Question 1

For a change to be potentially efficient, no one can be made worse off.

Accepted Answer

For a change to be potentially efficient, it must be possible to make at least one person better off without making anyone worse off, according to the Pareto efficiency principle. However, in practice, some changes considered efficient may make some individuals worse off, as long as the overall welfare increases and the losses can be compensated (in theory) by the gains of others.

Question 2

Absent externalities and public goods, a perfectly competitive system is equitable.

Accepted Answer

Equity refers to fairness or justice in the distribution of resources or outcomes. A perfectly competitive system, absent externalities and public goods, can achieve efficiency (allocating resources where they are most valued) but does not inherently ensure equity. The distribution of wealth and resources in such a system can still be highly unequal, depending on initial endowments and other factors.

Question 3

A government policy generates $10,000 of benefits to underprivileged youth at a cost of $5,000 to taxpayers. The policy is Pareto efficient.

Accepted Answer

The policy is not Pareto efficient because it makes taxpayers worse off, even if underprivileged youth benefit. Pareto efficiency requires that no one can be made better off without making someone else worse off, and in this case, taxpayers are made worse off.

Question 4

If P_X > MC_X, society gains by producing more X.

Accepted Answer

If the price (P) of a good is greater than its marginal cost (MC), it indicates that the value consumers place on the good is higher than the cost of producing it, suggesting that increasing production would increase overall societal welfare.

Question 5

Relating to the Economics in Practice on page 253: Subsidies for ethanol, a fuel produced from corn, have affected the market for

Accepted Answer

Subsidies for ethanol, which is produced from corn, have a broad impact on the market. They directly affect the demand for corn, increasing its price and profitability for farmers. This, in turn, can lead to changes in the use of farm land, with more land being allocated to corn production at the expense of other crops like wheat. Therefore, subsidies for ethanol can indirectly affect the markets for related agricultural products and resources.

Question 6

If society will gain by producing less X, then it must be the case that currently

Accepted Answer

If society will gain by producing less of X, it means the marginal social cost (MSC) of producing X is greater than the marginal social benefit (MSB), indicating overproduction.

Question 7

Open, competitive output markets ensure that households do not end up with the wrong goods and services.

Accepted Answer

Open, competitive output markets ensure that households can choose from a wide variety of goods and services, and that prices are set by the interaction of supply and demand. This ensures that households are able to get the goods and services they want at a price they are willing to pay.

Question 8

Houston trades his golf club for Austin's tennis racket, and both are happy with the exchange. This is an example of Pareto efficiency.

Accepted Answer

Pareto efficiency occurs when no individual can be made better off without making someone else worse off. In this case, both individuals are better off, but it doesn't necessarily mean that no further improvements can be made without harming someone else.

Question 9

A perfectly competitive system is efficient.

Accepted Answer

In a perfectly competitive system, resources are allocated in the most efficient way due to the forces of supply and demand, leading to an optimal distribution of goods and services where marginal costs equal marginal benefits.

Question 10

Society will produce ________ if price and marginal cost are equated for all firms.

Accepted Answer

When price equals marginal cost for all firms, it results in the efficient allocation of resources, leading to the production of an efficient mix of output. This principle is a fundamental concept in microeconomics, indicating that resources are being used in a way that maximizes consumer and producer surplus.

Question 11

Which one of the following is not a source of market failure?

Accepted Answer

Market failure occurs when the allocation of goods and services by a free market is not efficient. Externalities, public goods, and imperfect information are all classic examples of market failure. Price increases, however, are not inherently a source of market failure; they can be a result of various factors including supply and demand dynamics, and do not necessarily indicate a failure in market efficiency.

Question 12

Society will produce the efficient mix of output if all firms equate price and marginal cost.

Accepted Answer

When all firms equate price and marginal cost, it indicates that resources are being allocated efficiently, meaning that the goods and services produced are exactly what consumers demand at the lowest possible cost, leading to an efficient mix of output in the economy.

Question 13

For a policy to be Pareto efficient, it must make everyone at least a little better off.

Accepted Answer

Pareto efficiency, or Pareto optimality, is a state where it is impossible to make any one individual better off without making at least one individual worse off. It does not require that everyone is made better off, only that no further improvements can be made for someone without harming another.

Question 14

Efficiency and equity are synonymous.

Accepted Answer

Efficiency refers to how well resources are used and allocated to maximize productivity and minimize waste, while equity relates to fairness or justice in the distribution of resources and opportunities among individuals and groups.

Question 15

A perfectly competitive system results in an efficient allocation of resources among firms and an equal distribution of final products among households.

Accepted Answer

While a perfectly competitive system does result in an efficient allocation of resources among firms due to price and output decisions being driven by market demand and supply, it does not guarantee an equal distribution of final products among households. Distribution is influenced by individual purchasing power and choices, not the market structure itself.

Question 16

Price reflects the value households place on a good and marginal cost reflects the ________ of the resources needed to produce a good.

Accepted Answer

Marginal cost reflects the opportunity cost of the resources needed to produce a good, as it represents the value of the next best alternative use of those resources.

Question 17

Assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. By producing where P = MC, the firm will be producing

Accepted Answer

When the marginal cost (MC) of producing steel does not account for environmental damage, the actual cost of production is underestimated. This leads to producing more steel than the efficient amount, as the social costs (like pollution) are not considered in the production decision.

Question 18

Relating to the Economics in Practice on page 253: Ethanol subsidies have increased the supply of corn, and ethanol is a fuel produced from corn. As a result, ________ farm land has increased. Further, supply of ________ has decreased.

Accepted Answer

The demand for farm land has increased due to the need to grow more corn for ethanol production, which in turn decreases the supply of other grains as land is reallocated to corn production.

Question 19

If after a change in an allocation it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be potentially efficient.

Accepted Answer

This statement aligns with the concept of Pareto efficiency in economics, where a change that can make at least one individual better off without making anyone else worse off is considered potentially efficient. If the gains exceed the losses, those who gain could theoretically compensate those who lose, achieving a Pareto improvement.

Question 20

Sources of market failure include

Accepted Answer

Externalities are a primary source of market failure because they occur when the production or consumption of a good or service has an effect on a third party that is not reflected in the market price. This can lead to overproduction or underproduction from a societal perspective.

Quiz 12: General Equilibrium and the Efficiency of Perfect Competition

For a change to be potentially efficient, no one can be made worse off.

Absent externalities and public goods, a perfectly competitive system is equitable.

A government policy generates $10,000 of benefits to underprivileged youth at a cost of $5,000 to taxpayers. The policy is Pareto efficient.

If P_X > MC_X, society gains by producing more X.

Relating to the Economics in Practice on page 253: Subsidies for ethanol, a fuel produced from corn, have affected the market for

If society will gain by producing less X, then it must be the case that currently

Open, competitive output markets ensure that households do not end up with the wrong goods and services.

Houston trades his golf club for Austin's tennis racket, and both are happy with the exchange. This is an example of Pareto efficiency.

A perfectly competitive system is efficient.

Society will produce ________ if price and marginal cost are equated for all firms.

Which one of the following is not a source of market failure?

Society will produce the efficient mix of output if all firms equate price and marginal cost.

For a policy to be Pareto efficient, it must make everyone at least a little better off.

Efficiency and equity are synonymous.

A perfectly competitive system results in an efficient allocation of resources among firms and an equal distribution of final products among households.

Price reflects the value households place on a good and marginal cost reflects the ________ of the resources needed to produce a good.

Assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. By producing where P = MC, the firm will be producing

Relating to the Economics in Practice on page 253: Ethanol subsidies have increased the supply of corn, and ethanol is a fuel produced from corn. As a result, farm land has increased. Further, supply of has decreased.

If after a change in an allocation it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be potentially efficient.

Sources of market failure include

Quiz 12: General Equilibrium and the Efficiency of Perfect Competition

For a change to be potentially efficient, no one can be made worse off.

Absent externalities and public goods, a perfectly competitive system is equitable.

A government policy generates $10,000 of benefits to underprivileged youth at a cost of $5,000 to taxpayers. The policy is Pareto efficient.

If PX > MCX, society gains by producing more X.

Relating to the Economics in Practice on page 253: Subsidies for ethanol, a fuel produced from corn, have affected the market for

If society will gain by producing less X, then it must be the case that currently

Open, competitive output markets ensure that households do not end up with the wrong goods and services.

Houston trades his golf club for Austin's tennis racket, and both are happy with the exchange. This is an example of Pareto efficiency.

A perfectly competitive system is efficient.

Society will produce ________ if price and marginal cost are equated for all firms.

Which one of the following is not a source of market failure?

Society will produce the efficient mix of output if all firms equate price and marginal cost.

For a policy to be Pareto efficient, it must make everyone at least a little better off.

Efficiency and equity are synonymous.

A perfectly competitive system results in an efficient allocation of resources among firms and an equal distribution of final products among households.

Price reflects the value households place on a good and marginal cost reflects the ________ of the resources needed to produce a good.

Assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. By producing where P = MC, the firm will be producing

Relating to the Economics in Practice on page 253: Ethanol subsidies have increased the supply of corn, and ethanol is a fuel produced from corn. As a result, ________ farm land has increased. Further, supply of ________ has decreased.

If after a change in an allocation it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be potentially efficient.

Sources of market failure include

If P_X > MC_X, society gains by producing more X.

Relating to the Economics in Practice on page 253: Ethanol subsidies have increased the supply of corn, and ethanol is a fuel produced from corn. As a result, farm land has increased. Further, supply of has decreased.