes the money to those with low incomes. 
B) all consumers face the same market price. 
C) individuals voluntarily give above-average income to below-average income earners to equalize incomes. 
D) individuals stop acting in their own self-interest and produce all they can for the common good. 
E) every individual receives exactly the same education. 
A) government taxes high incomes and redistributes the money to those with low incomes. 
B) all consumers face the same market price. 
C) individuals voluntarily give above-average income to below-average income earners to equalize incomes. 
D) individuals stop acting in their own self-interest and produce all they can for the common good. 
E) every individual receives exactly the same education.

Question 20

Exhibit 7-10  
-Refer to Exhibit 7-10.What would the tax revenue be if the government imposed on producers a tax of $3 per unit sold?

Accepted Answer

A) $135 
B) $150 
C) $180 
D) $105 
E) $120 
A) $135 
B) $150 
C) $180 
D) $105 
E) $120

Exam 7: The Interaction of People in Markets

If a market is in equilibrium,then we know that price equals marginal benefit because

The sum of producer and consumer surplus is maximized when

In a market,buyers and sellers are coordinated through

Exhibit 7-1 -Refer to Exhibit 7-1.Firm A has much higher costs of production,and under no circumstances should it produce when Firm B is already producing.

What three conditions for Pareto efficiency are met when market equilibrium is reached?

The price system has information advantages over nonmarket systems only when buyers and sellers can personally communicate their marginal benefits or marginal costs to each other.

Deadweight loss is the amount of benefits transferred from consumers to producers.

Deadweight loss

Exhibit 7-13 -Refer to Exhibit 7-13.Calculate the government's tax revenue from imposing a tax of $10 per unit on producers.

Draw a supply and demand diagram and identify (1)equilibrium price and equilibrium quantity and (2)producer surplus and consumer surplus.Can you identify a place in the diagram where the sum of producer surplus and consumer surplus is greater than at equilibrium?

The best way to achieve income equality and efficiency is to regulate prices so that everyone can afford what they need.

Without market coordination,

Competitive markets lead to Pareto efficiency but not necessarily income equality.

What is the first theorem of welfare economics?

Friedrich Hayek

In a market,

Exhibit 7-12 -Refer to Exhibit 7-12.Calculate the deadweight loss of a government program that establishes a minimum price of $7 per unit and requires that the government buy the resulting surplus.

Income equality is usually defined as a state of the world in which all individuals have

Realistically speaking,complete income equality can be achieved only when

Exhibit 7-10 -Refer to Exhibit 7-10.What would the tax revenue be if the government imposed on producers a tax of $3 per unit sold?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

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