Deck 5: Efficiency and Equity

Question 1

The marginal social benefit curve for a product can be the same as the good's

A) marginal cost curve.
B) consumer surplus curve.
C) demand curve.
D) supply curve.

Answer 1

demand curve.

Question 2

The marginal cost curve

A) shows what buyers are willing to give up to get one more unit of a good or service.
B) shows the minimum price sellers must receive to produce a unit of a good or service.
C) is the same as the demand curve.
D) shows the maximum price that a producer must receive to induce it to produce a unit of a good or service.

Answer 2

shows the minimum price sellers must receive to produce a unit of a good or service.

Question 3

The pollution created when coal is burned by utilities to generate electricity is an example of

A) a marginal benefit to coal producers.
B) a cost paid by the utilities.
C) a welfare cost.
D) an external cost.

Answer 3

an external cost.

Question 4

Which of the following statements is FALSE?

A) The maximum price people are willing to pay for one more unit of a good is its value.
B) A good's marginal benefit is the maximum price people are willing to pay for another unit.
C) The value of one more unit of a good is the good's marginal benefit.
D) None of the above because all the statements are true.

Question 5

At the current level of output, the marginal social benefit of pizza exceeds the marginal social cost of pizza. Compared to the allocatively efficient quantity, we are producing too _______ pizza and too _______ of other goods.

A) little; much
B) little; little
C) much; much
D) much; little

Question 6

Moving down along the market demand curve for hot dogs, the

A) marginal social benefit of hot dogs decreases.
B) maximum price that people are willing to pay for hot dogs increases.
C) marginal social cost of hot dogs increases.
D) consumer surplus of the last hot dog consumed increases.

Question 7

The resource allocation method that is used to allocate scarce resources between private use and government use is

A) lottery.
B) majority rule.
C) first- come, first- served.
D) personal characteristics.

Question 8

Among the sources of economic inefficiency are all of the following EXCEPT

A) taxes.
B) subsidies.
C) external costs.
D) competition.

Question 9

Using the above figure, which of the following quantities of CDs has the largest deadweight loss?

A) 7 million CDs
B) 3 million CDs
C) 4 million CDs
D) The deadweight losses associated with the three quantities given above are all equal.

Question 10

Suppose a country produces only bikes and clothing. The country achieves an efficient allocation of resources when

A) it can't produce any more bikes unless it gives up clothing.
B) the marginal social benefit of producing a bike equals the marginal social cost of producing a bike.
C) it produces an equal amount of bikes and clothes.
D) the prices charged for the goods are as low as possible.

Question 11

The producer surplus on a unit of a good is the

A) number of dollars' worth of other goods and services forgone to produce this unit of the good.
B) difference between the marginal social benefit and the marginal social cost.
C) difference between the total cost of the good and the marginal cost.
D) difference between the price of the good and the marginal cost of producing the good.

Question 12

In the market for CDs, the producer surplus will decrease if

A) the supply of CDs increases.
B) the price of a CD increases.
C) the price of a CD decreases.
D) the marginal cost of a CD decreases.

Question 13

The market demand curve for iPads is the _______ of all the individual demand curves for iPads.

A) vertical sum
B) horizontal product
C) vertical product
D) horizontal sum

Question 14

A market is allocatively efficient if

A) the sum of the consumer surplus and the producer surplus has been maximised.
B) profit has been maximised.
C) producer surplus has been maximised.
D) consumer surplus has been maximised.

Question 15

In the figure above, when production is 3 units with a price of $3, the consumer surplus equals

A) a + b + f + g + h + l.
B) a + b + f + g + h + l + i + m.
C) a + b.
D) a + b + f + g.

Question 16

The above table gives the market demand and market supply schedules for lemonade. There are no external benefits or external costs. What is the efficient quantity of lemonade?

A) 1000
B) 600
C) 1400
D) It is impossible to determine the efficient quantity without more information.

Question 17

By reducing its output compared to a competitive market, a monopoly leads to

A) a deadweight loss.
B) external costs.
C) a more efficient use of resources.
D) external benefits.

Question 18

Producer surplus is the difference between the

A) willingness to pay for the good and the marginal cost of producing the good summed over the quantity sold.
B) price and the willingness to pay for the good.
C) marginal benefit of consuming the good and the marginal cost of producing the good summed over the quantity sold.
D) price and the marginal cost of producing the good summed over the quantity sold.

Question 19

Suppose there are four firms that are each willing to sell one unit of a good. Each firm has a different minimum price that they are willing to sell for: Firm A, $6; Firm B, $7; Firm C, $10; and Firm D, $12. If the market price is $11 then the total producer surplus is

A) $33.
B) $11.
C) $9.
D) $10.

Question 20

Sam's demand curve for pizza

A) is the same as her marginal benefit curve for pizza.
B) has one point in common with her marginal benefit curve for pizza.
C) lies above her marginal benefit curve for pizza.
D) lies below her marginal benefit curve for pizza.

Question 21

In the above figure, if output is 30 units, then the total deadweight loss is

A) $60.
B) $5.
C) $10.
D) $20.

Question 22

Four people each have a different willingness to pay for one unit of a good: George will pay $15, Glen will pay $12, Tom will pay $10, and Peter will pay $8. If price is equal to $9 per unit then the quantity demanded in the market will be _______ and the consumer surplus for this unit will be
_______.

A) 4; $8
B) 3; $10
C) 3; $37
D) 3; $36

Question 23

Producer surplus is the _______ summed over the quantity sold.

A) price received for a good minus its marginal cost
B) price received for a good minus the value of the good
C) marginal cost of making a good minus the price received for it
D) value of a good minus the price received for it

Question 24

Jane is willing to pay $50 for a pair of shoes. The actual price of the shoes is $30. Her consumer surplus on this pair of shoes is

A) $50.
B) $30.
C) $20.
D) $80.

Question 25

In the above figure, the total consumer surplus at the efficient level of output is

A) $4.5 million.
B) $2.5 million.
C) $9.0 million.
D) $8.5 million.

Question 26

If the market for diamonds is a monopoly, then

A) the prices of diamonds are too low.
B) there is an inefficient amount of resources allocated to the diamond market.
C) the diamond market is efficient.
D) diamond production is at the amount where the marginal social benefit equals the marginal social cost.

Question 27

If there is an external cost from making paper, an unregulated competitive market produces

A) less than the efficient quantity.
B) more than the efficient quantity.
C) the efficient quantity.
D) a quantity that could be greater than, the same as, or less than the efficient amount.

Question 28

Consider a market that has linear supply and demand curves, and is in equilibrium. The area above the price line and below the demand curve is

A) producer surplus.
B) marginal benefit.
C) marginal cost.
D) consumer surplus.

Question 29

In the above figure, when the price of pretzels is $3 per pretzel, the total producer surplus from all the pretzels will be

A) zero.
B) less than at any other price.
C) greater than at any other price.
D) the sum of the difference between $3 and the marginal cost of all the pretzels produced.

Question 30

Deadweight loss is

A) made up of a loss of only consumer surplus.
B) not a social loss.
C) made up of a loss of only producer surplus.
D) made up of a loss of both consumer surplus and producer surplus.

Question 31

Which of the following is true?

A) Force has never played an important role in allocating scarce resources.
B) A market price always allocates resources better than a command system.
C) When the government decides how to allocate tax dollars among competing uses, resources are allocated by majority rule.
D) Lotteries work best when a resource can serve just one user at a time in a sequence.

Question 32

The symmetry principle states that

A) income should be transferred from the rich to the poor up to the point of complete equality.
B) people in similar situations must be treated similarly.
C) the poorest person must be made as well off as possible.
D) resources should be common property.

Question 33

Alice is willing to pay $3 for the second slice of pizza she eats. The price she pays is $2. Alice's consumer surplus for this slice of pizza equals

A) $0.
B) $3.
C) $1.
D) $2.

Question 34

Consumer surplus is the _______ summed over the quantity bought.

A) value of a good or service minus the price paid for the good or service
B) marginal social benefit minus the marginal social cost
C) number of dollars' worth of other goods and services forgone to obtain one more unit of a good or service
D) value of a good or service plus the price paid for the good or service

Question 35

The market supply curve is also the

A) maximum- supply- price curve.
B) marginal social benefit curve.
C) marginal social cost curve.
D) marginal value curve.

Question 36

Suppose consumers decide they value a product more highly than before. Then, the efficient quantity to produce of that product

A) decreases.
B) increases.
C) does not change.
D) perhaps changes, but without more information the direction of the change cannot be told.

Question 37

In the figure above, when the price of a CD is $8, total producer surplus from all the CDs will be

A) $10 million.
B) greater than at $10 per CD.
C) $20 million.
D) zero.

Question 38

In Australia, resources are most often allocated by

A) contest.
B) a command system.
C) market price.
D) lottery.

Question 39

The symmetry principle is the requirement that

A) people in similar situations be treated similarly.
B) the poorest 20 per cent of households should receive the same total income as the richest 10 per cent of households.
C) society's income be distributed symmetrically among its members.
D) the average person be made as well off as possible.

Question 40

The schedules in the table give the marginal social benefit and marginal social cost of a DVD. If there are no external benefits or external costs, the efficient number of DVDs to produce is _______ a week.

A) 5
B) 3
C) 1
D) any number less than 3

Question 41

Suppose there are four firms that are each willing to sell one unit of a good. Each firm has a different minimum price that they are willing to sell for: Firm A, $6; Firm B, $7; Firm C, $10; and Firm D, $12. If the market price is $11 then the market supply for this good will be

A) 4 units.
B) 1 unit.
C) 2 units.
D) 3 units.

Question 42

The market demand curve for coffee is the same as the

A) marginal social benefit curve minus the marginal social cost curve of coffee.
B) marginal social benefit curve of coffee.
C) opportunity cost curve of coffee.
D) marginal social cost curve of coffee.

Question 43

If the price of a pizza increases and the demand curve for pizza does not shift, then the consumer surplus from pizza will

A) equal the producer surplus if the market produces the efficient quantity of pizza.
B) remain the same.
C) increase.
D) decrease.

Question 44

Charlie's consumer surplus from the first slice of pizza he buys is greater than the consumer surplus from the second slice because of

A) decreasing marginal benefit.
B) increasing marginal cost.
C) decreasing marginal cost.
D) increasing marginal benefit.

Question 45

Suppose the marginal cost of producing a good falls so that the marginal social cost curve shifts downward. Then the efficient quantity to produce of that product

A) decreases.
B) does not change.
C) increases.
D) could increase, stay the same, or decrease.

Question 46

Which of the following correctly defines utilitarianism?

A) Society should strive to achieve the greatest good for the greatest number.
B) Cost will increase if production increases.
C) Equality will not result in efficient outcomes.
D) The difference between what a consumer is willing to pay and what actually has to be paid.

Question 47

Allocating resources by the order of someone in authority is a _______ allocation method.

A) market price
B) command
C) first- come, first- served
D) majority rule

Question 48

The market demand curve

A) can also be the marginal social benefit curve.
B) can also be the marginal social cost curve.
C) shows the value of a good that consumers must give up to get another unit of a different good.
D) by itself determines equilibrium prices.

Question 49

Which of the following conditions could lead to an inefficient quantity of pretzels being produced?

A) The existence of a single producer and seller of pretzels.
B) The existence of many consumers of pretzels.
C) The existence of many producers of pretzels.
D) All of the above conditions could cause the actual quantity of pretzels produced to be an inefficient quantity.

Question 50

The figure above illustrates the market for haircuts. Curve A is the _______ curve, and curve B is the _______ curve.

A) opportunity cost; opportunity benefit
B) marginal social cost; marginal social benefit
C) total social cost; total social benefit
D) marginal social benefit; marginal social cost

Question 51

Total surplus is defined as

A) another word for profit.
B) another word for total revenue.
C) consumer surplus - producer surplus.
D) consumer surplus + producer surplus.

Question 52

_______ is the value of a good minus the price paid for it summed over the quantity bought.

A) Surplus
B) Producer surplus
C) Consumer surplus
D) Shortage

Question 53

Adam makes $25,000 per year and Bob makes $45,000 a year, and they both have the same marginal benefit curve. According to the utilitarian view, if a dollar is transferred from Bob to Adam, then

A) Adam's marginal benefit increases by more than Bob's marginal benefit decreases.
B) the change in Adam's marginal benefit plus the change in Bob's marginal benefit equals zero.
C) the change in Adam's marginal benefit plus the change in Bob's marginal benefit is negative.
D) Adam's marginal benefit decreases by more than Bob's marginal benefit increases.

Question 54

The supply curve for CDs shows the

A) minimum price that producers must be offered to get them to produce a given quantity of CDs.
B) maximum price that producers must be offered to get them to produce a given quantity of CDs.
C) maximum price that consumers are willing to pay if a given quantity of CDs is available.
D) minimum price that consumers are willing to pay if a given quantity of CDs is available.

Question 55

Marginal cost is

A) the total opportunity cost of producing all the units of the good.
B) the same as the marginal benefit because producers benefit from the money they receive when they sell the good.
C) the opportunity cost of producing one more unit.
D) zero at the efficient level of production.

Question 56

If you increase your consumption of soft drink by one additional can a week, your marginal benefit of this last can is $1.00. The _______ of this last can of soft drink is $1.00.

A) price
B) value
C) marginal cost
D) opportunity cost

Question 57

In the above figure, what is the efficient quantity of hotdogs to produce?

A) 6,000 per day
B) 2,000 per day
C) 4,000 per day
D) The efficient quantity cannot be determined without knowing the PPF for this economy.

Question 58

The figure above shows Clara's demand for CDs. If the price of a CD is $15, then Clara

A) will buy no CDs.
B) receives a total of $40 of consumer surplus.
C) receives no consumer surplus on the 6th CD she buys.
D) receives a total of $10 of consumer surplus.

Question 59

Which area in the above figure is the deadweight loss if 100 snowboards are produced?

A) D + E + F
B) C + E
C) A + B + C
D) There is no deadweight loss when 100 snowboards are produced.

Question 60

If the government subsidises the production of a good,

A) an efficient outcome for producers occurs.
B) overproduction relative to the efficient quantity occurs.
C) a deadweight loss is created.
D) Both answers B and C are correct.

Question 61

Which of the following is a correct statement?

A) Consumer surplus is an external benefit.
B) A government subsidy paid to a producer is an external benefit.
C) Producer surplus is an external benefit.
D) None of the above statements is correct.

Question 62

Adam Smith argued that each person in a competitive market is led to promote the

A) inefficient use of society's resources, even though each person's intention is to make society better off.
B) efficient use of society's resources, because each person's intention is to make society better off.
C) efficient use of society's resources, even though it is no person's intention to make society better off.
D) inefficient use of society's resources, because it is no person's intention to make society better off.

Question 63

When scarce resources can serve only one user at a time in sequence, which method works well for allocating the scarce resources?

A) Lottery
B) Contest
C) First- come, first- served
D) A command system

Question 64

Which of these is NOT a potential source of inefficiency?

A) Monopoly
B) External benefits
C) Increasing marginal costs
D) Subsidies

Question 65

Farmer Jones knows that the marginal cost to produce a carton of tomatoes is $5 per carton. He also knows that a consumer is willing to pay a maximum of $9 for the carton. The price of the carton is
$6 and Farmer Jones sells his carton for $6. On this carton, Farmer Jones earns a producer surplus equal to

A) $1.
B) $5.
C) $3.
D) $6.

Question 66

Deadweight loss can be the result of

A) overproduction, but not underproduction.
B) both overproduction and underproduction.
C) neither overproduction nor underproduction.
D) underproduction, but not overproduction.

Question 67

In the above figure, if the production of gloves was restricted to 2,000 a day, then the deadweight loss would equal

A) $0, because 2,000 gloves per day is an efficient quantity of gloves to produce.
B) $5,000.
C) $10,000.
D) $2,000.

Question 68

In the figure above, if the quantity is restricted to 2, then the deadweight loss in this market equals

A) h + i.
B) c + d.
C) e + k.
D) b + g.

Question 69

Which of the following can prevent markets from reaching efficiency?
I. Decreasing marginal benefit
II. Taxes
III. Quantity regulations that limit the quantity that may be produced

A) I and II
B) I and III
C) II and III
D) I, II and III

Question 70

At the current level of output, the marginal social cost of tennis balls is greater than the marginal social benefit. Then

A) too few tennis balls are being produced.
B) there is excess demand for tennis balls.
C) more than the efficient quantity of tennis balls is being produced.
D) firms producing tennis balls must be earning negative profit.

Question 71

In the above table, when 200 brownies are produced,

A) marginal social benefit is less than marginal social cost, and there is a deadweight loss.
B) marginal social benefit is greater than marginal social cost, and there is a deadweight loss.
C) marginal social benefit is greater than marginal social cost, and resource use is efficient.
D) marginal social benefit equals marginal social cost, and resource use is efficient.

Question 72

Underproduction of a good _______ create a deadweight loss and overproduction of a good _______ Create a deadweight loss.

A) will not; will not
B) will; will not
C) will; will
D) will not; will

Question 73

A contest is a good way to allocate scarce resources when

A) there is no effective way to distinguish among potential users.
B) the lines of responsibility are clear.
C) the decision being made affects a large number of people.
D) the efforts of the players are hard to monitor directly.

Question 74

A market demand curve is constructed by

A) a vertical summation of each individual demand curve.
B) dividing one individual demand curve by the number of consumers in the market.
C) averaging each individual demand curve.
D) a horizontal summation of each individual demand curve.

Question 75

Based on the above table, which of the following is the efficient quantity of output?

A) 16
B) 32
C) 31
D) None of the above answers is correct.

Question 76

The table below shows the demand schedules for pizza for Abby and Barry who are the only buyers in the market.

Based on the table, what is Abby's marginal benefit from the 10th slice of pizza?

A) $40
B) $13
C) $0.50
D) $4

Question 77

Utilitarianism is a principle whose goal is

A) the greatest happiness for the greatest number.
B) equal happiness for all workers.
C) equal pay for equal work.
D) the greatest pay for the greatest number.

Question 78

The figure above shows the market for umbrellas in Sunville. When the market for umbrellas in Sunville is in equilibrium, what is the total surplus?

A) $12,000
B) $0
C) $24,000
D) $16,000

Question 79

The producer surplus from a good is equal to the

A) price of the good minus its opportunity cost of production summed over the quantity sold.
B) maximum amount a consumer is willing to pay for the good minus the price that actually must be paid summed over the quantity sold.
C) actual price of the good minus the maximum amount a consumer is willing to pay for the good.
D) opportunity cost of producing the good minus its price summed over the quantity sold.

Question 80

The value of one more unit of a good or service is the

A) marginal cost.
B) opportunity cost of producing one more unit of a good or service.
C) marginal benefit.
D) minimum price that people are willing to pay for another unit of the good or service.