Question 1

In a market, buyers and sellers are coordinated through

Accepted Answer

A) the government. 
B) the information about price. 
C) personal communication with each other. 
D) information gained from outside the market. 
E) collective bargaining in large groups. 
A) the government. 
B) the information about price. 
C) personal communication with each other. 
D) information gained from outside the market. 
E) collective bargaining in large groups.

Question 2

The first theorem of welfare economics states that

Accepted Answer

A) government action is never Pareto efficient. 
B) Pareto efficiency is achieved in competitive markets. 
C) Pareto efficiency can be achieved only in competitive markets. 
D) Pareto efficiency is unattainable. 
E) government intervention is needed to achieve Pareto efficiency. 
A) government action is never Pareto efficient. 
B) Pareto efficiency is achieved in competitive markets. 
C) Pareto efficiency can be achieved only in competitive markets. 
D) Pareto efficiency is unattainable. 
E) government intervention is needed to achieve Pareto efficiency.

Question 3

A price floor that is higher than the equilibrium market price results in

Accepted Answer

A) a decrease in consumer surplus. 
B) a decrease in producer surplus but an increase in consumer surplus. 
C) a gain in both consumer surplus and producer surplus. 
D) Pareto efficiency. 
E) a decrease in deadweight loss. 
A) a decrease in consumer surplus. 
B) a decrease in producer surplus but an increase in consumer surplus. 
C) a gain in both consumer surplus and producer surplus. 
D) Pareto efficiency. 
E) a decrease in deadweight loss.

Question 4

Exhibit 7-2  
-The sum of producer and consumer surplus is maximized when

Accepted Answer

A) the difference between marginal benefit and marginal cost is at its maximum. 
B) producers produce at the point where marginal cost is equal to zero. 
C) equity is achieved. 
D) consumers buy to the point that marginal benefit is equal to zero. 
E) marginal benefit and marginal cost are equal. 
A) the difference between marginal benefit and marginal cost is at its maximum. 
B) producers produce at the point where marginal cost is equal to zero. 
C) equity is achieved. 
D) consumers buy to the point that marginal benefit is equal to zero. 
E) marginal benefit and marginal cost are equal.

Question 5

Deadweight loss is the amount of benefits transferred from consumers to producers.

Accepted Answer

A) True 
 B)False

Question 6

The function of price in a market economy is to

Accepted Answer

A) make producers wealthy at the expense of consumers. 
B) provide information to producers and consumers. 
C) provide a base on which government can build a tax system. 
D) prevent market adjustment from being necessary. 
E) cause consumers to be certain that they desire a product before they buy it. 
A) make producers wealthy at the expense of consumers. 
B) provide information to producers and consumers. 
C) provide a base on which government can build a tax system. 
D) prevent market adjustment from being necessary. 
E) cause consumers to be certain that they desire a product before they buy it.

Question 7

Besides processing information, an economic system must perform two other tasks. Name them.

Accepted Answer

Coordinati

Question 8

The competitive equilibrium model

Accepted Answer

A) describes in detail how every individual behaves in a real-world market. 
B) combines supply and demand to illustrate how prices are established. 
C) incorporates only the profit-maximization incentives of firms. 
D) explains how a health-care system can be properly managed. 
E) incorporates only the utility-maximization incentives of individuals. 
A) describes in detail how every individual behaves in a real-world market. 
B) combines supply and demand to illustrate how prices are established. 
C) incorporates only the profit-maximization incentives of firms. 
D) explains how a health-care system can be properly managed. 
E) incorporates only the utility-maximization incentives of individuals.

Question 9

If the government imposes a sales tax on a good, then the deadweight loss of the tax is the

Accepted Answer

A) reduction in the sum of the consumer surplus and producer surplus. 
B) gain in the sum of the consumer surplus and producer surplus. 
C) tax revenue. 
D) reduction in the sum of the consumer surplus and producer surplus, and the gain in the tax revenue. 
E) gain in the sum of the consumer surplus and producer surplus plus the tax revenue. 
A) reduction in the sum of the consumer surplus and producer surplus. 
B) gain in the sum of the consumer surplus and producer surplus. 
C) tax revenue. 
D) reduction in the sum of the consumer surplus and producer surplus, and the gain in the tax revenue. 
E) gain in the sum of the consumer surplus and producer surplus plus the tax revenue.

Question 10

Pareto efficiency is achieved when deadweight loss is equal to zero.

Accepted Answer

A) True 
 B)False

Question 11

The transfer of income from high-income to low-income individuals

Accepted Answer

A) cannot be achieved through any means other than the coercive use of government power. 
B) can result in the achievement of Pareto efficiency. 
C) has no effect on work incentives that individuals face in a market economy. 
D) achieves Pareto efficiency where it was not achieved before. 
E) does not distort markets in any way. 
A) cannot be achieved through any means other than the coercive use of government power. 
B) can result in the achievement of Pareto efficiency. 
C) has no effect on work incentives that individuals face in a market economy. 
D) achieves Pareto efficiency where it was not achieved before. 
E) does not distort markets in any way.

Question 12

A tax on a good results in a deadweight loss to society.

Accepted Answer

A) True 
 B)False

Question 13

Deadweight loss is zero when quantity supplied equals quantity demanded.

Accepted Answer

A) True 
 B)False

Question 14

When it is possible to make someone better off without hurting someone else, the condition is

Accepted Answer

A) Pareto unequal. 
B) Pareto equal. 
C) Pareto inefficient. 
D) Pareto efficient. 
E) absolutely equitable. 
A) Pareto unequal. 
B) Pareto equal. 
C) Pareto inefficient. 
D) Pareto efficient. 
E) absolutely equitable.

Question 15

Which of the following is an example of an ad valorem tax?

Accepted Answer

A) A tax of $.15 per gallon on gasoline 
B) A 5 percent tax on total purchases by a consumer 
C) A yearly tax of 1 percent of the value of property owned by a citizen 
D) A $2 tax on newspaper ads 
E) A tax of $1,000 on every man, woman, and child in the country 
A) A tax of $.15 per gallon on gasoline 
B) A 5 percent tax on total purchases by a consumer 
C) A yearly tax of 1 percent of the value of property owned by a citizen 
D) A $2 tax on newspaper ads 
E) A tax of $1,000 on every man, woman, and child in the country

Question 16

Which of the following makes consumers unambiguously worse off?

Accepted Answer

A) Only a price floor 
B) Only a price ceiling 
C) Either a price floor or a price ceiling 
D) Neither a price floor nor a price ceiling 
E) Market equilibrium 
A) Only a price floor 
B) Only a price ceiling 
C) Either a price floor or a price ceiling 
D) Neither a price floor nor a price ceiling 
E) Market equilibrium

Question 17

Suppose that the government imposes a sales tax that causes the equilibrium price to go up. Draw a graph showing the original supply curve, the new supply curve, and the demand curve. Use this graph to show:

Accepted Answer

The answer of Suppose that the government imposes a sales...

Question 18

A principle states that when the supply and demand curves cross in a competitive market, Pareto efficiency is achieved. This principle is called

Accepted Answer

A) the first theorem of cost minimization. 
B) the first theorem of utility maximization. 
C) equilibrium. 
D) the first theorem of welfare economics. 
E) price equals marginal cost. 
A) the first theorem of cost minimization. 
B) the first theorem of utility maximization. 
C) equilibrium. 
D) the first theorem of welfare economics. 
E) price equals marginal cost.

Question 19

Which of the following statements is false?

Accepted Answer

A) The sum of producer and consumer surplus is maximized when equilibrium is achieved. 
B) Any successful effort to keep price from going to equilibrium decreases the sum of producer and consumer surplus in a market. 
C) The sum of producer and consumer surplus is maximized when Pareto efficiency is achieved. 
D) Consumer surplus is at its maximum when the price of a product is zero. 
E) Producer surplus is all that is maximized when Pareto efficiency is achieved. 
A) The sum of producer and consumer surplus is maximized when equilibrium is achieved. 
B) Any successful effort to keep price from going to equilibrium decreases the sum of producer and consumer surplus in a market. 
C) The sum of producer and consumer surplus is maximized when Pareto efficiency is achieved. 
D) Consumer surplus is at its maximum when the price of a product is zero. 
E) Producer surplus is all that is maximized when Pareto efficiency is achieved.

Question 20

Pareto efficiency occurs when it is not possible to improve one person's situation without hurting someone else.

Accepted Answer

A) True 
 B)False

Exam 7: The Efficiency of Markets

In a market, buyers and sellers are coordinated through

The first theorem of welfare economics states that

A price floor that is higher than the equilibrium market price results in

Exhibit 7-2 -The sum of producer and consumer surplus is maximized when

Deadweight loss is the amount of benefits transferred from consumers to producers.

The function of price in a market economy is to

Besides processing information, an economic system must perform two other tasks. Name them.

The competitive equilibrium model

If the government imposes a sales tax on a good, then the deadweight loss of the tax is the

Pareto efficiency is achieved when deadweight loss is equal to zero.

The transfer of income from high-income to low-income individuals

A tax on a good results in a deadweight loss to society.

Deadweight loss is zero when quantity supplied equals quantity demanded.

When it is possible to make someone better off without hurting someone else, the condition is

Which of the following is an example of an ad valorem tax?

Which of the following makes consumers unambiguously worse off?

Suppose that the government imposes a sales tax that causes the equilibrium price to go up. Draw a graph showing the original supply curve, the new supply curve, and the demand curve. Use this graph to show:

A principle states that when the supply and demand curves cross in a competitive market, Pareto efficiency is achieved. This principle is called

Which of the following statements is false?

Pareto efficiency occurs when it is not possible to improve one person's situation without hurting someone else.

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