Question 1

If resources are used efficiently, then

Accepted Answer

A)   marginal social cost is minimized.
B)   consumer surplus plus producer surplus is maximized.
C)   consumer surplus equals producer surplus.
D)   producer surplus is maximized. B

Question 2

-The above figure shows the marginal social benefit and marginal social cost curves of doughnuts in the nation of Kaffenia. What is the marginal social cost to the economy of Kaffenia of producing the 300th dozen doughnuts each day?

Accepted Answer

A)   $10.00 per dozen
B)   $8.00 per dozen
C)   $6.00 per dozen
D)   $4.00 per dozen B

Question 3

Underproduction compared to the efficient amount implies that for the last unit produced

Accepted Answer

A)   marginal social benefit exceeds marginal social cost.
B)   marginal social benefit equals marginal social cost.
C)   marginal social cost exceeds marginal social benefit.
D)   the deadweight loss is zero. A

Question 4

-The figure above shows the market for milk. If 100 gallons of milk a day are available, the ________ price that consumers are willing to pay for the last gallon is ________.

Accepted Answer

A)   maximum; $2.50
B)   minimum; $3.00
C)   maximum; $4.00
D)   minimum; $4.00

Question 5

At the current level of output, the marginal social benefit of pizza exceeds the marginal social cost of pizza. Compared to the allocatively efficient quantity, we are producing too ________ pizza and too ________ of other goods.

Accepted Answer

A)   much; little
B)   much; much
C)   little; little
D)   little; much

Question 6

-The above figure shows the marginal social benefit and marginal social cost curves of chocolate in the nation of Kaffenia. What is the efficient quantity of chocolate to produce each day?

Accepted Answer

A)   zero
B)   100 pounds
C)   150 pounds
D)   250 pounds

Question 7

-In the above figure, suppose the quantity produced is 40. Then

Accepted Answer

A)   the marginal social cost of the 40th unit is $1.
B)   the willingness to pay for the 40th unit is $2, the equilibrium price.
C)   production is not efficient because MSB > MSC.
D)   production is not efficient because MSC>MSB.

Question 8

-In the above figure, a price of $1.25 and a quantity of 5 million gallons of milk per day maximizes the

Accepted Answer

A)   amount of consumer surplus.
B)   amount of producer surplus.
C)   sum of consumer surplus and producer surplus.
D)   All of the above answers are correct.

Question 9

-In the above figure, if the price is $1.25 per gallon of milk and 5 million gallons are produced and consumed, then the consumer surplus is ________ and the producer surplus is ________.

Accepted Answer

A)   $3.125 million; $3.125 million
B)   $12.5 million; $12.5 million
C)   $6.25 million; $6.25 million
D)   None of the above answers are correct.

Question 10

At the beginning of World War II, a rationing system was established in the United States. Ration stamps or cards were issued for a variety of commodities such as canned milk and gasoline. Canned milk was only available to babies and small children. In this example, canned milk was allocated through

Accepted Answer

A)   personal characteristics.
B)   market price.
C)   majority rule.
D)   first-come, first-served.

Question 11

If there is an external cost from making paper, an unregulated competitive market produces

Accepted Answer

A)   less than the efficient quantity.
B)   the efficient quantity.
C)   more than the efficient quantity.
D)   a quantity that could be greater than, the same as, or less than the efficient amount.

Question 12

Deadweight loss is

Accepted Answer

A)   not a social loss.
B)   made up of a loss of only consumer surplus.
C)   made up of a loss of only producer surplus.
D)   made up of a loss of both consumer surplus and producer surplus.

Question 13

The Wii was a wildly popular home video game console released by Nintendo. The Wii system was first available in the United States in November, 2006 and sold more than 30 million units as of August 2010. The Wii retails for $199. Suppose Ahmed was willing to pay $230, Lana is willing to pay $175, and Bodie is willing to pay $300 for a Wii. Who will purchase a Wii?

Accepted Answer

A)   Ahmed and Bodie
B)   Ahmed
C)   Lana
D)   Ahmed, Bodie, and Lana

Question 14

The minimum supply-price is the same as

Accepted Answer

A)   marginal cost.
B)   market price.
C)   producer surplus.
D)   profit.

Question 15

-The figure above shows the market for coffee. The ________ price that producers must be offered to get them to produce 30 million pounds of coffee per month is ________.

Accepted Answer

A)   maximum; $2.50
B)   minimum; $2.50
C)   maximum; $4.00
D)   minimum; $4.00

Question 16

Meat at the supermarket has contributed to increase in food prices in 2010, and high feed and fuel prices mean that steak will likely cost a lot more this fall. The price of feed has increased 50 percent and hay has doubled from two years ago. Based on this information, which of the following is NOT true in the market for beef?

Accepted Answer

A)   The consumer surplus will decrease.
B)   The equilibrium quantity will increase.
C)   The total surplus will decrease.
D)   The equilibrium price will increase.

Question 17

-The above figure shows the marginal social benefit and marginal social cost curves of doughnuts in the nation of Kaffenia. When the marginal social benefit of the last dozen doughnuts is equal to the marginal social cost

Accepted Answer

A)   the efficient quantity is being produced and consumed.
B)   200 dozen doughnuts are produced and consumed each day.
C)   an increase in production and consumption would increase efficiency.
D)   Both answers A and B are correct.

Question 18

The annual Great Sofa Round-up is a collaborative event between Colorado State University and the City of Fort Collins aims to help students and neighbors get rid of unwanted furniture, while giving people in need access to inexpensive sofas. Suppose on the day of the Round-up, your friends take their couches to the main parking lot on campus where the Round-up is held. Raj will not sell his couch for less than $30, Emily will not sell her couch for less than $50, Nara will not sell her couch for less than $20, Sergio just wants to get rid of his couch and he is willing to give it away for free. At the Round-up, potential buyers think that all the couches available are basically the same and they are willing to buy a couch for $50. Who will sell their couch?

Accepted Answer

A)   Raj, Emily, Nara, and Sergio
B)   Raj, Nara, and Sergio
C)   Emily, Nara, and Sergio
D)   Emily

Question 19

Which of the following CORRECTLY defines utilitarianism?

Accepted Answer

A)   Cost will increase if production increases.
B)   The difference between what a consumer is willing to pay and what actually has to be paid.
C)   Society should strive to achieve the greatest good for the greatest number.
D)   Equality will not result in efficient outcomes.

Question 20

Consumer surplus is the value of a good minus the cost of producing it, summed over the quantity bought.

Accepted Answer

A) True 
 B)False

Exam 5: Efficiency and Equity