Deck 7: Welfare and Efficiency

Question 1

Analysis based on value judgments is called _____ analysis.

A)subjectivity-based
B)valuative
C)positive
D)normative

Answer 1

D

Question 2

Normative analysis is analysis that focuses on:

A)identifying cyclical patterns that are repetitive.
B)what has happened and how the past varies from the present.
C)actual relationships, predictions of what will happen, and what the situation is.
D)what should happen or what ought to be, and it involves value judgments.

Answer 2

D

Question 3

Normative analysis focuses on making decisions based on:

A)values.
B)facts.
C)relationships.
D)predictions.

Answer 3

A

Question 4

Statements about what option should be chosen are _____ statements.

A)positive
B)normative
C)valuation
D)assessment

Question 5

Analysis that describes what would happen if various actions were taken is _____ analysis.

A)partitioning
B)valuation
C)positive
D)normative

Question 6

The type of analysis that describes what is happening and makes predictions based on identified relationships is called _____ analysis.

A)positive
B)normative
C)valuation
D)voluntary

Question 7

Positive analysis is based on identifying _____ and _____.

A)values; judgments
B)facts; relationships
C)beliefs; options
D)priorities; scruples

Question 8

What is positive analysis?

A)It prescribes what should happen, which involves value judgments.
B)It puts the options that are available in order of the priorities held by the decision maker.
C)It is based on beliefs about what is most important.
D)It describes what is happening, explains why it is happening, or predicts what will happen.

Question 9

Which of the following statements is based on normative analysis?

A)We should protect the environment.
B)The temperature in the office room is 22 degrees centigrade.
C)When the burner beneath a pot of water on the stove is turned on, the water will heat up.
D)Mario is 24 years old.

Question 10

Which of the following is a positive economic statement?

A)The government ought to balance its budget and eliminate the deficit.
B)That company with a 50% profit rate made too much profit at the expense of consumers.
C)If the government raises taxes, people will have less income available for purchases and saving.
D)A 10% inflation rate is too high and should be reduced.

Question 11

Which of the following is a normative statement?

A)If John works five extra hours a week at his job, he will have less time to study.
B)Mary is 20 years old.
C)There is a negative or inverse relationship between price and quantity demanded.
D)Unequal incomes are unfair.

Question 12

Which of the following statements is based on positive analysis?

A)If the price of cars rises, fewer cars will be sold.
B)Wages are too low and should be raised.
C)The quality of education ought to be improved.
D)The best option is to raise the productivity expectations.

Question 13

A government leader determines that the 5% unemployment rate is too high. She asks her staff to research policy options to reduce the rate and a few weeks later is given four options. Each option would reduce the rate by a different amount and at a different cost. The leader studies the options and chooses the one she feels is best for the country. In order, what types of analysis were used in this three-stage chain of events?

A)positive; positive; normative
B)positive; normative; positive
C)normative; positive; normative
D)normative, positive; positive

Question 14

Ian's research indicates that at a price of $12, his firm would sell 100,000 units of output. He determines that sales of 100,000 units is too low for his preferences. He then explores his options to increase sales. In order, what types of analysis are used in this three-stage chain of events?

A)positive; positive; normative
B)positive; normative; positive
C)normative; positive; normative
D)normative, positive; positive

Question 15

Which of the following statements reflects positive analysis?

A)Looking at the options, Mario should reduce the number of employees.
B)Mario's staff identifies four options for reducing costs.
C)Mario determines that his costs are too high.
D)Mario believes that his employees are his most important asset.

Question 16

Which of the following claims involves positive analysis?

A)Those with high incomes do not pay a fair share of their income in taxes.
B)Firms should pay workers based on their productivity.
C)Higher prices will cause the purchasing power of income to fall.
D)Wages should be higher so that those who work have a living wage.

Question 17

Which of the following claims reflects normative analysis?

A)The minimum wage should be higher so that workers earn a living wage.
B)Higher prices mean that the purchasing power of income falls.
C)If the minimum wage were higher, companies that employ minimum wage workers would have higher costs.
D)Fewer people will buy cars if their price rises.

Question 18

Economic surplus measures the value of a decision's:

A)total costs minus its net benefits.
B)total benefits minus its total costs.
C)total costs minus its benefits minus gains from exploitation.
D)benefits minus its costs plus externalities.

Question 19

What standard is used to determine the most efficient economic outcome?

A)lowest cost
B)highest benefit
C)largest economic surplus
D)smallest inequality

Question 20

The most efficient outcome in a set of options is the one with the:

A)largest economic surplus.
B)lowest total costs.
C)lowest total benefit.
D)smallest positive difference between benefits minus total cost.

Question 21

From an economic perspective, the outcome that yields the greatest economic surplus is the:

A)least cost outcome.
B)outcome with the highest benefit.
C)outcome of least benefit-cost gap.
D)most efficient outcome.

Question 22

The criterion of economic efficiency is that the _____ economic surplus that is generated, the _____ the outcome.

A)wider; deeper
B)narrower; better
C)more; better
D)more; worse

Question 23

If raising taxes through Policy A yields more economic surplus than raising taxes through Policy B, then:

A) Policy A is more efficient and equitable than Policy B.
B) Policy A is more efficient than Policy B but may not be more equitable than Policy B.
C) Policy A is more equitable than Policy B but may not be more efficient than Policy B.
D) Policy A is less efficient and equitable than Policy B.

Question 24

Which of the following statements is TRUE regarding economic efficiency?

A)Efficient outcomes will make everyone better off.
B)Efficient outcomes are also equitable.
C)Efficient outcomes rarely make everyone happy.
D)Efficiency is associated with minimizing economic surplus.

Question 25

Which of the following statements is FALSE regarding economic efficiency?

A)Efficient outcomes will not make everyone happy.
B)If it is efficient, it is also equitable.
C)Efficient outcomes have the possibility of making everyone better off.
D)The most efficient outcome is the one with the greatest economic surplus.

Question 26

How are people affected when economic efficiency increases?

A)Everyone will be better off and happier.
B)Overall gains exceed any change in costs, but some people may be worse off.
C)Dissatisfaction is a risk because the higher output will be spread across a larger number of people.
D)Efficiency squeezes people, so they end up worse off.

Question 27

When economic efficiency rises, the _____, and the benefits _____ be spread across all the people.

A)total gains may or may not exceed costs; will
B)total gains may or may not exceed costs; may or may not
C)total gains exceed the costs; will
D)total gains exceed the costs; may or may not

Question 28

The concept of equity focuses on:

A)efficiency.
B)fairness.
C)the level of economic surplus.
D)profit.

Question 29

Which of the following statements is FALSE regarding economic efficiency?

A)Everyone may not gain from a more efficient outcome.
B)It is possible for everyone to gain from a more efficient outcome.
C)Equity is a separate issue from efficiency.
D)Efficiency means minimizing surplus.

Question 30

A key difference between equity and efficiency is that equity deals with _____ and efficiency focuses on _____.

A)equality; minimizing costs
B)minimizing costs; equality
C)maximizing welfare; fairness
D)fairness; maximizing economic surplus

Question 31

Efficient outcomes:

A)will make everyone better off.
B)are equitable outcomes.
C)may not make everyone happy.
D)minimize wasteful economic surplus.

Question 32

Which of the following alternatives would yield the greatest economic surplus?

A)the most wasteful option
B)the most economically equitable option
C)the one that will make everyone happy
D)the most economically efficient option

Question 33

Which of the following statements is TRUE?

A)Economically efficient outcomes hold the possibility of making everyone better off.
B)Economically efficient outcomes will make everyone better off.
C)Economically efficient outcomes will increase equity.
D)Economically efficient outcomes will always reduce equity.

Question 34

Marginal benefit minus price equals:

A)economic efficiency.
B)economic equity.
C)consumer surplus.
D)producer surplus.

Question 35

Consumer surplus equals:

A)total benefit minus total expenditure.
B)marginal benefit minus price.
C)marginal revenue minus price.
D)total revenue minus consumer expenditure.

Question 36

People gain consumer surplus when they purchase an item:

A)at a price below the value of the benefit they receive from the item.
B)at an equitable price.
C)at a price above marginal revenue but lower than the cost of production.
D)with a marginal benefit below the price of the item.

Question 37

Pule purchases four bottles of bathroom cleaner for $3 each. The maximum prices she would have been willing to pay for each bottle are $6 for the first bottle, $5 for the second bottle, $4 for the third bottle, and $3 for the fourth bottle. The marginal cost of producing the bottles is $2.50. What is Pule's consumer surplus on the fourth bottle of bathroom cleaner?

A)$6
B)$1
C)$.50
D)$0

Question 38

Chin purchases five protein bars at a price of $3 each. The marginal benefit he receives from each bar is $5 for the first bar, $4.50 for the second bar, $4 for the third bar, $3.50 for the fourth bar, and $3 for the fifth bar. The marginal cost of producing the bars is $2 each. What is Chin's consumer surplus on the fifth bar?

A)$0
B)$.50
C)$1
D)$2

Question 39

Chin purchases five protein bars at a price of $3 each. The marginal benefit he receives from each bar is $5 for the first bar, $4.50 for the second bar, $4 for the third bar, $3.50 for the fourth bar, and $3 for the fifth bar. The marginal cost of producing the bars is $2.50 each. What is Chin's total consumer surplus from the five bars that he purchased?

A)$0
B)$.50
C)$2.50
D)$5

Question 40

The highest price that Dara would be willing to pay for a particular vase is:

A)her consumer surplus on the vase.
B)the marginal benefit she would receive from the vase.
C)the most economically efficient price for the vase.
D)the most equitable price for the vase.

Question 41

The highest price that Duke would be willing to pay for a particular video game is:

A)the most equitable price for the game.
B)the most economically efficient price for the game.
C)the marginal benefit he would receive from the game.
D)his consumer surplus on the game.

Question 42

In a market graph, consumer surplus is the area:

A)between the demand curve and the supply curve.
B)above the price.
C)below the demand curve.
D)above the price and below the demand curve.

Question 43

(Figure: Demand Curve) Use the graph of a demand curve for balsamic vinegar to answer the question.
What is the total consumer surplus when three bottles of vinegar are sold at a price of $3 each?

A)$21
B)$16.50
C)$10.50
D)$0

Question 44

(Figure: Demand Curve 2) Use the graph of a demand curve for monthly music streaming subscriptions to answer the following question. The vertical axis is the monthly price of a subscription and the horizontal axis is millions of monthly subscriptions for the market. What is the total consumer surplus if three million subscriptions are sold at a price of $4 each?

A)$8,000,000
B)$12,000,000
C)$15,000,000
D)$24,000,000

Question 45

(Figure: Demand Curve 3) Use the graph of a demand curve for jars of laundry detergent to answer the question.
What is the total consumer surplus if 50 jars are sold at a price of $6?

A)$14
B)$350
C)$700
D)$750

Question 46

Carlos buys six new plants for his garden. If he has purchased according to the rational rule, his consumer surplus on the sixth plant is equal to:

A)total benefit minus price.
B)price plus marginal benefit.
C)price minus marginal cost.
D)zero.

Question 47

Pule is purchasing four bottles of bathroom cleaner for $3 each. The maximum prices she would have been willing to pay for each bottle are $6 for the first bottle, $5 for the second bottle, $4 for the third bottle, and $3 for the fourth bottle. The marginal revenue for each bottle is $2.50. What is Pule's total consumer surplus from purchasing the four bottles of bathroom cleaner?

A)$6
B)$2
C)$.50
D)$0

Question 48

When Chandra is hiking on a hot day without any water, she is willing to pay up to $6 for a bottle of water. When she does her grocery shopping, she is not willing to pay more than $3.60 for a case of 36 bottles of water. If Chandra buys a case of 36 bottles for $3.60, or $.10 per bottle, her consumer surplus is _____ on the first bottle and is _____ on the 36th bottle.

A)$106.20; $.10
B)$212.40; $106.20
C)$6; $.10
D)$5.90; $0

Question 49

The producer surplus on a unit sold equals:

A)(price minus marginal cost) multiplied by (1/2 quantity sold).
B)price minus marginal cost.
C)marginal benefit minus price.
D)1/2 (price times quantity minus marginal cost).

Question 50

Price minus marginal cost equals the:

A)producer surplus of a unit sold.
B)consumer surplus of a unit purchased.
C)marginal benefit of a unit.
D)economic efficiency of total sales.

Question 51

Portia produces and sells headbands. Her marginal cost for one headband is $6, and her average cost is $4. She gains producer surplus only when she sells headbands at a price above:

A)$4.
B)$6.
C)$5.
D)$10.

Question 52

Joachim produces and sells baskets. His marginal cost for one basket is $10, and his average cost is $7. He gains producer surplus every time that he sells a basket at a price:

A)below $10.
B)below $7.
C)above $10.
D)above $7.

Question 53

Jorge sells a hammock for $85. His marginal cost for one hammock is $40, and his average cost is $50. What is Jorge's producer surplus on the sale of one hammock?

A)-$5
B)$45
C)$35
D)$40

Question 54

The area on a market graph that lies below the price and above the supply curve is equal to:

A)producer surplus.
B)consumer surplus.
C)economic equity.
D)economic efficiency.

Question 55

If you are a seller making decisions according to the rational rule, you will:

A)earn some producer surplus on every unit sold.
B)earn producer surplus on all except the last unit sold.
C)ensure that all consumers earn consumer surplus.
D)ensure that consumers lose maximum surplus in order to lower producer surplus.

Question 56

When price equals marginal cost for the last unit sold, a seller will:

A)earn consumer surplus on every unit sold.
B)earn consumer surplus.
C)earn producer surplus on all except the last unit sold.
D)not earn any producer surplus overall.

Question 57

(Figure: Supply Curve) The graph shows the supply curve for jars of laundry detergent.
If 18 units are sold at a price of $20, what is the producer surplus on the last jar sold?

A)$0
B)$15
C)$135
D)$270

Question 58

(Figure: Supply Curve) Use the graph of a supply curve for jugs of laundry detergent to answer the question.
If 18 jugs are sold at a price of $20, what is the total producer surplus?

A)$0
B)$15
C)$135
D)$270

Question 59

(Figure: Supply Curve 2) Use the supply curve for bottles of dish soap in the graph to answer the question.
If 15 bottles are sold at a price of $8, what is the producer surplus on the last unit sold?

A)$0
B)$6
C)$45
D)$90

Question 60

(Figure: Supply Curve 2) Use the supply curve for bottles of dish soap in the graph to answer the question.
If 15 bottles are sold at a price of $8, what is the total producer surplus?

A)$0
B)$6
C)$45
D)$90

Question 61

When trade is voluntary, who gains from it?

A)Either the seller or the buyer gains but not both.
B)Both the seller and the buyer gain, although not necessarily equally.
C)Both the seller and the buyer must gain equal amounts.
D)Neither the seller nor the buyer gains, but society in general gains.

Question 62

Voluntary exchange occurs when:

A)either the buyer or the seller will gain from the trade with no loss to the other.
B)either the buyer or the seller will gain from the trade at the expense of the other.
C)society in general rather than the participants will gain from the trade.
D)both the buyer and the seller will gain from the trade.

Question 63

Which principle helps buyers and sellers make decisions about whether to trade?

A)the cost-benefit principle
B)the equity principle
C)the law of diminishing returns
D)the law of surplus

Question 64

When trade is voluntary, neither the buyer nor the seller will:

A)gain from the trade.
B)generate surplus.
C)be worse off after the trade.
D)need to make any payments.

Question 65

Which of the following statements about economic surplus is FALSE?

A)Economic surplus equals marginal benefit minus marginal cost.
B)Economic surplus is the area below the supply curve, above the demand curve, and to the right of quantity sold.
C)Economic surplus is the area between the supply curve and the demand curve to the left of quantity sold.
D)Economic surplus is consumer surplus plus producer surplus.

Question 66

The marginal benefit minus the marginal cost equals:

A)the efficiency balance.
B)the consumer surplus minus the producer surplus.
C)the consumer surplus.
D)the economic surplus.

Question 67

Two ways to calculate economic surplus are _____ and _____.

A)consumer surplus minus producer surplus; marginal benefit plus marginal cost
B)marginal benefit minus marginal cost; consumer surplus plus producer surplus
C)marginal benefit minus price; marginal cost minus price
D)price minus marginal benefit; price minus marginal cost

Question 68

Bae is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70. How large is the economic surplus associated with her purchase of the boots?

A)$40
B)$50
C)$90
D)$120

Question 69

Bae is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70. Which of the following is TRUE regarding the economic surplus associated with her purchase of the boots?

A)Consumer surplus is $40, and producer surplus is $50.
B)Consumer surplus is $50, and producer surplus is $40.
C)Consumer surplus is $90, and producer surplus is $120.
D)Consumer surplus and producer surplus are the same.

Question 70

(Figure: Market) Use the bath towel market graph to answer the question.
The bath towel market is at equilibrium. How large is the economic surplus?

A)$60
B)$75
C)$120
D)$150

Question 71

(Figure: Market 2) Use the market graph for pairs of socks to answer the question.
The sock market is at equilibrium. How much economic surplus is being generated in the sock market?

A)$45
B)$60
C)$90
D)$150

Question 72

On a market graph, economic surplus can be identified as the area that is to the:

A)right of the quantity, above the demand curve, and below the supply curve.
B)left of the quantity, above the demand curve, and below the supply curve.
C)right of the quantity and between the demand and supply curves.
D)left of the quantity and between the demand and supply curves.

Question 73

The price of a carton of eggs is $2, and 100 cartons are sold. The consumer surplus is $80, and total surplus equals $150. What is the producer surplus?

A)$200
B)$120
C)$70
D)$50

Question 74

In modern society, most goods are allocated by:

A)governments.
B)banks.
C)ethnicities.
D)markets.

Question 75

Producing a given quantity of output at the lowest possible cost and lowest marginal cost is called:

A)minimizing production.
B)marginal minimization.
C)efficient production.
D)efficiency surplus.

Question 76

Efficient production occurs when:

A)the marginal cost curve is downward sloping.
B)a given level of output is produced at the lowest possible cost.
C)output is minimized and cost is falling.
D)a given level of cost is able to produce a higher output level than before.

Question 77

Efficient production decisions occur when _____ forces lead firms to produce the output level where ____.

A)market; average cost is at a minimum
B)market; price equals marginal cost
C)cost; average cost is at a minimum
D)cost; price equals marginal benefit

Question 78

When market forces lead to efficient production, each producer is _____, and the product is produced _____.

A)acting in self-interest; at the lowest possible marginal cost
B)coordinating with others; at a cost equal to price
C)alternating production; at minimum cost
D)maximizing production; at maximum marginal cost

Question 79

Markets distribute production across companies in a way that:

A)maximizes the number of firms.
B)minimizes production.
C)minimizes costs.
D)maximizes production.

Question 80

When goods are allocated in a way that creates the largest economic surplus:

A)output is evenly allocated across firms.
B)production is minimized.
C)efficient allocation has been achieved.
D)the marginal benefit of the last unit bought is the maximum marginal benefit.