Question 1

There will be no deadweight loss if the marginal benefit to consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

Accepted Answer

This statement is a restatement of the first fundamental welfare theorem, which states that under certain conditions (including those stated in the statement), perfect competition will lead to allocative efficiency and there will be no deadweight loss.

Question 2

Deadweight loss refers to a loss in revenue resulting from producers having to reduce their selling price to remain competitive.

Accepted Answer

Deadweight loss refers to the loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved, typically due to market inefficiencies caused by externalities, price controls, or taxes. It is not specifically related to producers reducing their selling price.

Question 3

If marginal benefit is greater than marginal cost, output is inefficiently high.

Accepted Answer

If marginal benefit is greater than marginal cost, then the output is efficient because the benefits outweigh the costs. In contrast, if marginal cost is greater than marginal benefit, then the output is inefficient because the costs outweigh the benefits.

Question 4

Figure 4-7 
-Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. Which of the following is true?

Accepted Answer

Both 10,000 and 30,000 are economically inefficient rates of output because at those levels, the marginal cost of production is not equal to the marginal benefit to consumers, resulting in a deadweight loss. The economically efficient output is at 20,000 units, where the marginal cost equals the marginal benefit, and the total surplus (producer and consumer surplus) is maximized.

Question 5

If marginal benefit is less than marginal cost, output is inefficiently high.

Accepted Answer

When marginal benefit is less than marginal cost, it means resources are being used beyond the point where the value of what is produced is greater than the cost of producing it, leading to inefficiently high output.

Question 6

Equilibrium in a competitive market results in the greatest amount of economic surplus from the production of a good or service.

Accepted Answer

In a competitive market, equilibrium occurs where the supply and demand curves intersect, resulting in the optimal allocation of resources and maximum economic surplus. Any deviation from this equilibrium would result in a reduced economic surplus.

Question 7

What is economic surplus? When is economic surplus at a maximum?

Accepted Answer

The answer of What is economic surplus? When is economic...

Question 8

Figure 4-7 
-Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. If the price of iced tea is $1, what changes in the market would result in an economically efficient output?

Accepted Answer

The answer of Figure 4-7 
-Refer to Figure 4-7. The...

Question 9

If the market price is at equilibrium, the deadweight loss is zero.

Accepted Answer

If the market price is at equilibrium, it means that the quantity demanded equals the quantity supplied and there is no inefficient allocation of resources. Therefore, there is no deadweight loss.

Question 10

The sum of consumer surplus and producer surplus is called economic surplus.

Accepted Answer

Economic surplus is the sum of consumer surplus and producer surplus.

Question 11

Economic efficiency is achieved when there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and

Accepted Answer

Economic efficiency is achieved when the total welfare, that is, the sum of consumer and producer surplus is maximized. This occurs when the marginal benefit of the last unit produced equals its marginal cost of production.

Question 12

Figure 4-7 
-Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. If 10,000 units of iced tea are sold,

Accepted Answer

The answer of Figure 4-7 
-Refer to Figure 4-7. The...

Question 13

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

Accepted Answer

Economic efficiency is defined as a state where the marginal benefit (the additional benefit received from consuming one additional unit of a good or service) equals the marginal cost (the cost of producing one additional unit of a good or service). At this equilibrium point, the sum of consumer surplus (the difference between what a consumer is willing to pay and what they actually pay) and producer surplus (the difference between the price a producer receives and the marginal cost of producing a good) is maximized. Therefore, the statement is true.

Question 14

In a competitive market, when there is no deadweight loss,

Accepted Answer

In a competitive market, there is no deadweight loss because the market is efficient and allocates resources to their highest valued use. This efficiency results in the maximization of both consumer and producer surplus. Therefore, the correct answer is D, which states that consumer surplus plus producer surplus is maximized.

Question 15

The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss.

Accepted Answer

Consumer surplus and producer surplus together represent the total benefits to consumers and producers participating in a market, while deadweight loss refers to the loss of economic efficiency when the equilibrium for a good or a service is not achieved. The difference between consumer surplus and producer surplus does not equate to deadweight loss; instead, deadweight loss occurs when there is a deviation from the optimal market equilibrium, often due to external factors like taxes, subsidies, or price controls.

Question 16

If the market price is at equilibrium, the producer surplus is minimized.

Accepted Answer

If the market price is at equilibrium, both the producer and the consumer surplus are maximized, with no surplus being minimized. The producer surplus is the difference between the market price and the producer's willingness to sell, and if the market price is at equilibrium, it means that the producer is willing to sell at that price, resulting in a producer surplus.

Question 17

Deadweight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium.

Accepted Answer

Deadweight loss is a well-established economic concept related to the inefficiencies resulting from market distortions, such as taxes or subsidies, that prevent the market from reaching its competitive equilibrium.

Question 18

Will equilibrium in a market always result in an outcome that is economically efficient? Explain.

Accepted Answer

The answer of Will equilibrium in a market always result...

Question 19

Figure 4-7 
-Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. If 20,000 units of iced tea are sold,

Accepted Answer

In a competitive market, the quantity sold and price are determined by the intersection of the demand and supply curves. At 20,000 units sold, the marginal benefit (MB) of the last unit consumed is equal to the price of $3 per unit. We know that at the market equilibrium, MB equals marginal cost (MC). Therefore, if 20,000 units are sold, MC must also be equal to $3 per unit. Since we assume the market is competitive, there is no deadweight loss, and producer surplus and consumer surplus will have been maximized at the market equilibrium. Thus, the correct answer is D.

Question 20

If the market price is at equilibrium, the deadweight loss is maximized.

Accepted Answer

The deadweight loss is zero at the equilibrium, not maximized. The deadweight loss is only present when the quantity demanded and supplied are not at the equilibrium level.

Quiz 4: Economic Efficiency, Government Price Setting, and Taxes