Question 1

A specific tax

Accepted Answer

A) increases supply by shifting the curve up. 
B) is a tax that is paid only by producers. 
C) is a per-unit tax on a good. 
D) is a percentage tax on the total value of sales. 
E) is proportionate to the total value of a good sold. 
A) increases supply by shifting the curve up. 
B) is a tax that is paid only by producers. 
C) is a per-unit tax on a good. 
D) is a percentage tax on the total value of sales. 
E) is proportionate to the total value of a good sold.

Question 2

Who are unambiguously worse off in the case of a price ceiling?

Accepted Answer

A) Both buyers and sellers 
B) Buyers 
C) Sellers 
D) Neither buyers nor sellers 
E) Government officials 
A) Both buyers and sellers 
B) Buyers 
C) Sellers 
D) Neither buyers nor sellers 
E) Government officials

Question 3

When market supply equals market demand, then

Accepted Answer

A) both consumer surplus and producer surplus equal zero. 
B) consumer surplus is greater than producer surplus. 
C) consumer surplus is less than producer surplus. 
D) the sum of consumer surplus and producer surplus is maximized. 
E) the sum of consumer surplus and producer surplus equals zero. 
A) both consumer surplus and producer surplus equal zero. 
B) consumer surplus is greater than producer surplus. 
C) consumer surplus is less than producer surplus. 
D) the sum of consumer surplus and producer surplus is maximized. 
E) the sum of consumer surplus and producer surplus equals zero.

Question 4

Which of the following statements is false?

Accepted Answer

A) If marginal cost exceeds marginal benefit, too much is being produced. 
B) Taking money from the rich and giving it to the poor does not improve efficiency. 
C) Three conditions must be met to achieve efficiency. 
D) If all consumers experience the same marginal benefit, equity has resulted. 
E) To achieve efficiency, a producer whose marginal cost is lower than his or her competitors should produce more than his or her competitors. 
A) If marginal cost exceeds marginal benefit, too much is being produced. 
B) Taking money from the rich and giving it to the poor does not improve efficiency. 
C) Three conditions must be met to achieve efficiency. 
D) If all consumers experience the same marginal benefit, equity has resulted. 
E) To achieve efficiency, a producer whose marginal cost is lower than his or her competitors should produce more than his or her competitors.

Question 5

A surplus

Accepted Answer

A) can never occur in a market that is functioning properly and without interference. 
B) occurs when market price is below equilibrium price. 
C) occurs when sellers are willing to sell more than consumers are willing to buy. 
D) is an example of failure on the part of a market. 
E) causes a price increase in a market. 
A) can never occur in a market that is functioning properly and without interference. 
B) occurs when market price is below equilibrium price. 
C) occurs when sellers are willing to sell more than consumers are willing to buy. 
D) is an example of failure on the part of a market. 
E) causes a price increase in a market.

Question 6

Economists believe that, in a market system,

Accepted Answer

A) trade takes place at the insistence of government authorities. 
B) individual preferences do not matter. 
C) individuals behave in an altruistic manner. 
D) prices are the only pieces of information to which anyone has access. 
E) self-interest is channeled so that it motivates people to coordinate activity. 
A) trade takes place at the insistence of government authorities. 
B) individual preferences do not matter. 
C) individuals behave in an altruistic manner. 
D) prices are the only pieces of information to which anyone has access. 
E) self-interest is channeled so that it motivates people to coordinate activity.

Question 7

According to Adam Smith, the invisible hand leads to

Accepted Answer

A) higher income only for the rich. 
B) a socialist society. 
C) market efficiency. 
D) undesirable social outcomes such as a higher crime rate. 
E) more firm profits at the expense of consumers. 
A) higher income only for the rich. 
B) a socialist society. 
C) market efficiency. 
D) undesirable social outcomes such as a higher crime rate. 
E) more firm profits at the expense of consumers.

Question 8

What do all individuals seek to maximize, according to economists?

Accepted Answer

According to economi

Question 9

Economists use the term deadweight loss because

Accepted Answer

A) it measures a decrease in agricultural production. 
B) the lost producer and consumer surpluses are transferred to the government. 
C) it measures the loss of profit, the lifeblood of a market economy. 
D) the lost portions of producer and consumer surpluses are completely lost and accrue to no one. 
E) the losses in producer and consumer surpluses are too large to estimate. 
A) it measures a decrease in agricultural production. 
B) the lost producer and consumer surpluses are transferred to the government. 
C) it measures the loss of profit, the lifeblood of a market economy. 
D) the lost portions of producer and consumer surpluses are completely lost and accrue to no one. 
E) the losses in producer and consumer surpluses are too large to estimate.

Question 10

Suppose increased oil imports raise the total supply of gasoline in the United States.

Accepted Answer

(A)
If the government does not intervene

Question 11

Exhibit 7-7  
-Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East. If the government reacts to the shift of the supply curve from S1 to S2 by imposing a price ceiling at P3, then the consumer surplus

Accepted Answer

A) increases by area C less area H. 
B) decreases by area C less area H. 
C) increases by area G less area I. 
D) decreases by area G less area I. 
E) remains constant. 
A) increases by area C less area H. 
B) decreases by area C less area H. 
C) increases by area G less area I. 
D) decreases by area G less area I. 
E) remains constant.

Question 12

Can income equality and efficiency be achieved at the same time? Why or why not?

Accepted Answer

It seems that income equality and effici

Question 13

Pareto efficiency is achieved when the sum of producer surplus and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 14

Suppose there are three sellers (D, E, and F) in a competitive market with the marginal cost (MC) schedules shown in the table below. Calculate the producer surplus using the market supply curve. Assume that the market price is $5. Show that you get the same answer by adding together the producer surplus for all three sellers. How much does producer surplus increase for the market as a whole and for each individual when the market price rises to $7?

Accepted Answer

@#IMG-DLM& For the market supply curve, the produc

Question 15

Exhibit 7-13  
-Refer to Exhibit 7-13. Calculate the government's tax revenue from imposing a tax of $10 per unit on producers.

Accepted Answer

$5,000
Consumers continue to p

Question 16

Exhibit 7-13  
-Informational efficiency

Accepted Answer

A) can be achieved only when everyone knows everyone else's marginal benefits and marginal costs. 
B) occurs when buyers and sellers can communicate their respective marginal benefits and marginal costs to each other. 
C) is easily proven mathematically to occur in competitive markets, much like Pareto efficiency has been proven to occur in such markets. 
D) occurs in a centralized allocation system like that of the former Soviet Union. 
E) occurs when it is costless to send messages. 
A) can be achieved only when everyone knows everyone else's marginal benefits and marginal costs. 
B) occurs when buyers and sellers can communicate their respective marginal benefits and marginal costs to each other. 
C) is easily proven mathematically to occur in competitive markets, much like Pareto efficiency has been proven to occur in such markets. 
D) occurs in a centralized allocation system like that of the former Soviet Union. 
E) occurs when it is costless to send messages.

Question 17

What is the first theorem of welfare economics?

Accepted Answer

The competitive mark

Question 18

Exhibit 7-11  
-Refer to Exhibit 7-11. The government's revenue from a tax of $4 per bushel assessed on farmers is represented by area

Accepted Answer

A) B + C + D + E. 
B) A + B + E + F. 
C) A. 
D) F. 
E) A + B + C + D + e. 
A) B + C + D + E. 
B) A + B + E + F. 
C) A. 
D) F. 
E) A + B + C + D + e.

Question 19

Exhibit 7-1  
-Refer to Exhibit 7-1. If Firm A is producing 5 units and Firm B is producing 3 units, then

Accepted Answer

A) both firms should produce more because there is no way only 8 units could fulfill demand in a market. 
B) Firm A should produce more and Firm B should produce less. 
C) if Firm B reduced production by 1 unit, the savings would allow Firm A to produce 6 more units. 
D) if Firm A reduced production by 1 unit, the savings would allow Firm B to produce 2 more units. 
E) Pareto efficiency is achieved. 
A) both firms should produce more because there is no way only 8 units could fulfill demand in a market. 
B) Firm A should produce more and Firm B should produce less. 
C) if Firm B reduced production by 1 unit, the savings would allow Firm A to produce 6 more units. 
D) if Firm A reduced production by 1 unit, the savings would allow Firm B to produce 2 more units. 
E) Pareto efficiency is achieved.

Question 20

Market competition leads to economic inefficiency.

Accepted Answer

A) True 
 B)False

Exam 7: The Efficiency of Markets

A specific tax

Who are unambiguously worse off in the case of a price ceiling?

When market supply equals market demand, then

Which of the following statements is false?

A surplus

Economists believe that, in a market system,

According to Adam Smith, the invisible hand leads to

What do all individuals seek to maximize, according to economists?

Economists use the term deadweight loss because

Suppose increased oil imports raise the total supply of gasoline in the United States.

Exhibit 7-7 -Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East. If the government reacts to the shift of the supply curve from S1 to S2 by imposing a price ceiling at P3, then the consumer surplus

Can income equality and efficiency be achieved at the same time? Why or why not?

Pareto efficiency is achieved when the sum of producer surplus and consumer surplus is maximized.

Exhibit 7-13 -Refer to Exhibit 7-13. Calculate the government's tax revenue from imposing a tax of $10 per unit on producers.

Exhibit 7-13 -Informational efficiency

What is the first theorem of welfare economics?

Exhibit 7-11 -Refer to Exhibit 7-11. The government's revenue from a tax of $4 per bushel assessed on farmers is represented by area

Exhibit 7-1 -Refer to Exhibit 7-1. If Firm A is producing 5 units and Firm B is producing 3 units, then

Market competition leads to economic inefficiency.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

Filters

Exhibit 7-7 -Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East. If the government reacts to the shift of the supply curve from S₁ to S₂by imposing a price ceiling at P₃, then the consumer surplus