Question 1

The height of the market supply curve

Accepted Answer

A)  at any quantity shows the value -- to someone -- of the last unit of the good consumed
B)  at any quantity shows the cost -- to someone -- of purchasing the last unit of the good
C)  at any quantity shows the marginal cost of producing the last unit of a good
D)  shows the market value of a good or service
E)  measures the size of the side payment necessary to achieve a Pareto improvementF) B) and C)
G) C) and E)

Question 2

Pareto improvements occur

Accepted Answer

A)  through the tax system
B)  rarely in the real world
C)  when the economy has reached the point of economic efficiency
D)  when market exchanges take place
E)  when consumers are not perfectly informedF) B) and D)
G) C) and D)

Question 3

Rebecca and Leah are roommates.Rebecca likes to study with the music playing loudly and Leah needs quiet when she studies.Rebecca would be willing to pay $5 a night to hear music while Leah would be willing to pay $10 a night for the quiet.In this situation

Accepted Answer

A)  Leah should pay Rebecca $7.50 a night to not listen to music,because that would be a Pareto improvement
B)  Rebecca should stop listening to music because that would be a Pareto improvement
C)  There is no action that would create a Pareto improvement
D)  Rebecca should pay Leah $7.50 a night to listen to music,because that would be a Pareto improvement
E)  Leah should pay Rebecca $4.50 a night to not listen to music,because that would be a Pareto improvementF) A) and B)
G) B) and D)

Question 4

Market producer surplus is the area above the market price and below the market supply curve.

Accepted Answer

A) True 
 B)False

Question 5

In an efficient economy,

Accepted Answer

A)  no one could be made better off by a change in the way goods are allocated
B)  revenue for all firms is maximized
C)  a change in the way goods are allocated could make someone worse off
D)  goods are allocated fairly among individuals
E)  no one would be made worse off if there is a change in the way goods are allocatedF) All of the above
G) A) and B)

Question 6

The welfare loss due to a price floor

Accepted Answer

A)  is caused by a decrease in quantity
B)  is the dollar difference between producer surplus and consumer surplus
C)  is measured as the area above the market price and below the demand curve
D)  is measured as the area above both the market price and the supply curve
E)  is a Pareto improvementF) B) and D)
G) C) and D)

Question 7

A Pareto improvement

Accepted Answer

A)  cannot take place unless a side payment is made
B)  cannot take place unless a market is perfectly competitive
C)  cannot occur unless both parties to a transaction enjoy positive net benefits
D)  will increase the total net benefits available in a perfectly competitive market
E)  occurs whenever the sum of market consumer surplus and market producer surplus is positiveF) C) and D)
G) A) and B)

Question 8

If Bill Gates voluntarily gives some of his money to a destitute family,it would be a Pareto improvement.

Accepted Answer

A) True 
 B)False

Question 9

The height of the demand curve at any quantity indicates

Accepted Answer

A)  total expenditure on the good or service
B)  total revenue to the seller of the good or service
C)  whether the price is fair or not
D)  how much that particular unit is worth to the person who buys it
E)  how much the person who buys that unit actually pays for itF) A) and B)
G) C) and E)

Question 10

Jordan wants to sell her wedding gown for $250,but her cousin Jessica offered her $375 for it.If the gown is sold for $375,what is Jordan's producer's surplus

Accepted Answer

A)  $125
B)  $25
C)  $625
D)  $373
E)  $250F) A) and B)
G) A) and C)

Question 11

An efficient economy

Accepted Answer

A)  is a fair economy
B)  can only be a capitalist economy
C)  is not necessarily a fair economy
D)  would never experience air or water pollution
E)  would not have a government sectorF) A) and E)
G) B) and D)

Question 12

Suppose that a perfectly competitive market is in equilibrium,and then market supply decreases.Which of the following would happen?

Accepted Answer

A)  both producer and consumer surplus would increase
B)  both producer and consumer surplus would decrease
C)  producer surplus would decrease and consumer surplus would increase
D)  producer surplus would increase and consumer surplus would decrease
E)  producer and consumer surplus would remain unchangedF) A) and E)
G) C) and D)

Question 13

In real-world markets

Accepted Answer

A)  economic efficiency is rare because making voluntary transactions is difficult
B)  economic efficiency is rare because Pareto improvements are difficult to make
C)  economic efficiency is best thought of as a continuum
D)  perfect competition is an impediment to economic efficiency
E)  every possible Pareto improvement is exploitedF) A) and D)
G) C) and D)

Question 14

The benefit to some consumer of the last unit of a good consumed is

Accepted Answer

A)  represented by the height of the supply curve at that quantity
B)  negative if the producer is suffering economic loss
C)  decreases at an increasing rate in a competitive product market
D)  is zero
E)  represented by the height of the demand curve at that quantityF) C) and D)
G) B) and C)

Question 15

The supply curve indicates

Accepted Answer

A)  the price that will be charged for each unit of a good or service
B)  how much people are willing to pay for a good or service
C)  the minimum price some seller must receive in order to supply each unit of a good or service
D)  the value of each unit of a good or service
E)  the maximum price some seller can expect to receive from supplying each unit of a good or serviceF) A) and D)
G) B) and E)

Question 16

Of the four major market structures,perfect competition is the best at achieving economic efficiency.

Accepted Answer

A) True 
 B)False

Question 17

If 20 smoothies are sold at a market price of $5.50 each,then

Accepted Answer

A)  there must not be an excess supply of smoothies
B)  selling the 21st smoothie would be a Pareto improvement
C)  the market must be perfectly competitive
D)  the value to some individual of the 20th smoothie is $5.50
E)  there must be an excess demand for smoothiesF) None of the above
G) A) and D)

Question 18

A price floor in a perfectly competitive market

Accepted Answer

A)  is efficient
B)  is a Pareto improvement
C)  is effective only if it is set below the equilibrium price
D)  transfers some surplus from consumers to producers
E)  transfers some surplus from producers to consumersF) A) and E)
G) B) and E)

Question 19

If an action creates more total benefits for gainers than total harm to losers,

Accepted Answer

A)  that action would be a Pareto improvement.
B)  taking that action would improve efficiency
C)  the government should step in to take that action
D)  a side payment exists that would make the action a Pareto improvement
E)  any side payment would make the action inefficientF) A) and E)
G) C) and E)

Question 20

If the market supply curve is perfectly elastic and an excise tax is imposed,

Accepted Answer

A)  all of the tax is paid by buyers
B)  all of the tax is paid by sellers
C)  the tax burden is divided equally between buyers and sellers
D)  the market price will not change
E)  the market price will fall by the amount of the taxF) B) and E)
G) A) and E)

Exam 15: Economic Efficiency and the Competitive Ideal

An efficient economy

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Suppose that a perfectly competitive market is in equilibrium,and then market supply decreases.Which of the following would happen?

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If 20 smoothies are sold at a market price of $5.50 each,then

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The height of the market supply curve

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If the market supply curve is perfectly elastic and an excise tax is imposed,

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In real-world markets

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If an action creates more total benefits for gainers than total harm to losers,

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If Bill Gates voluntarily gives some of his money to a destitute family,it would be a Pareto improvement.

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The supply curve indicates

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Pareto improvements occur

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A price floor in a perfectly competitive market

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A Pareto improvement

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In an efficient economy,

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Rebecca and Leah are roommates.Rebecca likes to study with the music playing loudly and Leah needs quiet when she studies.Rebecca would be willing to pay $5 a night to hear music while Leah would be willing to pay $10 a night for the quiet.In this situation

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Jordan wants to sell her wedding gown for $250,but her cousin Jessica offered her $375 for it.If the gown is sold for $375,what is Jordan's producer's surplus

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Of the four major market structures,perfect competition is the best at achieving economic efficiency.

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The welfare loss due to a price floor

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The benefit to some consumer of the last unit of a good consumed is

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Market producer surplus is the area above the market price and below the market supply curve.

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The height of the demand curve at any quantity indicates

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