Question 1

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 figure...

Question 2

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

Accepted Answer

Producer surplus is maximized at equilibrium, not minimized. This is because at equilibrium, the producer is able to sell all of their goods at a price that allows them to cover their production costs and make a profit. Any deviation from equilibrium would result in either a shortage or a surplus, which would decrease the producer's profits.

Question 3

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

Accepted Answer

Deadweight loss occurs when the market is not at equilibrium. At equilibrium, there is no deadweight loss as the quantity demanded equals the quantity supplied at the market price.

Question 4

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 benefits gained from producing and consuming goods and services are maximized. Consumer surplus is the difference between the maximum price consumers are willing to pay and the actual price they pay, while producer surplus is the difference between the actual price producers receive and the minimum price they are willing to accept. Maximizing consumer surplus and producer surplus together will lead to the most efficient use of resources and the highest level of economic welfare. Therefore, choice B is the correct answer.

Question 5

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 true. When the marginal benefit to consumers is equal to the marginal cost of production, the market is in equilibrium and there is no deadweight loss. At this point, both consumer surplus and producer surplus are maximized.

Question 6

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

Accepted Answer

Deadweight loss occurs when the market is not in competitive equilibrium, leading to a reduction in economic surplus.

Question 7

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 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 10,000 units of iced tea are sold

Accepted Answer

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

Question 9

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 or is not achievable. It is not solely related to a loss in revenue resulting from producers reducing their selling price.

Question 10

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

Accepted Answer

When the market is at equilibrium, it means that the quantity demanded equals the quantity supplied and there is no excess supply or demand in the market. At this point, the market operates efficiently, and there is no loss of surplus from buyers or sellers, resulting in no deadweight loss.

Question 11

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 12

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

Accepted Answer

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

Question 13

In a competitive market when there is no deadweight loss

Accepted Answer

In a competitive market, the forces of supply and demand operate freely, resulting in an equilibrium price and quantity that maximizes total surplus, which is the sum of consumer surplus and producer surplus. Therefore, there is no deadweight loss, and consumer surplus and producer surplus are both maximized.

Question 14

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

Accepted Answer

This statement is true. Economic surplus is also sometimes referred to as total surplus.

Question 15

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

Accepted Answer

If marginal benefit is greater than marginal cost, it means that there is still room for additional output to be produced before reaching the point of efficiency. Therefore, output cannot be inefficiently high as the production is still increasing.

Question 16

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 17

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, firms produce up to the point where marginal cost equals marginal revenue, which is also equal to the marginal benefit. Therefore, at the equilibrium point where 20,000 units of iced tea are sold, D is the correct answer. A, B, and C are incorrect because deadweight loss is created when the market is not at equilibrium (i.e., when there is not an efficient allocation of resources), and there may be a difference between producer surplus and consumer surplus. The marginal benefit of each unit of iced tea may not be equal to $3 unless the demand curve is a straight line.

Question 18

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, the forces of supply and demand determine the equilibrium price and quantity. At the equilibrium price, the amount of economic surplus (consumer surplus plus producer surplus) is maximized. This is because buyers are willing to pay the equilibrium price which is lower than their maximum willingness to pay, while sellers are willing to produce and sell at the equilibrium price which is higher than their minimum acceptable price. Therefore, both buyers and sellers gain surplus, resulting in the greatest amount of total economic surplus.

Question 19

Economic efficiency is a market outcome in which 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 is the definition of economic efficiency, where the benefits to consumers and the costs of production are balanced and the surplus for both parties is maximized.

Question 20

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 because they do not represent the output where marginal cost equals marginal revenue. The economically efficient output is where MC=MR, which is at 20,000 units of iced tea. At this output level, both consumers and producers will be better off and there will be no deadweight loss.

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

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?