Question 1

The fundamental rule of policy analysis is&#10;A)adopt a policy if more people benefit from it than don't&#10;B)adopt a policy only if there are no costs&#10;C)adopt a policy if total benefits are greater than total costs&#10;D)adopt a policy if there are any total benefits

Accepted Answer

The fundamental rule of policy analysis is to adopt a policy if the total benefits are greater than the total costs. This means that policymakers should weigh the pros and cons of a potential policy and only implement it if the benefits outweigh the costs. It is not realistic to expect that a policy will have no costs or that it will benefit everyone equally. Therefore, the best approach is to assess the overall impact of the policy and make an informed decision based on the net benefits.

Question 2

Kaldor-Hicks principle states that a policy should be adopted&#10;A)if net benefits are positive and the winners compensate the losers&#10;B)if there are more winners than losers&#10;C)if there are no losers&#10;D)if the winners could in principle compensate the losers

Accepted Answer

Kaldor-Hicks principle states that a policy should be adopted if the winners could in principle compensate the losers. This means that even if some individuals may experience losses from a policy change, overall the benefits should outweigh the costs, and those who benefit from the policy should be able to theoretically compensate those who lose.

Question 3

For a monopoly&#10;A)market demand=firm demand&#10;B)the firm's demand is horizontal&#10;C)the firm's demand=market supply&#10;D)the firm's demand is vertical

Accepted Answer

In a monopoly, the firm is the sole provider of a good or service, meaning it faces the entire market demand. Thus, the firm's demand curve is the same as the market demand curve. Choices B, C, and D are incorrect because a monopolist's demand curve is not horizontal (which would imply perfect elasticity), it does not equal market supply (since supply and demand are distinct concepts), and it is not vertical (which would imply no elasticity).

Question 4

Figure 4-10 shows a market where consumers have imperfect information.D₁ shows the true marginal value and D₂ shows biased marginal value.Which is the deadweight loss due to imperfect information? A)D B)F+G C)C+E D)I

Accepted Answer

The answer of  &#10;Figure 4-10 shows a market where...

Question 5

&#10;In Figure 4-11 the consumer surplus with biased information is&#10;A)A+B&#10;B)B&#10;C)B+C&#10;D)B-D-I

Accepted Answer

The answer of  &#10;In Figure 4-11 the consumer surplus...

Question 6

Use the following equations for the following two questions
Demand: P=120-Q
Marginal private cost: P=30+1/2Q
Marginal social cost: MC_S=30+Q
What is the private equilibrium quantity and price?

A)Q=60, P=60
B)Q=45, P=75
C)Q=12, P=108
D)Q=75, P=45

Accepted Answer

To find the private equilibrium quantity and price, set the demand equation equal to the marginal private cost equation: 120-Q = 30+1/2Q. Solving this equation for Q gives Q=60. Substituting Q=60 into either the demand equation or the marginal private cost equation gives P=60.

Question 7

Use the following equations for the following two questions
Demand: P=120-Q
Marginal private cost: P=30+1/2Q
Marginal social cost: MC_S=30+Q
What is the social equilibrium quantity and price?

A)Q=45, P=75
B)Q=60, P=60
C)Q=12, P=108
D)Q=75, P=45

Accepted Answer

The social equilibrium is where demand equals marginal social cost: 120-Q = 30+Q. Solving gives Q=45, P=75.

Question 8

&#10;In Figure 4-11, the consumer surplus with perfect information would be&#10;A)A+B&#10;B)B&#10;C)B+C&#10;D)B-D-I

Accepted Answer

The answer of  &#10;In Figure 4-11, the consumer surplus...

Question 9

An externality is&#10;A)a cost to a party not involved in the production or consumption of a good&#10;B)a cost to a party involved in the production or consumption of a good&#10;C)a benefit to a party not involved in the production or consumption of a good&#10;D)both a and c

Accepted Answer

An externality can be either a cost or a benefit incurred by a third party who is not involved in the production or consumption of a good, thus both A and C are correct.

Question 10

The profit maximizing quantity for a monopoly is where&#10;A)marginal revenue is 0&#10;B)marginal revenue=marginal cost&#10;C)marginal cost=demand&#10;D)consumer surplus is minimized

Accepted Answer

A monopoly should produce where marginal revenue (MR) equals marginal cost (MC) in order to maximize profits. This is because at any other output level, either MR<MC or MR>MC, which means the monopolist could increase profits by adjusting production to the MR=MC level. At the MR=MC output level, the monopolist charges a price that is higher than its marginal cost, implying that the monopolist is capturing some consumer surplus, but not all of it. Thus, the correct answer is B, where marginal revenue is equal to marginal cost.

Question 11

Pareto optimality is a situation where&#10;A)it is possible to make any person better off without making at least one person worse off&#10;B)every individual has reached their maximum utility&#10;C)each individual can make the optimal choice to maximize their utility&#10;D)every individual remains at their endowment point.&#10;E)any improvement in one person's utility must lead to a reduction in another person's utility.

Accepted Answer

The answer of Pareto optimality is a situation where&#10;A)it is...

Deck 4: Efficiency and Imperfect Markets