Deck 4: Efficiency in Resource Allocation: How Much Do We Have How Much Do We Want

Question 1

If marginal social cost is greater than marginal social benefit, allocative efficiency can be improved by increasing production.

Answer 1

False

Question 2

No external benefits are provided by the public goods.

Answer 2

False

Question 3

Output is being produced efficiently if marginal social benefit is equal to marginal social cost.

Answer 3

True

Question 4

The monopolist will set the price at the level where its profits are maximized.

Question 5

Government rent controls promote efficiency and equity.

Question 6

The total cost of production is measured as the:

A) the area under the supply curve.
B) the area under the demand curve.
C) the net area under the demand and supply curves.
D) the intersection of the demand and supply curves.

Question 7

The cost to producers when they produce an additional unit of a good is measured by:

A) the height of the supply curve.
B) the height of the demand curve.
C) the height of the marginal revenue curve.
D) the intersection of the demand and supply curves.

Question 8

The benefit consumers receive when they consume an additional unit of a good is measured by:

A) the height of the supply curve.
B) the height of the demand curve.
C) the height of the marginal revenue curve.
D) the intersection of the demand and supply curves.

Question 9

Pollution is an example of external costs.

Question 10

Government subsidized medical care results in inefficiently high levels of demand for medical care.

Question 11

The area under the demand curve represents the benefits producers receive when they sell some quantity of a product.

Question 12

Allocative efficiency exists when net benefit is as large as possible.

Question 13

A lighthouse is an example of a public good.

Question 14

Minimum wage laws give rise to unemployment.

Question 15

Marginal social cost

Question 16

The supply curve represents the marginal cost of producing various quantities of a good or service.

Question 17

Income taxes result in allocative inefficiency because most people would work the same number of hours per year regardless of their hourly wage.

Question 18

A competitive industry usually produces the efficient level of output.

Question 19

In determining the efficient amount of a good or service, it is only required that the benefits provided by a good or service be equal to or greater than the costs of providing it.

Question 20

A monopoly is a market in which only one seller exists.

Question 21

Use the following diagram to answer the following questions.

Refer to Diagram 4-1. The efficient level of compact discs is given by quantity:

A) Q₁.
B) Q₂.
C) Q₃.
D) Q₁ - Q₃.

Question 22

Currently 75 pairs of sandals are being exchanged in the market. The marginal social benefit of the last unit is $15 while the marginal cost of this unit is $30. We know that with regard to efficiency:

A) efficiency is occurring.
B) production should be decreased.
C) production should be expanded.
D) there should be no change in production levels.

Question 23

Use the following diagram to answer the following questions.

Refer to Diagram 4-2. In the above diagram, counting the external benefits increases total costs by area:

A) Q₁BCQ₂
B) Q₁ACQ₂
C) ABC
D) P₁AQ₁

Question 24

Use the following diagram to answer the following questions.

Refer to Diagram 4-1. If a monopolist produces at Q₁, the quantity and price that maximizes its profits, the loss in total net benefits can be calculated as the value of the area;

A) GCF.
B) OAFJ.
C) FEH.
D) ABF.

Question 25

Use the following diagram to answer the following questions.

Refer to Diagram 4-2. In the above diagram the competitive level of output is:

A) Q₁
B) Q₂
C) P₃
D) C

Question 26

To determine the efficient amount of a good or service.

A) The benefits provided by a good or service must be equal to or less than the costs of providing it.
B) The difference between the benefits and costs must be as small as possible, or maximized.
C) The marginal benefit of a good or service must be greater than the marginal cost.
D) The benefits provided by a good or service must be equal to or greater than the costs of providing it, and the difference between the benefits and costs must be maximized.

Question 27

Suppose a market is currently producing at a point where marginal social benefit exceeds marginal cost. For efficiency, production should:

A) be increased.
B) be decreased.
C) not be changed. The current level of production is generating positive net benefits for society.
D) be temporarily increased in order for firms to create more jobs and then decreased to the original level before cost increases set in.

Question 28

Use the following diagram to answer the following questions.

Refer to Diagram 4-1. If production of compact discs is currently represented by quantity Q₁. The total cost of this production is given by area:

A) 0AFJ.
B) 0BFJ.
C) 0AGI.
D) 0BCI.

Question 29

Use the following information to answer the following questions.

Refer to Bicycles. The marginal benefit of the fourth bicycle is:

A) $375.
B) $325.
C) $50.
D) $25.

Question 30

Use the following diagram to answer the following questions.

Refer to Diagram 4-1. If individuals are currently consuming Q₂ units of compact discs. The total benefit of this consumption is given by area:

A) 0BFJ.
B) ABF.
C) 0AFJ.
D) 0BCI.

Question 31

Which of the following is an example of market failure?

A) Monopoly.
B) Rent controls.
C) Agricultural price support.
D) Taxes.

Question 32

Which of the following is NOT an example of market failure?

A) Monopoly.
B) Rent controls.
C) External benefits.
D) External costs.

Question 33

Which of the following is NOT an example of government failure?

A) Public goods.
B) Rent controls.
C) Agricultural price support.
D) Taxes.

Question 34

Use the following diagram to answer the following questions.

Refer to Diagram 4-1. Total net benefits at the efficient level of production is given by area:

A) GCF.
B) OAFJ.
C) FEH.
D) ABF.

Question 35

The total benefits derived from consumption is measured as the:

A) the area under the supply curve.
B) the area under the demand curve.
C) the net area under the demand and supply curves.
D) the intersection of the demand and supply curves.

Question 36

Suppose that at current production levels, marginal social benefit is $75 while marginal cost is $80. We know that:

A) the efficient level of output is being produced.
B) the level of output should be decreased in order to improve efficiency.
C) the level of output should be increased in order to improve efficiency.
D) output should be redistributed so those with lower income will be able to consume more.

Question 37

Which of the following is an example of government failure?

A) Monopoly.
B) Rent controls.
C) External benefits.
D) External costs.

Question 38

Use the following diagram to answer the following questions.

Refer to Diagram 4-1. If production of compact discs is currently represented by quantity Q₂. The total cost of this production is given by area:

A) 0BFJ.
B) ABF.
C) 0AFJ.
D) 0BCI.

Question 39

Use the following information to answer the following questions.

Refer to Bicycles. The total benefit of 3 bicycles is:

A) $375.
B) $350.
C) $300.
D) $225.

Question 40

Use the following diagram to answer the following questions.

Refer to Diagram 4-2. In the above diagram, the efficient price and quantity will be

A) Q₁ and P₁
B) Q₁ and P₂
C) Q₂ and P₃
D) Q₂ and P₂

Question 41

Moneymakers Incorporated currently produces 100 units of output per day. At this level of production, the marginal benefit of production is $25 while the marginal cost is $20. Moneymakers is obviously producing at the efficient level because society is getting a net benefit. Is this statement true or False? Defend your answer.

Question 42

Use the following diagram to answer the following questions.

Use the following diagram. The total net efficiency loss from government rent controls is given by area:

A) CFG.
B) ABF.
C) FEH.
D) CFE.

Question 43

Use the following diagram to answer the following questions.

Refer to Wages. The total net efficiency loss from government imposing a minimum wage is given by area:

A) CFG.
B) ABF.
C) FEH.
D) CFE.

Question 44

Use the following diagram to answer the following questions.

Refer to Wages. Employment loss from government imposing a minimum wage is given by:

A) N₁.
B) N₂.
C) N₃-N₁.
D) N₂-N₁.

Question 45

Use the following diagram to answer the following questions.

Refer to Diagram 4-3. In the above diagram, if the external costs are internalized (accounted for), the efficient price and quantity will be

A) Q₁ and P₁
B) Q₁ and P₂
C) Q₂ and P₁
D) Q₂ and P₂

Question 46

Use the following diagram to answer the following questions.

Refer to Diagram 4-3. In the above diagram the competitive level of output is:

A) Q₁
B) Q₂
C) P₃
D) C

Question 47

Use the following diagram to find the loss in net benefits associated with pollution.

Question 48

Use the following diagram to answer the following questions.

Refer to Diagram 4-3. In the above diagram the efficient level of output is:

A) Q₁
B) Q₂
C) P₃
D) C

Question 49

Use the following diagram to answer the following questions.

Use the following diagram. The total net efficiency loss from government agricultural price supports is given by area:

A) CFG.
B) ABF.
C) FEH.
D) CFE.