Question 1

________ is an example of a public good.

Accepted Answer

A)  An automobile 
B)  National defense 
C)  A restaurant meal 
D)  A medical service 
A)  An automobile 
B)  National defense 
C)  A restaurant meal 
D)  A medical service

Question 2

A new technology is developed for producing solar panels that reduces production costs by 40%. Which of the following is true?

Accepted Answer

A)  Firms will continue to operate efficiently as long as no firm adopts this new technology. 
B)  For the economy to remain efficient, product produced with this new technology must be equitably distributed to all consumers. 
C)  This new technology will affect efficiency, and will change the equilibrium price and quantity for this industry. 
D)  If firms do not adopt this new technology, then the economy will remain in general equilibrium, because firms will not change their price and output decisions. 
A)  Firms will continue to operate efficiently as long as no firm adopts this new technology. 
B)  For the economy to remain efficient, product produced with this new technology must be equitably distributed to all consumers. 
C)  This new technology will affect efficiency, and will change the equilibrium price and quantity for this industry. 
D)  If firms do not adopt this new technology, then the economy will remain in general equilibrium, because firms will not change their price and output decisions.

Question 3

Efficiency is another word for equity.

Accepted Answer

A) True 
 B)False

Question 4

Market failure occurs when

Accepted Answer

A)  firms that are incurring losses leave a market. 
B)  perfectly competitive firms produce where MR = MC. 
C)  resources are misallocated, or allocated inefficiently. 
D)  firms are only able to earn a normal profit. 
A)  firms that are incurring losses leave a market. 
B)  perfectly competitive firms produce where MR = MC. 
C)  resources are misallocated, or allocated inefficiently. 
D)  firms are only able to earn a normal profit.

Question 5

Pareto optimality is the condition in which

Accepted Answer

A)  the distribution of income is equal. 
B)  no change is possible that will make some members of society better off without making at least one other member of society worse off. 
C)  firms are forced to internalize the effects of all externalities. 
D)  it is possible to make one person better off without making someone else worse off. 
A)  the distribution of income is equal. 
B)  no change is possible that will make some members of society better off without making at least one other member of society worse off. 
C)  firms are forced to internalize the effects of all externalities. 
D)  it is possible to make one person better off without making someone else worse off.

Question 6

You value your economics textbook at $40. Someone else values it at $30, but that person is willing to pay you $35 for your textbook. Would selling your textbook to this person for $35 be Pareto efficient?

Accepted Answer

A)  Yes, because you received the maximum amount the other person would have been willing to pay for the textbook. 
B)  Yes, the person paid you $35 for the book so his net benefit was -$5, whereas your net benefit was also -$5. This exchange is Pareto efficient because each of you have the same net benefit. 
C)  Yes, because both of you are better off as a result of the trade. 
D)  No, because even though he was willing to pay more for the book than he valued it at, you would not receive as much as you value it at, so you would be made worse off. 
A)  Yes, because you received the maximum amount the other person would have been willing to pay for the textbook. 
B)  Yes, the person paid you $35 for the book so his net benefit was -$5, whereas your net benefit was also -$5. This exchange is Pareto efficient because each of you have the same net benefit. 
C)  Yes, because both of you are better off as a result of the trade. 
D)  No, because even though he was willing to pay more for the book than he valued it at, you would not receive as much as you value it at, so you would be made worse off.

Question 7

You value your favorite shirt at $100. Someone else values it at $80, and that person is willing to pay you $80 for your shirt. Would selling your shirt to this person for $80 be Pareto efficient?

Accepted Answer

A)  Yes, because any time you engage in trade, the result must be Pareto efficient. 
B)  No, the person paid you $80 for the shirt so his net benefit was $0, while your net benefit was -$20. For this change to be Pareto efficient, each of you should have the same net benefit. 
C)  Yes, because even though you lose from the trade and he gains, there is the potential for him to compensate you for your loss. 
D)  No, because both of you are not better off as a result of the trade. 
A)  Yes, because any time you engage in trade, the result must be Pareto efficient. 
B)  No, the person paid you $80 for the shirt so his net benefit was $0, while your net benefit was -$20. For this change to be Pareto efficient, each of you should have the same net benefit. 
C)  Yes, because even though you lose from the trade and he gains, there is the potential for him to compensate you for your loss. 
D)  No, because both of you are not better off as a result of the trade.

Question 8

We refer to the whole class of goods that firms will ________ in a completely unregulated market economy as public goods.

Accepted Answer

A)  underproduce 
B)  overproduce 
C)  not produce at all 
D)  Both A and C are correct. 
A)  underproduce 
B)  overproduce 
C)  not produce at all 
D)  Both A and C are correct.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

If some gain and some lose as the result of a change, and it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be

Accepted Answer

A)  potentially efficient. 
B)  inefficient. 
C)  unequivocally Pareto optimal. 
D)  technically efficient. 
A)  potentially efficient. 
B)  inefficient. 
C)  unequivocally Pareto optimal. 
D)  technically efficient.

Question 11

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow.   Figure 12.1
-Refer to Figure 12.1. The firm is

Accepted Answer

A)  equally efficient when it produces at points A and B. 
B)  less efficient when it produces at point A than at point B. 
C)  less efficient when it produces at point B than at point A. 
D)  producing at least possible cost anywhere along the given ATC curve. 
A)  equally efficient when it produces at points A and B. 
B)  less efficient when it produces at point A than at point B. 
C)  less efficient when it produces at point B than at point A. 
D)  producing at least possible cost anywhere along the given ATC curve.

Question 12

A perfectly competitive system is efficient.

Accepted Answer

A) True 
 B)False

Question 13

Clean air is an example of a public good.

Accepted Answer

A) True 
 B)False

Question 14

Which assumption leads to an efficient allocation of resources among firms?

Accepted Answer

A)  Factor markets are open and competitive. 
B)  All firms pay different prices for identical inputs. 
C)  Firms behave so as to minimize their profits. 
D)  All of the above are correct. 
A)  Factor markets are open and competitive. 
B)  All firms pay different prices for identical inputs. 
C)  Firms behave so as to minimize their profits. 
D)  All of the above are correct.

Question 15

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

Accepted Answer

A)  quantity 
B)  opportunity cost 
C)  productivity 
D)  availability 
A)  quantity 
B)  opportunity cost 
C)  productivity 
D)  availability

Question 16

Sources of market failure include

Accepted Answer

A)  private goods. 
B)  competitive behavior. 
C)  externalities. 
D)  unequal income distribution. 
A)  private goods. 
B)  competitive behavior. 
C)  externalities. 
D)  unequal income distribution.

Question 17

Which of the following is true about public goods?

Accepted Answer

A)  They bestow collective benefits on members of society. 
B)  They are excludable since those who do not pay for them can be excluded from enjoying them. 
C)  They will be over supplied by the private sector. 
D)  They are only produced by government agencies. 
A)  They bestow collective benefits on members of society. 
B)  They are excludable since those who do not pay for them can be excluded from enjoying them. 
C)  They will be over supplied by the private sector. 
D)  They are only produced by government agencies.

Question 18

To conduct a general equilibrium analysis of a change in consumer preferences away from beef and toward chicken, you must consider

Accepted Answer

A)  changes in the equilibrium prices and quantities of beef and chicken. 
B)  changes in the amount of resources allocated to the production of beef and chicken. 
C)  changes in the price of resources allocated to the production of beef and chicken. 
D)  all of the above 
A)  changes in the equilibrium prices and quantities of beef and chicken. 
B)  changes in the amount of resources allocated to the production of beef and chicken. 
C)  changes in the price of resources allocated to the production of beef and chicken. 
D)  all of the above

Question 19

Market failure results in

Accepted Answer

A)  inflation. 
B)  waste. 
C)  budget deficits. 
D)  Pareto optimality. 
A)  inflation. 
B)  waste. 
C)  budget deficits. 
D)  Pareto optimality.

Question 20

One criterion used to judge the performance of any economic system is

Accepted Answer

A)  equity. 
B)  revenue generation. 
C)  nominal growth. 
D)  inflation. 
A)  equity. 
B)  revenue generation. 
C)  nominal growth. 
D)  inflation.

Exam 12: General Equilibrium and the Efficiency of Perfect Competition

________ is an example of a public good.

A new technology is developed for producing solar panels that reduces production costs by 40%. Which of the following is true?

Efficiency is another word for equity.

Market failure occurs when

Pareto optimality is the condition in which

You value your economics textbook at $40. Someone else values it at $30, but that person is willing to pay you $35 for your textbook. Would selling your textbook to this person for $35 be Pareto efficient?

You value your favorite shirt at $100. Someone else values it at $80, and that person is willing to pay you $80 for your shirt. Would selling your shirt to this person for $80 be Pareto efficient?

We refer to the whole class of goods that firms will ________ in a completely unregulated market economy as public goods.

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

If some gain and some lose as the result of a change, and it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be

Refer to the information provided in Figure 12.1 below to answer the question(s) that follow. Figure 12.1 -Refer to Figure 12.1. The firm is

A perfectly competitive system is efficient.

Clean air is an example of a public good.

Which assumption leads to an efficient allocation of resources among firms?

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

Sources of market failure include

Which of the following is true about public goods?

To conduct a general equilibrium analysis of a change in consumer preferences away from beef and toward chicken, you must consider

Market failure results in

One criterion used to judge the performance of any economic system is

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

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