Deck 6: Markets, Maximizers, and Efficiency

Question 1

According to the marginal decision rule, if marginal benefit:

A) exceeds marginal cost, an activity should be reduced.
B) is less than marginal cost, an activity should be reduced.
C) is equal to marginal cost, an activity should be reduced.
D) exceeds marginal cost, net benefit is maximized.

Answer 1

is less than marginal cost, an activity should be reduced.

Question 2

Economists assume that consumers seek to maximize:

A) usefulness.
B) profit.
C) utility.
D) time.

Answer 2

utility.

Question 3

The amount by which an additional unit of an activity increases total cost is:

A) net benefit.
B) marginal benefit.
C) negative benefit.
D) marginal cost.

Answer 3

marginal cost.

Question 4

To say that individuals maximize is illustrated by saying:

A) they pick some objective and then seek to make the value of that objective as great as they can.
B) a sprinter wants to be as fast as possible.
C) a businessperson wants to earn the highest level of profit attainable.
D) all of the above.

Question 5

Profit is the difference between _______ and _______ .

A) total sales; total revenues
B) total profits; total costs
C) total revenues; total costs
D) marginal costs; marginal revenues

Question 6

According to the marginal decision rule, if marginal benefit:

A) exceeds marginal cost, an activity should be reduced.
B) is less than marginal cost, an activity should be increased.
C) is equal to marginal cost, net benefit is maximized.
D) exceeds marginal cost, net benefit is maximized.

Question 7

A boundary that limits the range of choices an individual or a firm can make is:

A) a constraint.
B) utility.
C) a maximum.
D) a minimum.

Question 8

Profit is the:

A) difference between a firm's total revenue and its total economic cost.
B) satisfaction consumers derive from their consumption of goods and services.
C) highest price that buyers are willing to pay for a given quantity of a good.
D) lowest price that sellers are willing to accept for a given quantity of a good.

Question 9

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $5 to spend on both goods, the maximum quantity of peanuts that you can purchase is _______ bags.

A) 5
B) 10
C) 20
D) 40

Question 10

The difference between a firm's total revenue and its total economic cost is:

A) production.
B) utility.
C) efficiency.
D) profit.

Question 11

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $5 to spend on both goods, the maximum quantity of popcorn that you can purchase is _______ boxes.

A) 5
B) 10
C) 20
D) 40

Question 12

The amount by which an additional unit of an activity increases total benefit is:

A) net benefit.
B) marginal benefit.
C) marginal cost.
D) utility.

Question 13

The total benefit of an activity minus its total cost is:

A) net benefit.
B) marginal benefit.
C) marginal cost.
D) utility.

Question 14

Economists assume that firms seek to maximize:

A) sales.
B) profits.
C) costs.
D) all of the above.

Question 15

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $10 to spend on both goods, the maximum quantity of peanuts that you can purchase is _______ bags.

A) 5
B) 10
C) 20
D) 40

Question 16

The satisfaction consumers derive from their consumption of goods and services is:

A) utility.
B) production.
C) efficiency.
D) profit.

Question 17

Utility is the:

A) difference between a firm's total revenue and its total economic cost.
B) good not adequately provided by a free market and usually provided by the government.
C) satisfaction consumers derive from their consumption of goods and services.
D) lowest price that buyers are willing to pay for a given quantity of a good.

Question 18

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $10 to spend on both goods, the maximum quantity of popcorn that you can purchase is _______ boxes.

A) 5
B) 10
C) 20
D) 40

Question 19

According to the marginal decision rule, if marginal benefit:

A) exceeds marginal cost, an activity should be increased.
B) is less than marginal cost, an activity should be increased.
C) is equal to marginal cost, an activity should be increased.
D) exceeds marginal cost, net benefit is maximized.

Question 20

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $10 to spend and decide to purchase 8 bags of peanuts, the maximum quantity of popcorn that you can purchase is _______ boxes.

A) 4
B) 8
C) 10
D) 16

Question 21

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $5 to spend and decide to purchase 8 boxes of popcorn, the maximum quantity of peanuts that you can purchase is _______ bags.

A) 4
B) 8
C) 10
D) 12

Question 22

Use the following to answer question(s): Marginal Benefits and Marginal Costs

(Exhibit: Marginal Benefits and Marginal Costs) In the exhibit, more time spent studying economics adds points to economics scores but subtracts points from accounting scores.When the student studies economics for 4 hours, the marginal benefit is _______ ; when the student studies for 6 hours, the marginal benefit is _______.

A) 20; 10
B) 30; 10
C) 20; 0
D) 20; 30

Question 23

The costs economists use in the concept of economic profit are:

A) accounting costs.
B) strictly dollar costs, not opportunity costs.
C) opportunity costs, or the value of the best opportunity forgone.
D) both A and C.

Question 24

Activities of consumers and firms:

A) have benefits but not costs.
B) have costs but not benefits.
C) have both costs and benefits.
D) are too complex to be analyzed with economic theory.

Question 25

Use the following to answer question(s): Marginal Benefits and Marginal Costs

(Exhibit: Marginal Benefits and Marginal Costs) The marginal benefit of studying economics when the student is at 4 hours is _______ points and the marginal cost is ________ points.

A) 30; 30
B) 20; 10
C) 20; 20
D) 30; 10

Question 26

Suppose that the expected exam scores from studying economics for 0, 1, 2, or 3 hours are 65, 80, 90, and 95 points, respectively, while the expected exam scores for studying 0, 1, 2, or 3 hours of accounting are 50, 65, 70, and 70 points, respectively.With 3 total hours of study time, your combined scores can be maximized by spending _______ hours studying accounting.

A) 0
B) 1
C) 2
D) 3

Question 27

The _______ is the amount by which an additional unit of an activity increases its total benefit.

A) average benefit
B) net benefit
C) marginal benefit
D) top benefit

Question 28

Use the following to answer question(s): Marginal Benefits and Marginal Costs

(Exhibit: Marginal Benefits and Marginal Costs) In the exhibit, more time spent studying economics adds points to economics scores but subtracts points from accounting scores.The student in this example would maximize net benefits by studying economics for _______ hours.

A) 0
B) 2
C) 4
D) 6

Question 29

Use the following to answer question(s): Marginal Benefits and Marginal Costs

(Exhibit: Marginal Benefits and Marginal Costs) In the exhibit, more time spent studying economics adds points to economics scores but subtracts points from accounting scores.At 4 hours of study the student will "maximize" because:

A) MB = MC.
B) MB = 20 and MC = 20.
C) the difference between total benefits and total costs is maximized.
D) of all of the above.

Question 30

Use the following to answer question(s): Marginal Benefits and Marginal Costs

(Exhibit: Marginal Benefits and Marginal Costs) In the exhibit, more time spent studying economics adds points to economics scores but subtracts points from accounting scores.The marginal benefit of studying economics when the student is at 2 hours is _______ points and the marginal cost is _______ points.

A) 40; 0
B) 30; 10
C) 20; 20
D) 10; 30

Question 31

In economics the assumption is made that consumers and firms will make choices that maximize(s) the _______ of each activity.

A) net benefit
B) total benefit
C) sum of total benefit and total cost
D) product of total benefit and total cost

Question 32

In order to maximize net benefit, consumers and firms evaluate each activity at the:

A) average.
B) top.
C) margin.
D) end.

Question 33

To determine the quantity of any activity that will maximize net benefit, economists employ the ________ rule.

A) average decision
B) total decision
C) net decision
D) marginal decision

Question 34

Maximization of the net benefit of an activity occurs when:

A) MB = MC.
B) MB > MC.
C) MB < MC.
D) MB approaches MC.

Question 35

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $5 to spend and decide to purchase 6 boxes of popcorn, the maximum quantity of peanuts that you can purchase is _______ bags.

A) 4
B) 8
C) 10
D) 12

Question 36

Net benefit is maximized when marginal benefit _______ marginal cost.

A) exceeds
B) is less than
C) is equal to
D) approaches

Question 37

Suppose that the expected exam scores from studying economics for 0, 1, 2, or 3 hours are 65, 80, 90, and 95 points, respectively, while the expected exam scores for studying 0, 1, 2, or 3 hours of accounting are 50, 65, 70, and 70 points, respectively.With 3 total hours of study time, your combined scores can be maximized by spending _______ hours studying economics.

A) 1
B) 2
C) 3
D) 4

Question 38

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $10 to spend and decide to purchase 20 bags of peanuts, the maximum quantity of popcorn that you can purchase is _______ boxes.

A) 8
B) 10
C) 12
D) 16

Question 39

The _______ is the amount by which an additional unit of activity increases its cost.

A) marginal cost
B) average cost
C) average profit
D) marginal benefit

Question 40

Maximizing choices must be made within parameters imposed by:

A) a constraint.
B) a boundary.
C) a limit.
D) all of the above.

Question 41

If the marginal benefit received from a good is less than the marginal cost of production, then:

A) society's well-being can be improved if production increases.
B) society's well-being cannot be improved by changing production.
C) the market is producing too much of the good.
D) the market is producing too little of the good.

Question 42

Use the following for questions 55-59.
Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit

(Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit) In Panel (b) at activity level E, _______ , and in Panel (c) at activity level J, _______ .

A) MB < MC; MB < MC
B) MB > MC; MB < MC
C) net benefit is ABGF; net benefit is ABC.
D) there is no deadweight loss; deadweight loss is CHI

Question 43

If the marginal benefit received from a good is greater than the marginal cost of production, then:

A) society's well-being can be improved if production increases.
B) society's well-being can be improved if production decreases.
C) society's well-being cannot be improved by changing production.
D) the market is producing too much of the good.

Question 44

Whenever MB = MC, the decisionmaker should do _______ of the activity.

A) less
B) the same amount
C) more
D) none

Question 45

Suppose that the expected exam scores from studying economics for 0, 1, 2, or 3 hours are 65, 80, 90, and 95 points, respectively, while the expected exam scores for studying 0, 1, 2, or 3 hours of accounting are 50, 65, 70, and 70 points, respectively.With 3 total hours of study time, the marginal benefit in terms of your economics score of spending the first hour studying economics is _______ points.

A) 5
B) 10
C) 15
D) 20

Question 46

If the marginal benefit received from a good is equal to the marginal cost of production, then:

A) society's well-being cannot be improved by changing production.
B) society's well-being can be improved if production decreases.
C) society's well-being can be improved if production increases.
D) the market is producing too much of the good.

Question 47

Use the following for questions 55-59.
Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit

(Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit) In Panel (a), the maximum net benefit is shown:

A) where the level of activity is at D.
B) by the intersection of MB and MC.
C) by the area of triangle ABC.
D) in all of the above cases.

Question 48

If the marginal benefit received from a good is greater than the marginal cost of production, then:

A) society's well-being can be improved if production decreases.
B) society's well-being cannot be improved by changing production.
C) the market is producing too much of the good.
D) the market is producing too little of the good.

Question 49

Use the following for questions 55-59.
Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit

(Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit) In Panel (b), if the activity level is at E, then there will be a deadweight loss shown by the area:

A) EGC.
B) FGC.
C) ABC.
D) AFE.

Question 50

If the marginal benefit received from a good is less than the marginal cost of production, then:

A) society's well-being can be improved if production increases.
B) society's well-being can be improved if production decreases.
C) society's well-being cannot be improved by changing production.
D) the market is producing too little of the good.

Question 51

An economist might say that the United States doesn't have enough oil spills in its rivers if it were determined that:

A) fewer than 1 million fish were being killed by oil spills each year.
B) the marginal benefits of more oil pollution in the river outweighed the marginal cost of preventing or cleaning up the oil spill pollution.
C) the marginal benefits of less oil pollution in the river were less than the marginal cost of reducing the amount of oil spilled at that level.
D) both B and C would lead an economist to that conclusion.

Question 52

If the marginal benefit received from a good is equal to the marginal cost of production, then:

A) society's well-being can be improved if production increases.
B) society's well-being can be improved if production decreases.
C) the market is producing too much of the good.
D) the market is producing an efficient quantity.

Question 53

Use the following for questions 55-59.
Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit

(Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit) In Panel (b), if activity is restricted to activity level E, the net benefit will be shown by the area:

A) ABGF.
B) ABCD.
C) AEFG.
D) ABC.

Question 54

Use the following for questions 55-59.
Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit

(Exhibit: Marginal Benefit, Marginal Cost, and Net Benefit) In Panel (c), if activity level is at J, then there will be a deadweight loss of _______ and a net benefit of _______ .

A) CHI; ABC
B) ABC; CHI.
C) CHI; ABC minus CHI.
D) ABC minus CHI; CHI.

Question 55

Whenever MB < MC, the decisionmaker should do _______ of the activity.

A) less
B) the same amount
C) more
D) none

Question 56

Suppose that the expected exam scores from studying economics for 0, 1, 2, or 3 hours are 65, 80, 90, and 95 points, respectively, while the expected exam scores for studying 0, 1, 2, or 3 hours of accounting are 50, 65, 70, and 70 points, respectively.With 3 total hours of study time, your combined scores can reach a maximum of _______ points.

A) 145
B) 150
C) 155
D) 165

Question 57

Net benefit can be maximized by equating:

A) total benefit to total cost.
B) marginal benefit to marginal cost.
C) marginal benefit to total cost.
D) total benefit to marginal cost.

Question 58

Whenever MB > MC, the decisionmaker should do _______ of the activity.

A) less
B) the same amount
C) more
D) none

Question 59

Suppose that the expected exam scores from studying economics for 0, 1, 2, or 3 hours are 65, 80, 90, and 95 points, respectively, while the expected exam scores for studying 0, 1, 2, or 3 hours of accounting are 50, 65, 70, and 70 points, respectively.With 3 total hours of study time, the opportunity (or marginal) cost in terms of your accounting score of spending the first hour studying economics is ________ points.

A) 0
B) 5
C) 10
D) 15

Question 60

Net benefit can be maximized by finding the greatest difference between:

A) total benefit and total cost.
B) marginal benefit and marginal cost.
C) marginal benefit and total cost.
D) total benefit and marginal cost.

Question 61

Use the following to answer question(s): Markets and Efficiency

(Exhibit: Markets and Efficiency) The equilibrium price in Panel (a) tells us that the marginal cost of a pound of apples is:

A) less than $0.80.
B) equal to $0.80.
C) greater than $0.80.
D) equal to the average cost of producing apples.

Question 62

The Case in Point on Preventing Oil Spills stated that an economist who studied the costs and benefits of preventing oil spills in coastal waters and rivers concluded that:

A) the marginal cost of preventing oil spills was greater than the marginal benefit and the U.S.Coast Guard could not justify its excessive prevention efforts.
B) The marginal cost of preventing oil spills was less than the marginal benefit and that the U.S.Cost Guard could justify even greater efforts at preventing them.
C) that oil spills are so terrible and have such a pervasively destructive impact on the coastal waters and rivers that they should be prevented entirely-no oil spills should be tolerated.
D) both B and C were conclusions reached by the economist.

Question 63

When the net benefits of all economic activities are not maximized, economists say the allocation of resources is _______ .

A) inefficient
B) incorrect
C) efficient
D) poorly done

Question 64

The Case in Point on gift giving suggests that gifts from _____ generated the most satisfaction per dollar spent.

A) friends
B) significant others
C) grandparents
D) parents

Question 65

A set of rules that specify the ways in which the resource for which they are defined may be used are:

A) public goods.
B) quasi-public goods.
C) property rights.
D) free-rider rights.

Question 66

Property rights are defined as a set of rules that:

A) specify how consumers buy a product.
B) allows owners to use their property any way they choose.
C) determine the value of property.
D) specify the ways in which an owner can use a resource.

Question 67

Use the following to answer question(s): Markets and Efficiency

(Exhibit: Markets and Efficiency) In panel (a):

A) the price of apples is $0.80 and the quantity demanded is Q₁.
B) the equilibrium price ensures that quantity demanded will match quantity supplied.
C) the equilibrium price ensures that there will be neither surpluses nor shortages.
D) all of the above are true.

Question 68

To be effective, property rights must be:

A) exclusive and transferable.
B) free and quasi-public.
C) constrained and marginal.
D) all of the above.

Question 69

Based on the type of analysis described in the Case in Point on Preventing Oil Spills, an economist might reasonably argue that too few people die in airplane crashes if:

A) the marginal cost of preventing airplane crashes was less than the marginal benefit of preventing them.
B) the marginal benefit of preventing airplane crashes was less than the marginal cost of preventing them.
C) he or she were nuts; no reasonable economist would make such a statement because even though zero airplane crashes are an unlikely outcome, the efforts to prevent them to the greatest extent possible are justified because human lives are at stake.
D) both A and B are true.

Question 70

The efficiency condition requires:

A) marginal costs be generally less than marginal benefits.
B) prices in the marketplace confront decision makers with the marginal benefits and marginal costs of their decisions.
C) more goods be produced than exchanged.
D) more goods be exchanged than produced.

Question 71

Use the following to answer question(s): Markets and Efficiency

(Exhibit: Markets and Efficiency) The price and marginal cost in Panel(a) are equal because of:

A) the marginal decision rule.
B) the law of demand.
C) the law of supply.
D) the law of increasing cost.

Question 72

An allocation of resources that achieves the maximum net benefit from all activities is:

A) inefficient.
B) external.
C) internal.
D) efficient.

Question 73

Which of the following statements is (are) true?

A) A system of property rights forms the basis for all market exchange.
B) A system of property rights is essential to an efficient allocation of resources.
C) Property rights must exist if market exchange is to occur.
D) All of the above are true.

Question 74

When we judge the performance of the economy, we must consider:

A) efficiency.
B) external costs and external benefits.
C) equity and value judgments.
D) all of the above.

Question 75

The market for apples achieves an efficient allocation of resources when prices respond and send signals to producers and consumers.That set of interactions requires that producers possess:

A) lobby access to government.
B) monopoly power.
C) property rights to the apples they grow.
D) the ability to set any price they choose for their apples.

Question 76

The Case in Point on gift giving suggests that:

A) when you buy something for yourself, the price you pay is at least equal to the value of the satisfaction you derive from the item.
B) gift giving creates a significant deadweight loss.
C) the frequency of contact between giver and receiver increases the yield of the gift.
D) all of the above are true.

Question 77

An allocation of resources that does not achieve the maximum net benefit from one or more activities is:

A) inefficient.
B) external.
C) internal.
D) efficient.

Question 78

An exclusive property right is one that:

A) lets anyone use a resource without cost to society.
B) allows its owners to prevent others from using a resource.
C) equates marginal benefits to marginal costs.
D) can be sold or leased to someone else.

Question 79

When the net benefits of all economic activities are maximized, economists say the allocation of resources is _______ .

A) inefficient
B) correct
C) efficient
D) well done

Question 80

A transferable property right is one that:

A) can be sold or leased to someone else.
B) allows its owners to prevent others from using a resource.
C) equates marginal benefits to marginal costs.
D) lets anyone use a resource without cost to society.