Deck 5: Efficiency and Equity

Question 1

Which of the following is TRUE?

A) When a market price allocates resources, everyone who is able to pay the price gets the resource.
B) A command system works well when the lines of authority and responsibility are clear.
C) When the government decides how to allocate tax dollars among competing uses, resources are allocated by command.
D) When a manager offers everyone in the company the opportunity to win a prize, resources are allocated by a market price.

Answer 1

A command system works well when the lines of authority and responsibility are clear.

Question 2

As a method of resource allocation, market price

A) means those who are willing and able to pay get a particular good or service.
B) works well when self-interest must be suppressed.
C) works best inside firms and government departments.
D) is efficient when there is no effective way to distinguish among potential users of a scarce resource.

Answer 2

means those who are willing and able to pay get a particular good or service.

Question 3

Which of the following is TRUE?

A) When resources are allocated on the basis of personal characteristics, all people who are willing and able to pay the price get the resource.
B) When the range of activities to be monitored is large and complex, a command system allocates resources better than a market price.
C) When a market price allocates resources, some people who are willing and able to pay that price don't get the resource.
D) Force helps support the legal system on which markets function.

Answer 3

Force helps support the legal system on which markets function.

Question 4

Asian women lag far behind the West in their representation in management level positions. The report by the McKinsley consulting company suggests that there is an opportunity for companies to recruit under-utilized female talent and do well financially as a result. (Source: The Economist, July 7, 2012) The fact that Asian women are currently less likely to be hired as managers is a result of the allocation system using which of the following methods for hiring?

A) lottery
B) auction
C) first-come, first-served
D) personal characteristics

Question 5

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

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

Question 6

When allocating resources using market price

A) everyone who is willing and able to pay for a good gets one.
B) everyone who wants a good gets one.
C) everyone who is willing to pay for a good gets one.
D) everyone who is able to pay for a good gets one.

Question 7

If a person will rent an apartment only to married couples over 30 years old, that person is allocating resources using a ________ allocation method.

A) first-come, first-served
B) market price
C) personal characteristics
D) command

Question 8

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

A) first come, first served
B) lottery
C) contest
D) command system

Question 9

Often people trying to withdraw money from their bank must wait in line, which reflects a ________ allocation method.

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

Question 10

Which of the following is TRUE?

A) When a market price allocates resources, all people who are willing and able to pay that price get the resource.
B) A command system works well when the range of activities to be monitored is large and complex.
C) When the government decides how to allocate tax dollars among competing uses, resources are allocated by market prices.
D) When a manager offers everyone in the company the opportunity to win a prize, resources are allocated by a lottery.

Question 11

In the United States, resources are most often allocated by

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

Question 12

Alvin Roth of Harvard won the 2012 Nobel Prize in Economics for designing systems that allocate resources in innovative ways. For example, he designed a system that matches donated kidneys to recipients waiting for such donations. This system takes into account the needs of each perspective recipient, their blood type, and the urgency of their case. (Source: Washington Post, October 16, 2012) Based on the news clip above, the allocation of resources is made using

A) market price.
B) auction.
C) lottery.
D) personal characteristics.

Question 13

The night before enrollment was to open for the University of Johannesburg a line of people more than a mile long formed outside the gates. When the gates opened, a stampede started, and a woman lost her life in her attempt to secure her son a spot at the university and a chance for a better life. (Source: New York Times, January 10, 2012) Based on the news clip above, the allocation of resources in made using

A) market price.
B) auction.
C) first-come, first-served.
D) lottery.

Question 14

Currently kidneys are allocated based on the needs of each perspective recipient, their blood type, and the urgency of their case. An alternative way to allocate kidneys is to go by the order in which patients were placed on the waiting list. In that case, the allocation of resources is made using

A) market price.
B) auction.
C) first-come, first-served.
D) personal characteristics.

Question 15

A contest is a good way to allocate scarce resources when

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

Question 16

Which of the following is TRUE?

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

Question 17

As a method of resource allocation, force

A) is not important.
B) plays a crucial negative role.
C) plays a crucial positive role.
D) plays a crucial role for both good and ill.

Question 18

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

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

Question 19

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

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

Question 20

The value of a good is equal to the

A) maximum price you are willing to pay for it.
B) price that you actually pay for it.
C) price you actually pay for it minus the maximum you are willing to pay for it.
D) maximum you are willing to pay for it minus the price you actually pay for it.

Question 21

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

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

Question 22

The market demand curve for coffee is the same as the

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

Question 23

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 the marginal social benefit from the 45th slice of pizza?

A) $3.50
B) $3.25
C) $0.50
D) $9

Question 24

A person will choose to buy a good as long as

A) marginal benefit is at least as great as price.
B) consumer surplus is positive.
C) marginal benefit is positive.
D) consumer surplus is at least as great as price.

Question 25

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

A) efficient price
B) efficient amount
C) marginal benefit
D) marginal cost

Question 26

A market demand curve measures

A) how much a consumer is willing to pay for an additional unit of the good.
B) the marginal social benefit of an additional unit of the good.
C) the marginal social cost of an additional unit of the good.
D) Both answers A and B are correct.

Question 27

The market demand curve is constructed by adding the

A) quantities demanded by each individual at each price.
B) prices that each individual is willing to pay at each quantity.
C) Neither answer A nor answer B is correct.
D) Both answer A and answer B are correct.

Question 28

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

Question 29

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

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

Question 30

A market demand curve is constructed by

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

Question 31

Marginal benefit

A) is the same as the total benefit received from consuming a good.
B) is the maximum amount a person is willing to pay for one more unit of a good.
C) increases as consumption increases.
D) is the difference between total benefit and total cost.

Question 32

Sam's demand curve for pizza

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

Question 33

Marginal benefit is the benefit received from ________.

A) consuming more goods or services
B) producing the efficient quantity
C) consuming the efficient quantity
D) consuming one more unit of a good or service

Question 34

A market demand curve can be constructed by

A) adding the prices all consumers will pay for any given quantity.
B) adding the quantities that all consumers buy at each price.
C) adding the quantities that a consumer buys at the highest price.
D) None of the above answers is correct.

Question 35

Jane is willing to pay $80 for a pair of shoes. The actual price of the shoes is $50. Her marginal benefit is

A) $80.
B) $30.
C) $50.
D) $1300.

Question 36

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 Barry's marginal benefit from the 40th slice of pizza?

A) $3
B) $5.50
C) $0.50
D) $12

Question 37

The market demand curve also is

A) a marginal social cost curve.
B) a marginal social benefit curve.
C) an opportunity cost curve.
D) a consumer surplus curve.

Question 38

All of the following statements about marginal benefit are correct EXCEPT the marginal benefit of a good

A) is the benefit a person receives from consuming one more unit of the good or service.
B) is measured as the maximum amount that a person is willing to pay for one more unit of the good.
C) is equal to zero when resource use is efficient.
D) decreases as the quantity consumed of the good increases.

Question 39

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

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

Question 40

The market demand curve

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

Question 41

Jane is willing to pay $4 for the first cup of coffee a day, $2.50 for the second cup, and $1 for the third cup, after which she won't buy any coffee. The price of a cup of coffee is $2.40. Jane's consumer surplus from the coffee she buys is ________ per day.

A) $1.60
B) $1.70
C) $4.80
D) $6.50

Question 42

Consider the market for hot dogs. As long as the marginal benefit of consuming hot dogs is greater than the price of hot dogs

A) people receive consumer surplus from eating hot dogs.
B) the price of hot dogs will rise.
C) the value of hot dogs will rise.
D) there is no decreasing marginal benefit of eating hot dogs.

Question 43

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

Question 44

Joe is willing to pay $4 for his first slice of pizza and $3 for his second slice of pizza. If the price is $2, on his two slices of pizza Joe receives a total consumer surplus of

A) $4.
B) $3.
C) $2.
D) $1.

Question 45

Quantity of tennisrackets demanded
Jill and Jed have individual demand curves for tennis rackets given in the table above and are the only two demanders in the market. What is the market quantity demanded at the price of $30?

A) 2
B) 5
C) 11
D) 18

Question 46

Consumer surplus is the

A) value of a good expressed in dollars.
B) price of a good expressed in dollars.
C) value of a good minus the price paid for it summed over the quantity bought.
D) value of a good plus the price paid for it summed over the quantity bought.

Question 47

Quantity of videos demanded
Given the individual demands for video downloads in the above table, and assuming that these three people are the only ones in the market, which of the following statements is NOT true about market demand for video downloads?

A) The market quantity demanded at a price of $5 is 10.
B) The height of the market demand curve at a quantity demanded of 22 is $3.
C) The height of the market demand curve at a quantity demanded of 16 is $5.
D) The market quantity demanded at a price of $2 is 28.

Question 48

The drought in the Midwest over the summer has decreased the supply of corn and, as a result, brought a sharp increase in the price of corn. (Source: The Economist, August 4, 2012) The increase in the price of corn

A) always increases consumer surplus.
B) always decreases consumer surplus.
C) does not affect consumer surplus because this change reflects only a movement along the demand curve.
D) increases consumer surplus if demand is elastic and decreases consumer surplus if demand is inelastic.

Question 49

Jane is willing to pay $4 for the first cup of coffee a day, $2.50 for the second cup, and $1 for the third cup, after which she won't buy any coffee. The price of a cup of coffee is $2.40. How many cups of coffee per day will Jane buy?

A) 1
B) 2
C) 3
D) None

Question 50

A used car was recently priced at $20,000.00. Seeing the car, Bobby thought, "It's nice, but if I have to pay more than $19,500 for this car, then I would rather do without it." After negotiations, Bobby purchased the car for $19,250.00. His consumer surplus was equal to

A) $19,500.00.
B) $1,750.00.
C) $250.00.
D) $0.00.

Question 51

For many years short wave radios were a way of getting news from faraway places and in difficult conditions. But as new technologies have spread, the people listening to these devices has decreased. (Source: The Economist, July 7, 2012) As new technology creates substitutes for short-wave radios, the demand for short-wave radios ________ and the consumer surplus from short-wave radios ________.

A) increases; increases
B) decreases; decreases
C) does not change; decreases
D) decreases; does not change

Question 52

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

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

Question 53

Homer, Bart, and Lisa are the only consumers in the market. Using the information in the above table, what is the market demand for chocolate chip cookies at $4.00 per pound?

A) 21 pounds
B) 17 pounds
C) 11 pounds
D) 4 pounds

Question 54

The latest model car in the dealer's showroom has a sticker price of $35,000.00. Fred, the shopper, has decided that he would pay no more than $32,000.00 for the car. After two hours of bargaining with the saleswoman, Fred actually purchases the car for $31,000.00. Fred, therefore, has obtained a consumer surplus of

A) $35,000.00.
B) $32,000.00.
C) $4,000.00.
D) $1,000.00.

Question 55

Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1. What is the value of Nick's consumer surplus for the milkshakes he buys?

A) $2
B) $9
C) $3
D) $10

Question 56

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

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

Question 57

Consumer surplus is the ________ summed over the quantity bought.

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

Question 58

When the Smiths were shopping for their present home, the asking price from the previous owner was $250,000.00. The Smiths had decided they would pay no more than $245,000.00 for the house. After negotiations, the Smiths actually purchased the house for $239,000.00. They, therefore, enjoyed a consumer surplus of

A) $239,000.00.
B) $5,000.00.
C) $6,000.00.
D) $11,000.00.

Question 59

Charlene is willing to pay $5.00 for a sandwich. If Charlene must pay ________ for a sandwich, she ________.

A) $4.00; does not receive consumer surplus
B) $4.00; receives consumer surplus
C) $6.00; receives consumer surplus
D) $6.00; receives a marginal cost

Question 60

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

Question 61

The figure illustrates the market for bagels. Initially the market is in equilibrium, Then the number of bagels produced is cut from 20 to 10 an hour and the price rises to $2.00 per bagel. Consumer surplus decreases by ________.

A) $5.00 an hour
B) $2.50 an hour
C) $7.50 an hour
D) $0.50 a bagel

Question 62

In the figure above, when the market is in equilibrium, total consumer surplus on all the CDs bought will be

A) greater than $30 million.
B) less than at any other price.
C) $20 million.
D) less than $15 million.

Question 63

The above figure shows Dana's marginal benefit curve for ice cream. If the price of ice cream is $2 per gallon and Dana is allowed to buy only 8 gallons of ice cream, then her consumer surplus on the 8th gallon is

A) $1.
B) $2.
C) $3.
D) $8.

Question 64

The figure above shows Clara's demand for CDs. If the price of a CD were to increase from $15 to $25, Clara's total consumer surplus for all the CDs she buys would

A) decrease by $40.
B) remain unchanged.
C) decrease by $90.
D) increase by $80.

Question 65

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 decreases from $9 to $8 then the consumer surplus from this unit will increase by

A) $3.
B) $4.
C) $2.
D) $1.

Question 66

In the above figure, what is the total consumer surplus from all the milk bought if the price of milk is $3.00 per gallon?

A) $16 million
B) $12 million
C) $4 million
D) $2 million

Question 67

The above figure shows Dana's marginal benefit curve for ice cream. If the price of ice cream is $2 per gallon, then Dana's consumer surplus from the 4th gallon

A) is greater than her consumer surplus from the 8th gallon.
B) is the same as her consumer surplus from the 8th gallon.
C) is less than her consumer surplus from the 8th gallon.
D) could be greater than, equal to, or less than the consumer surplus from the 8th gallon.

Question 68

The figure above shows Clara's demand for CDs. The price for a CD is $15. Which statement is TRUE?

A) When Clara buys 6 CDs, she receives $15 of consumer surplus on her 6th CD.
B) When Clara buys 6 CDs, she receives a total of $15 of consumer surplus.
C) When Clara buys 6 CDs, she receives a total of $30 of consumer surplus.
D) When Clara buys 6 CDs, she receives a total of $45 of consumer surplus.

Question 69

In the figure above, what is the marginal social benefit of the 3,000,000th CD per month?

A) $11.00 per CD
B) $8.00 per CD
C) $6.00 per CD
D) None of the above answers is correct.

Question 70

In the figure above, for each CD, the price a consumer is willing to pay is equal to the

A) economy's marginal social cost of producing that CD.
B) consumer's own marginal benefit from consuming that CD.
C) consumer's total consumer surplus.
D) Both answers A and B are correct.

Question 71

The above figure shows Dana's marginal benefit curve for ice cream. If the price of ice cream is $2 per gallon, then the maximum that Dana is willing to pay for the 8th gallon of ice cream is

A) $1.
B) $2.
C) $3.
D) $5.

Question 72

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

Question 73

The figure tells us about the market for red roses. The consumer surplus is ________ a day.

A) $800
B) $200
C) $1,000
D) $20

Question 74

The above figure shows Dana's marginal benefit curve for ice cream. If the market price is $2 per gallon, then Dana's consumer surplus from the 4th gallon of ice cream is

A) $0.
B) $2.
C) $3.
D) $10.

Question 75

In the above figure, if the price is $2, then the total consumer surplus is

A) triangle abc.
B) triangle cef.
C) trapezoid adec.
D) trapezoid bdfc.

Question 76

In the above figure, the individual's consumer surplus will be highest if

A) the price of ice cream is $5 per gallon.
B) the price of ice cream is $3 per gallon.
C) the price of ice cream is $2 per gallon.
D) ice cream is free.

Question 77

The figure above shows Clara's demand for CDs. At a price of $5 for a CD, the value of Clara's total consumer surplus for all the CDs she buys is

A) $5.
B) $10.
C) $25.
D) $125.

Question 78

The above figure shows Dana's marginal benefit curve for ice cream. If the price of ice cream is $2 per gallon, then the gallon that gives Dana exactly zero consumer surplus is

A) the 8th gallon.
B) the 12th gallon.
C) the 16th gallon.
D) the 20th gallon.

Question 79

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

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

Question 80

The figure above shows Clara's demand for CDs. At a price of $20 for a CD, the value of Clara's total consumer surplus for all the CDs she buys is

A) $40.
B) $30.
C) $20.
D) $4.