Question 1

If a market is in equilibrium, then we know that price equals marginal cost because

Accepted Answer

A) the market demand curve reflects marginal cost. 
B) marginal cost never changes. 
C) the market supply curve reflects marginal cost. 
D) every firm has the same costs. 
E) firms are required by law to equate marginal cost to price. 
A) the market demand curve reflects marginal cost. 
B) marginal cost never changes. 
C) the market supply curve reflects marginal cost. 
D) every firm has the same costs. 
E) firms are required by law to equate marginal cost to price.

Question 2

In economics, inefficiency means a waste of resources.

Accepted Answer

A) True 
 B)False

Question 3

It is easier for buyers and sellers to exchange and process price information in market systems than in nonmarket systems.

Accepted Answer

A) True 
 B)False

Question 4

The price system has information advantages over nonmarket systems only when buyers and sellers can personally communicate their marginal benefits or marginal costs to each other.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 7-9  
-When the government imposes a tax that must be paid by producers, economic theory indicates that the government's tax revenue

Accepted Answer

A) comes from producers and consumers, though probably not in equal parts. 
B) comes from producers and consumers in equal parts. 
C) comes only from producers. 
D) comes only from consumers. 
E) is equal to the amount of deadweight loss. 
A) comes from producers and consumers, though probably not in equal parts. 
B) comes from producers and consumers in equal parts. 
C) comes only from producers. 
D) comes only from consumers. 
E) is equal to the amount of deadweight loss.

Question 6

Typically, when government imposes an ad valorem or a specific tax on producers,

Accepted Answer

A) both consumer surplus and producer surplus are reduced. 
B) producer surplus is reduced to zero. 
C) consumer surplus is reduced to zero. 
D) consumer surplus is preserved because producers must pay the tax. 
E) producer surplus is preserved because costs are passed on to consumers. 
A) both consumer surplus and producer surplus are reduced. 
B) producer surplus is reduced to zero. 
C) consumer surplus is reduced to zero. 
D) consumer surplus is preserved because producers must pay the tax. 
E) producer surplus is preserved because costs are passed on to consumers.

Question 7

If the price of a good increases, other things held constant, then

Accepted Answer

A) more resources might flow into the production of the good. 
B) the good has become less scarce than all other goods. 
C) the relative price of the good decreases. 
D) either buyers or sellers respond to the new price, whereas the opposite group does not. 
E) the good becomes more desirable to consumers. 
A) more resources might flow into the production of the good. 
B) the good has become less scarce than all other goods. 
C) the relative price of the good decreases. 
D) either buyers or sellers respond to the new price, whereas the opposite group does not. 
E) the good becomes more desirable to consumers.

Question 8

The change in a product's price when a per-unit tax is assessed on producers is greatest when

Accepted Answer

A) demand is very flat (elastic) and supply is very steep (inelastic). 
B) both demand and supply are very steep (inelastic). 
C) both demand and supply are very flat (elastic). 
D) supply is perfectly inelastic. 
E) demand is very steep (inelastic) and supply is very flat (elastic). 
A) demand is very flat (elastic) and supply is very steep (inelastic). 
B) both demand and supply are very steep (inelastic). 
C) both demand and supply are very flat (elastic). 
D) supply is perfectly inelastic. 
E) demand is very steep (inelastic) and supply is very flat (elastic).

Question 9

The primary problem with nonmarket economic coordination is

Accepted Answer

A) that some people get wealthy. 
B) the possibility that efficiency will result. 
C) the difficulty of collecting and acting on economic information. 
D) that, without a market, exchange cannot take place. 
E) that no one is providing central direction for the economy. 
A) that some people get wealthy. 
B) the possibility that efficiency will result. 
C) the difficulty of collecting and acting on economic information. 
D) that, without a market, exchange cannot take place. 
E) that no one is providing central direction for the economy.

Question 10

Friedrich Hayek

Accepted Answer

A) believed that central planning would break down mainly due to problems associated with information gathering. 
B) argued that central planning could be informationally efficient. 
C) believed that only a democratic government, where individuals can make their preferences known by voting, could be informationally efficient. 
D) criticized the market system as informationally inefficient. 
E) argued that informational inefficiency would be the market's undoing. 
A) believed that central planning would break down mainly due to problems associated with information gathering. 
B) argued that central planning could be informationally efficient. 
C) believed that only a democratic government, where individuals can make their preferences known by voting, could be informationally efficient. 
D) criticized the market system as informationally inefficient. 
E) argued that informational inefficiency would be the market's undoing.

Question 11

Informational efficiency is achieved in the market system only because government has required producers to disclose characteristics of their products.

Accepted Answer

A) True 
 B)False

Question 12

The best way to achieve income equality and efficiency is to regulate prices so that everyone can afford what they need.

Accepted Answer

A) True 
 B)False

Question 13

Pareto efficiency cannot be achieved when

Accepted Answer

A) price equals marginal benefit. 
B) marginal benefit is the same for all consumers. 
C) marginal cost is the same for all producers. 
D) price equals marginal cost. 
E) marginal benefit exceeds marginal cost. 
A) price equals marginal benefit. 
B) marginal benefit is the same for all consumers. 
C) marginal cost is the same for all producers. 
D) price equals marginal cost. 
E) marginal benefit exceeds marginal cost.

Question 14

Exhibit 7-5  
-Refer to Exhibit 7-5. If the government establishes a price floor of $7 in this wheat market, buying any surplus or filling any shortage as necessary, the deadweight loss is represented by area

Accepted Answer

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

Question 15

Regarding price floors on prices, the result of a higher-than-equilibrium market price is

Accepted Answer

A) a loss in producer surplus and a gain in consumer surplus. 
B) a gain in producer surplus and a loss in consumer surplus. 
C) a loss in both producer surplus and consumer surplus. 
D) a gain in both producer surplus and consumer surplus. 
E) no change in both producer surplus and consumer surplus. 
A) a loss in producer surplus and a gain in consumer surplus. 
B) a gain in producer surplus and a loss in consumer surplus. 
C) a loss in both producer surplus and consumer surplus. 
D) a gain in both producer surplus and consumer surplus. 
E) no change in both producer surplus and consumer surplus.

Question 16

Exhibit 7-9  
-Exhibit 7-9 shows the effect of a tax on a market. The deadweight loss equals

Accepted Answer

A) the combined area of C and D. 
B) the combined area of A and B. 
C) the combined area of E and F. 
D) area C minus area D. 
E) the combined area of A, B, C, D, E, and F. 
A) the combined area of C and D. 
B) the combined area of A and B. 
C) the combined area of E and F. 
D) area C minus area D. 
E) the combined area of A, B, C, D, E, and F.

Question 17

Pareto efficiency is achieved when

Accepted Answer

A) no one feels he or she has been overcharged for something just bought. 
B) the greatest possible good for society has been achieved. 
C) no individual can achieve greater utility without someone else losing utility. 
D) everyone can be made better off without hurting anyone. 
E) no one has more than anyone else. 
A) no one feels he or she has been overcharged for something just bought. 
B) the greatest possible good for society has been achieved. 
C) no individual can achieve greater utility without someone else losing utility. 
D) everyone can be made better off without hurting anyone. 
E) no one has more than anyone else.

Question 18

All of the following contribute to the attainment of efficiency in a competitive market except

Accepted Answer

A) marginal benefit equals marginal cost because of the establishment of market equilibrium 
B) every consumer maximizes his or her utility. 
C) every producer seeks to get the minimum price he or she is willing to accept. 
D) every consumer consumes to the point where price equals marginal benefit. 
E) every firm produces to the point where price equals marginal cost. 
A) marginal benefit equals marginal cost because of the establishment of market equilibrium 
B) every consumer maximizes his or her utility. 
C) every producer seeks to get the minimum price he or she is willing to accept. 
D) every consumer consumes to the point where price equals marginal benefit. 
E) every firm produces to the point where price equals marginal cost.

Question 19

In the competitive equilibrium model,

Accepted Answer

A) utility and marginal cost are equated. 
B) only seller behavior is analyzed. 
C) only buyer behavior is analyzed. 
D) the willingness to sell and the willingness to buy are equated. 
E) few individuals benefit from market trade. 
A) utility and marginal cost are equated. 
B) only seller behavior is analyzed. 
C) only buyer behavior is analyzed. 
D) the willingness to sell and the willingness to buy are equated. 
E) few individuals benefit from market trade.

Question 20

Suppose there are three buyers (A, B, and C) and three sellers (D, E, and F) in a competitive market with the marginal benefit (MB) schedules shown in Table 1 and the marginal cost (MC) schedules shown in Table 2.     Verify that the three efficiency conditions are satisfied for the market when the equilibrium price is $8.

Accepted Answer

When the equilibrium price is $8, then t

Exam 7: The Efficiency of Markets

If a market is in equilibrium, then we know that price equals marginal cost because

In economics, inefficiency means a waste of resources.

It is easier for buyers and sellers to exchange and process price information in market systems than in nonmarket systems.

The price system has information advantages over nonmarket systems only when buyers and sellers can personally communicate their marginal benefits or marginal costs to each other.

Exhibit 7-9 -When the government imposes a tax that must be paid by producers, economic theory indicates that the government's tax revenue

Typically, when government imposes an ad valorem or a specific tax on producers,

If the price of a good increases, other things held constant, then

The change in a product's price when a per-unit tax is assessed on producers is greatest when

The primary problem with nonmarket economic coordination is

Friedrich Hayek

Informational efficiency is achieved in the market system only because government has required producers to disclose characteristics of their products.

The best way to achieve income equality and efficiency is to regulate prices so that everyone can afford what they need.

Pareto efficiency cannot be achieved when

Exhibit 7-5 -Refer to Exhibit 7-5. If the government establishes a price floor of $7 in this wheat market, buying any surplus or filling any shortage as necessary, the deadweight loss is represented by area

Regarding price floors on prices, the result of a higher-than-equilibrium market price is

Exhibit 7-9 -Exhibit 7-9 shows the effect of a tax on a market. The deadweight loss equals

Pareto efficiency is achieved when

All of the following contribute to the attainment of efficiency in a competitive market except

In the competitive equilibrium model,

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

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