Test Bank | Chapter 6 Efficiency and Fairness of Markets 9th - Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade by Robin Bade. DOCX document preview.
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Foundations of Microeconomics, 9e (Bade)
Chapter 6 Efficiency and Fairness of Markets
6.1 Allocation Methods and Efficiency
1) Walmart has a limited number of "Black Friday" (the day-after Thanksgiving Day) special items on sale at prices well below their typical price. Walmart opens at 10 PM on Thanksgiving. Walmart is using a ________ allocation method for these items.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
Topic: Allocation methods
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
2) A city must decide to pay for its workers pension plan. If the city puts the decision up for a vote by citizens, resource use will be determined by a ________ method.
A) majority rule
B) first-come, first-served
C) sharing equally
D) command
E) force
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Application of knowledge
3) Drivers in Atlanta can choose to use toll lanes on I-75. The toll changes during the day depending on congestion and traffic flow. Toll lane resources are determined using the ________ method.
A) first-come, first-served
B) sharing equally
C) contest
D) command
E) market price
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Application of knowledge
4) A university has a speakers series each semester. Students line up early in order to get a limited number of free tickets to hear the speaker's program. The seats are allocated using the ________ method.
A) command
B) market price
C) first-come, first-served
D) contest
E) sharing equally
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
5) Often people trying to withdraw money from their bank must wait in line, which reflects a ________ allocation method.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
6) University of Colorado reserves 5,000 free tickets to each home football game for students. Students must stand in line to receive their ticket. Football tickets are allocated through which method?
A) market price
B) sharing equally
C) personal characteristics
D) first-come, first-served
E) force
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
7) Auditors working for a large accounting firm are often away from the office. When they are in the office, they are allowed to use any desk that is available. Which method is used to allocate desks?
A) lottery
B) first-come, first-served
C) command
D) contest
E) sharing equally
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
8) When you arrive at Olive Garden with your date, you have to wait 25 minutes for a table. Olive Garden is allocating tables using which method?
A) market price
B) first-come, first-served
C) command
D) personal characteristics
E) sharing equally
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
9) Mandy saved her allowance to buy a 12 pack of cream soda. When Mandy's brother saw the soda, he took four. Sodas were allocated between Mandy and her brother through
A) force.
B) majority rule.
C) first-come, first-served.
D) sharing equally.
E) personal characteristics.
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
10) Which of the following situations describing a resource allocation method most resembles the force method?
A) Seventy percent of Austin's chess club wanted to purchase new chess sets and thirty percent did not. The club purchased the sets.
B) Lattes are sold at Starbucks.
C) Food from the Weld County Food Bank is distributed to families in need.
D) Mandy saved her allowance to buy a 12 pack of cream soda. When Mandy's brother saw the soda, he took four.
E) Jose works at Intel. His manager tells him what work needs to be completed each month.
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
11) Honda will sell its vehicles to anyone who wants to and can buy one. Honda is using a ________ allocation method.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
12) The resource allocation method used for the online auctions on eBay is
A) market price.
B) lottery.
C) contest.
D) first-come, first-served.
E) sharing equally.
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
13) Lattes at Starbucks are allocated to individuals in society through what type of method?
A) lottery
B) contest
C) sharing equally
D) market price
E) personal characteristics
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
14) Which of the following situations describing a resource allocation method most resembles the market price method?
A) Food from the Weld County Food Bank is distributed to families in need.
B) Lattes are sold at Starbucks.
C) Jose works at Intel. His manager tells him what work needs to be completed each month.
D) Matt's mother had the rule that whoever cuts the cake chooses their slice last.
E) Seventy percent of Austin's chess club wanted to purchase new chess sets and thirty percent did not. The club purchased the sets.
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
15) If a landlord will rent an apartment only to married couples, the landlord is using a ________ allocation method.
A) majority rule
B) market price
C) contest
D) personal characteristics
E) command
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
16) Canned milk was only rationed to babies and small children during World War II. This rationing was an example of allocation by
A) market price.
B) first-come, first-served.
C) sharing equally.
D) force.
E) personal characteristics.
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
17) Although Jack and Vanessa were equally qualified, Jack was promoted to manager instead of Vanessa because the president of the company thought that the other employees would not respect a female manager. The resource, the management position, was allocated in what manner?
A) sharing equally
B) contest
C) personal characteristics
D) command
E) lottery
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
18) Allocating resources by the order of someone in authority is a ________ allocation method.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
19) Jose works at Intel. His manager tells him what work needs to be completed each month. Jose's resource, labor, is allocated with which of the following methods?
A) command
B) majority rule
C) force
D) personal characteristics
E) lottery
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
20) The chair of the Department of Economics at Colorado State University decided that office space is for tenured faculty and that graduate students are required to share cubicles. What method is used to allocate office space?
A) lottery
B) majority rule
C) command
D) first-come, first-served
E) sharing equally
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
21) If you split your dessert with your date, you are using a ________ allocation method.
A) first-come, first-served
B) sharing equally
C) contest
D) personal characteristics
E) command
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
22) When the city of Fresno holds a referendum to determine if taxes will be raised to pay for road repairs, the city is using a ________ allocation method.
A) majority rule
B) market price
C) contest
D) personal characteristics
E) command
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
23) Seventy percent of Austin's chess club wanted to purchase new chess sets and thirty percent did not. The club purchased the sets. Which method of allocation best describes the choice to purchase the sets?
A) force
B) sharing equally
C) command
D) majority rule
E) lottery
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
24) Which of the following situations describing a resource allocation method most resembles the majority rule method?
A) Seventy percent of Austin's chess club wanted to purchase new chess sets and thirty percent did not. The club purchased the sets.
B) Lattes are sold at Starbucks.
C) Food from the Weld County Food Bank is distributed to families in need.
D) Jose works at Intel. His manager tells him what work needs to be completed each month.
E) Matt's mother had the rule that whoever cuts the cake chooses their slice last.
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
25) In 2020, tickets to a Presidential Town Hall meeting were distributed to individuals through a random selection of those who registered on a website. The tickets were allocated by which method?
A) lottery
B) majority rule
C) contest
D) first-come, first-served
E) personal characteristics
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
26) The Ironman Hawaii randomly draws a few hundred slots from thousands of applicants for the race. The method of allocation for the opportunity to participate in the race is ________, and the method of allocation for determining the winner of the race is ________.
A) lottery; contest
B) contest; lottery
C) first-come, first-served; lottery
D) lottery; first-come, first-served
E) contest; command
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
27) The table above shows the production possibilities for an economy. When the economy produces a combination of 900 books and 50 loaves of bread
A) production efficiency occurs because resources are not overused.
B) allocative efficiency is achieved because both goods are produced.
C) production efficiency is not achieved.
D) allocative and production efficiency are both achieved.
E) production efficiency is not achieved but allocative efficiency might be achieved.
Topic: Production efficiency
Skill: Level 4: Applying models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
28) Resource use is allocative efficient
A) when it is not possible to produce more of one good.
B) when we produce goods and services that we value most highly.
C) when most resources are fully employed.
D) at any point on the PPF.
E) at all points either on or within the PPF because all these production points are attainable.
Topic: Allocative efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
29) Allocative efficiency refers to
A) producing the goods and services most highly valued.
B) using the least amount of labor to produce output.
C) producing the maximum possible amount of output.
D) obtaining the least output with the most inputs.
E) producing at any point on the PPF.
Topic: Allocative efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
30) When allocative efficiency occurs
A) an economy produces the goods and services most highly valued.
B) marginal benefit exceeds marginal cost by some amount.
C) technology must be increasing.
D) we can simultaneously produce more of all goods.
E) marginal benefit exceeds marginal cost by as much as possible.
Topic: Allocative efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
31) To achieve allocative efficiency, an economy
A) must produce on its PPF.
B) does not necessarily need to be production efficient.
C) must have increases in technology.
D) might leave some resources unemployed.
E) can produce either on or within its PPF.
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
32) If an economy is allocatively efficient, it must be producing
A) beyond its production possibilities frontier.
B) inside its production possibilities frontier.
C) on its production possibilities frontier.
D) the goods and services that are the most expensive.
E) the goods and services that are the least expensive to produce.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
33) When a society achieves allocative efficiency, it
A) is not achieving production efficiency.
B) is producing that combination of goods and services that society values most highly.
C) might or it might not be producing at a point on society's PPF.
D) is producing a combination of goods and services whose marginal cost exceeds their marginal benefit.
E) is producing the combination of goods and services for which marginal benefit exceeds marginal cost by as much as possible.
Topic: Allocative efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
34) To determine allocative efficiency, the ________ used to determine what is possible to produce and the ________ used to determine the allocatively efficient point.
A) PPF is; marginal benefit and marginal cost curves are
B) marginal benefit and marginal cost curves are; marginal benefit and marginal cost curves are
C) PPF; supply curve
D) marginal benefit and marginal cost curves are; PPF
E) marginal benefit curve; demand curve
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Application of knowledge
35) The tollway authority must decide the efficient allocation of resources to build toll roads. To determine the efficient allocation of resources, the tollway authority must compare
A) the PPF to the marginal benefit curve.
B) marginal cost to marginal benefit.
C) the demand curve to the PPF.
D) command method to the market price method.
E) the force method to the command method.
Topic: Allocation of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Application of knowledge
36) Marginal benefit is the benefit that a person receives from consuming
A) a good or service until the person has grown tired of it.
B) only goods and services that are free.
C) one more unit of a good or service.
D) all of the possible units of a good or service that can be consumed.
E) one more unit of a good and is equal to the cost of producing the unit of the good.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
37) Marginal benefit is the
A) total benefit we receive from consuming a good or service.
B) additional benefit we receive from consuming one more unit of a good or service.
C) minimum amount of other goods or services we are willing to give up.
D) opportunities given up to get one more unit of a good or service.
E) the benefit we receive from consuming one more unit of a good or service minus the cost of the producing one more unit of the good or service.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
38) The marginal benefit of a taco is measured by
A) the price of the taco.
B) the amount of another good a person is willing to give up to get one more taco.
C) the amount of another good a person must give up to get one more taco.
D) a point on the PPF.
E) the opportunity cost of producing another taco.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
39) Marginal benefit
A) increases as more of a good is consumed.
B) decreases as more of a good is consumed.
C) is the total benefit from all units consumed.
D) is constant as more of a good is consumed.
E) is the gain to the producer of producing and selling one more unit of a good.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
40) As more of a good is consumed, the marginal benefit of the good
A) increases.
B) decreases.
C) remains constant.
D) is unpredictable.
E) first decreases and then increases.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
41) The principle of decreasing marginal benefit explains why the marginal benefit curve
A) is upward sloping.
B) has an infinite slope.
C) is vertical.
D) is downward sloping.
E) is horizontal.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
42) In general, the marginal benefit curve
A) has a positive slope.
B) has a negative slope.
C) is horizontal.
D) is vertical.
E) is concave.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
43) The point that each glass of lemonade consumed on a hot day brings lower and lower levels of satisfaction is known as the principle of
A) total benefits.
B) increasing marginal cost.
C) decreasing marginal benefit.
D) increasing opportunity cost.
E) decreasing marginal price.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
44) The marginal benefit of the first hotdog consumed is ________ the marginal benefit of the fifth hotdog consumed.
A) equal to
B) less than
C) greater than
D) the inverse of
E) equal to 5 times
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
45) Suppose Jennifer derives $100 in marginal benefits from her first skiing trip and $80 from her third trip. Her marginal benefit from her second trip is likely to be
A) more than $100.
B) between $100 and $80.
C) between $79 and $51.
D) less than $51.
E) some amount that cannot be calculated without additional information.
Topic: Marginal benefit
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
46) Marginal benefit curves
A) have positive slopes.
B) have negative slopes.
C) are horizontal lines.
D) are vertical lines.
E) are upside-down U-shaped curves.
Topic: Marginal benefit
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
47) Marginal cost equals
A) the profitability derived from producing another unit of output.
B) all the opportunity cost of producing the amount of output.
C) or exceeds the marginal benefit.
D) productive efficiency.
E) the opportunity cost of producing one more unit of output.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
48) Marginal cost is the opportunity cost of producing
A) every unit possible.
B) zero units.
C) the first unit and only the first unit.
D) one more unit of a good or service.
E) None of the above answers is correct.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
49) Moving ________ along the marginal cost curve, the ________.
A) upward; opportunity cost of one more unit increases
B) upward; marginal cost decreases
C) downward; marginal cost increases
D) upward; opportunity cost of one more unit does not change
E) downward; opportunity cost of one more unit does not change
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
50) The marginal cost of a good or service
A) can be calculated from the marginal benefit of that good or service.
B) decreases as more of the good or service is produced.
C) can be derived from the production possibilities frontier.
D) graphs as a positively sloped curve, so it cannot be derived from the production possibilities frontier, which is downward sloping.
E) None of the above answers is correct.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
51) The marginal cost curves slope upward because of the principle of
A) decreasing marginal benefits.
B) increasing marginal cost.
C) increasing marginal benefits.
D) decreasing marginal cost.
E) decreasing total benefit.
Topic: Marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
52) The marginal cost curve is
A) downward sloping to reflect the bowed out PPF.
B) downward sloping as marginal benefits increase.
C) upward sloping because marginal cost falls as more of a good or service is produced.
D) upward sloping to reflect the increasing opportunity cost of producing one more unit.
E) U-shaped to reflect the bowed out PPF.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
53) As more of a good is consumed, marginal benefit ________ and as more of a good is produced, marginal cost ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Topic: Marginal benefit, marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
54) Which of the following is necessary for allocative efficiency to be achieved?
A) Marginal benefit must be maximized.
B) Marginal cost must be minimized.
C) Marginal benefit must equal marginal cost.
D) The difference between marginal benefit and marginal cost must be maximized.
E) Production must be at a point inside the production possibilities frontier.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
55) In order to efficiently allocate goods and services, we have to compare
A) total cost to marginal benefit.
B) total cost to price.
C) marginal benefit to price.
D) marginal cost to marginal benefit.
E) price to marginal cost.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
56) To achieve allocative efficiency, one must compare the
A) marginal cost of a good to its opportunity cost.
B) opportunity cost to the attainable point on the production possibilities frontier.
C) marginal benefit of a good to its marginal cost.
D) marginal cost to the production efficiency cost.
E) point of production efficiency to the point of allocative efficiency.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
57) We allocate resources efficiently when
A) marginal benefit is equal to marginal cost.
B) marginal benefit is greater than marginal cost by any amount.
C) marginal cost is greater than marginal benefit.
D) total benefit is greater than total cost.
E) marginal benefit is greater than marginal cost by as much as possible.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
58) Allocative efficiency is achieved when the marginal benefit of a good
A) exceeds the marginal cost regardless of how much the difference is.
B) is less than its marginal cost.
C) is equal to its marginal cost.
D) equals zero.
E) exceeds the marginal cost by as much as possible.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
59) Allocative efficiency is achieved when the production is such that
A) the marginal benefit exceeds the marginal cost by as much as possible.
B) marginal cost equals zero.
C) marginal benefit is equal to marginal cost.
D) the production point is on the PPF.
E) None of the above is true.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
60) All points on the production possibilities frontier
A) are production inefficient.
B) achieve allocative efficiency.
C) are production efficient but only one point achieves allocative efficiency.
D) are allocatively efficient but only one point achieves production efficiency.
E) are allocatively inefficient.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
61) When the marginal benefit and marginal cost of sodas are equal, then
A) the production of sodas might be allocatively efficient but it is definitely production inefficient.
B) the allocatively inefficient amount of sodas is being produced.
C) more sodas should be produced to reach the allocatively efficient quantity.
D) fewer sodas should be produced to reach the allocatively efficient quantity.
E) the allocatively efficient amount of sodas is being produced.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
62) When the marginal cost of producing a bike is greater than the marginal benefit of the bike, for resource use to be allocatively efficient
A) more bikes should be produced.
B) fewer bikes should be produced.
C) no more and no fewer bikes should be produced.
D) it must be determined if the production of bikes can be increased.
E) people must be educated to demand more bikes.
Topic: Efficient use of resources
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
63) For resource use to be allocatively efficient, when the marginal benefit of a slice of pizza exceeds the marginal cost
A) more slices of pizza should be produced.
B) fewer slices of pizza should be produced.
C) no more slices of pizza should be produced.
D) allocative efficiency is reached only if the marginal benefit exceeds the marginal cost by as much as possible.
E) None of the above answers is correct.
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
64) If the difference between the marginal benefit and the marginal cost of a good is as large as possible
A) resources are being used with maximum efficiency.
B) resources would create more value producing other goods and hence the production of this good should be decreased.
C) more of the good should be produced.
D) allocative efficiency has been attained.
E) Both answers A and D are correct.
Topic: Efficient use of resources
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
65) Any point on the production possibility frontier is
A) attainable and might be allocatively inefficient.
B) attainable and must be allocatively efficient.
C) less production efficient than a point in the interior of the PPF.
D) always allocatively efficient but might or might not be production efficient.
E) always production efficient and always allocatively efficient.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
66) Which of the following are the rules for finding the point of allocative efficiency?
A) Produce on the PPF and then produce where the marginal benefit and marginal cost are as large as possible.
B) Produce on the PPF and then produce where marginal benefit equals marginal cost.
C) Produce on the PPF and then produce where marginal benefit and marginal cost are constant.
D) Produce on the PPF and then produce where the marginal benefit exceeds marginal cost by as much as possible.
E) Produce anywhere on the PPF.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
67) Allocative efficiency occurs
A) anywhere inside or on the production possibilities frontier.
B) when the total cost of production is minimized.
C) at all points on the production possibilities frontier.
D) at only one point on the production possibilities frontier.
E) at the points where the production possibilities frontier crosses the horizontal or vertical axis.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
68) When society produces the combination of goods and services on the PPF that it values the most highly, society has
A) achieved only production efficiency and definitely not allocative efficiency.
B) achieved only allocative efficiency definitely not production efficiency.
C) achieved both production efficiency and allocative efficiency.
D) achieved a free lunch.
E) perhaps achieved production efficiency and has perhaps achieved allocative efficiency.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
69) To determine how much of a good to produce to achieve allocative efficiency, we
A) construct a production possibilities frontier and choose the midpoint.
B) construct a production possibilities frontier and choose any point on it.
C) must produce on the PPF and at the point where the marginal benefit and marginal cost of the good are equal.
D) must produce on the PPF and at the point where the marginal benefit exceeds by any amount the marginal cost of the good.
E) must produce on the PPF and at the point where the marginal benefit exceeds by as much as possible the marginal cost of the good.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
70) Suppose the nation is producing at a point on its PPF. If the marginal cost of producing one more computer is greater than the marginal benefit, the nation is producing
A) too few computers to be allocatively efficient.
B) too many computers to be allocatively efficient.
C) the correct number of computers to be allocatively efficient.
D) at the point of allocative efficiency.
E) More information is needed to determine if the nation is or is not producing at the allocatively efficient point.
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
71) The figure above shows Kaley's marginal benefit from swimming with manatees and Scott's marginal cost of providing manatee swimming tours. At 1 manatee swim per week, Kaley's marginal benefit is ________ and Scott's marginal cost is ________.
A) $40; $10
B) $40; $40
C) $90; $50
D) None of the above answers is correct.
Topic: Efficient use of resources
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
72) The figure above shows Kaley's marginal benefit from swimming with manatees and Scott's marginal cost of providing manatee swimming tours. If Scott offers two swim tours per week, he incurs a marginal cost of
A) more than $30.
B) $30.
C) $20.
D) $10.
E) $2.
Topic: Efficient use of resources
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
73) The figure above shows Kaley's marginal benefit from swimming with manatees and Scott's marginal cost of providing manatee swimming tours. For Kaley and Scott, allocative efficiency is achieved at what point?
A) A
B) B
C) C
D) D
E) Either point A or point D
Topic: Efficient use of resources
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
74) The figure above shows a nation's production possibilities frontier. If the marginal cost equals the marginal benefit at point A when 4 million pizzas are produced
A) allocative efficiency is achieved but production efficiency is not achieved because there are no tacos being produced.
B) both allocative and production efficiency are achieved.
C) production efficiency is achieved but allocative efficiency is not achieved because there are no tacos being produced.
D) production efficiency is achieved but allocative efficiency is not achieved because the number of tacos produced is at its absolute maximum.
E) neither allocative nor production efficiency has been achieved.
Topic: Efficient use of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
75) If a landlord will rent an apartment only to married couples over 30 years old, the landlord is allocating resources using a ________ allocation method.
A) majority rule
B) market price
C) contest
D) personal characteristics
E) command
Topic: Allocation of resources
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
76) Allocative efficiency occurs when
A) the most highly valued goods and services are produced.
B) all citizens have equal access to goods and services.
C) the environment is protected at all cost.
D) goods and services are free.
E) production takes place at any point on the PPF.
Topic: Efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
77) Marginal benefit equals the
A) benefit that a person receives from consuming another unit of a good.
B) additional efficiency from producing another unit of a good.
C) increase in profit from producing another unit of a good.
D) cost of producing another unit of a good.
E) total benefit from consuming all the units of the good or service.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
78) In general, the marginal cost curve
A) has a positive slope.
B) has a negative slope.
C) is horizontal.
D) is vertical.
E) is U-shaped.
Topic: Marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
79) Allocative efficiency is achieved when the marginal benefit of a good
A) exceeds the marginal cost by as much as possible.
B) exceeds the marginal cost, but not by as much as possible.
C) is less than the marginal cost.
D) equals the marginal cost.
E) equals zero.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Reflective thinking
6.2 Value, Price, and Consumer Surplus
1) Which describes the economic meanings of value and price?
A) Value is exchange worth minus marginal benefit and price is the dollars that must be paid.
B) Value is the marginal benefit obtained and price is the dollars that must be paid.
C) Value refers to the gain the producer gets from the good or service and price refers to the gain the consumer gets from the good or service.
D) Value refers to the dollars that must be paid and price refers to the cost of producing the good.
E) They are the same and both mean the dollars that must be paid.
Topic: Value
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
2) The value of a slice of pizza to a consumer is equal to
A) its marginal benefit.
B) the maximum price the consumer is willing to pay.
C) the consumer surplus.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Topic: Value
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
3) To an economist, "value" is the same as
A) marginal cost.
B) consumer surplus.
C) the minimum price that people are willing to pay for another unit of the good.
D) marginal benefit.
E) total surplus.
Topic: Value
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
4) Which of the following statements is correct?
i. The demand curve shows the maximum price people are willing to pay for a given quantity of the good.
ii. The maximum price a consumer is willing to pay for an additional unit is the marginal benefit of that unit.
iii. Value is what a consumer receives and price is what a consumer pays.
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Topic: Value
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
5) Value and price can be compared by noting that
A) they are the same thing.
B) value is always greater than price.
C) value is what we must pay while price is what we are willing to pay.
D) price is what we must pay and value is what we are willing to pay.
E) value is what the seller receives when we buy a good, and price is what we must pay when we buy a good.
Topic: Value
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
6) The maximum amount of other goods and services that people are willing to give up in order to get one more unit of a good is defined as the good's
A) marginal benefit.
B) total benefit.
C) marginal cost.
D) total cost.
E) price.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
7) The marginal benefit of each additional unit of a good consumed
A) increases as more is consumed.
B) is always equal to its marginal cost.
C) decreases as more is consumed.
D) will maximize consumer surplus.
E) is equal to the deadweight loss if the unit of the good is not produced.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
8) The phrase "decreasing marginal benefit" means that
A) the more you consume of the product, the less total benefit you derive.
B) the marginal cost will be increasing as you consume more of a good.
C) each additional unit of a good you consume gives you less additional benefit than the previous unit.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
9) What must be TRUE for a consumer to buy a good or service?
A) The price must be equal to or less than the marginal benefit.
B) The total benefit received must equal the total spent to buy the good or service.
C) The consumer must be able to obtain some consumer surplus.
D) The consumer must not be able to produce the product.
E) The price must be equal to or greater than the marginal benefit.
Topic: Demand curve and marginal benefit curve
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
10) Mark loves ice cream. At any point in time, he will buy an additional ice cream cone if
A) the marginal benefit from it exceeds the price.
B) the marginal benefit from it is zero.
C) his willingness to pay is less than the price.
D) there is no deadweight loss produced by his purchase of a cone.
E) None of the above answers is correct.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
11) A point on the demand curve shows the
A) price and the corresponding quantity demanded.
B) marginal benefit from that unit.
C) marginal cost to the seller of producing the unit.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Topic: Demand curve and marginal benefit curve
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
12) A point on the demand curve shows the
A) minimum price that people are willing to pay for another unit of a good.
B) dollars' worth of other goods that people must sacrifice to consume another unit of the good.
C) maximum price that people are willing to pay for another unit of a good.
D) consumer surplus a person gains from consuming a unit of a good.
E) marginal benefit minus the consumer surplus from consuming another unit of a good.
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
13) The demand curve is also the
A) total cost curve.
B) total benefit curve.
C) marginal cost curve.
D) marginal benefit curve.
E) marginal deadweight cost curve.
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
14) A demand curve can be interpreted as
A) a marginal benefit curve.
B) a total benefit curve.
C) an average benefit curve.
D) a marginal cost curve.
E) None of the above answers is correct.
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
15) Which of the following is TRUE regarding a demand curve?
i. The demand curve is also the marginal benefit curve.
ii. The demand curve shows the dollars' worth of other goods that people are willing to forgo to consume another unit of the good.
iii. The demand curve shows the maximum price that people are willing to pay for another unit of a good.
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) i only
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
16) The marginal benefit from buying a particular unit of a good
A) is the amount paid for the unit plus the consumer surplus of the unit.
B) increases as market price increases.
C) is the difference between the amount paid for the unit and the market price of the unit.
D) is the difference between the total benefit of the unit and the marginal cost of producing that unit.
E) None of the above answers is correct.
Topic: Total benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
17) Consumers' total benefit from consuming a good is equal to the
A) total amount spent on the good.
B) consumer surplus on the quantity purchased.
C) consumer surplus plus the total amount spent on the good.
D) consumer surplus minus the total amount spent on the good.
E) total amount spent on the good divided by the number of units purchased.
Topic: Total benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
18) Samantha was willing to pay $10 for a hamburger because she was hungry but she only paid $2.50. What is the marginal benefit Samantha gained from the hamburger?
A) $2.50
B) $7.50
C) $10.00
D) $12.50
E) None of the above answers is correct.
Topic: Total surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
19) Consumer surplus exists when a
A) person buys something with a marginal benefit less than what they paid.
B) person buys something with a marginal benefit exactly what they paid.
C) person buys something with a marginal benefit more than what they paid.
D) producer sells something for more than it is worth.
E) person buys something with a marginal cost less than what they paid.
Topic: Consumer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
20) Shelby said to her friend, "I just bought a new pair of climbing shoes and I love them so much that I totally would have paid more for them." Shelby was describing the concept of
A) consumer surplus.
B) producer surplus.
C) equilibrium.
D) marginal cost.
E) total surplus.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
21) Jake just bought a new hockey stick. When he was leaving the shop, he thought that he such a great deal and would have paid $50 more dollars for the stick. Jake received
A) producer surplus.
B) equilibrium.
C) marginal cost.
D) total surplus.
E) consumer surplus.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
22) Consumer surplus exists when
A) it costs less to produce goods than buyers must pay for them.
B) consumers value the good more highly than what they must pay to buy it.
C) taxes on goods are less than the appropriate amount.
D) the marginal benefit of the good is always equal to or less than the price of the good.
E) the price of the good is greater than the marginal cost of producing a unit of the good.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
23) The consumer acquires a consumer surplus on a good if the marginal benefit is
A) equal to the price.
B) greater than the price.
C) less than the price.
D) zero.
E) less than the marginal cost.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
24) Consumer surplus is equal to
A) marginal benefit minus price summed over the quantity consumed.
B) price minus marginal benefit summed over the quantity consumed.
C) marginal benefit summed over the quantity consumed.
D) price multiplied by the quantity consumed.
E) marginal benefit plus price summed over the quantity consumed.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
25) Which of the following statements is correct?
A) Consumer surplus equals the price paid for a good.
B) The consumer surplus from a good is always larger than the total benefit from the good.
C) An increase in price decreases consumer surplus.
D) An increase in price has no effect on consumer surplus.
E) The consumer surplus from a good or service must always equal producer surplus.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
26) In a figure, the consumer surplus is equal to the area ________ the ________ curve and ________ the price.
A) above; demand; above
B) below; supply; below
C) below; demand; below
D) below; demand; above
E) above; supply; below
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
27) Consumer surplus is the area
A) below the demand curve and above the market price up to the quantity consumed.
B) below the supply curve and above the market price up to the quantity produced.
C) above the demand curve and below the market price up to the quantity consumed.
D) above the supply curve and below the market price up to the quantity produced.
E) below the demand curve and above the supply curve up to the equilibrium quantity.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Revised
AACSB: Analytical thinking
28) When the market price rises, the consumers' consumer surplus ________. When the market price falls, the consumers' consumer surplus ________.
A) decreases; increases
B) decreases; decreases
C) increases; increases
D) increases; decreases
E) does not change; increases
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
29) In the summer of 2016, the price of gasoline increased greatly. If the demand curve for gasoline did not shift, which of the following occurred?
A) Drivers received no consumer surplus after the price increase.
B) Consumer surplus increased if drivers drove less.
C) Consumer surplus decreased.
D) If consumers drove the same amount, they received less total benefit.
E) Both the marginal benefit from each gallon of gasoline and the consumer surplus from each gallon of gasoline decreased.
Topic: Consumer surplus
Skill: Level 4: Applying models
Section: Checkpoint 6.2
Status: Revised
AACSB: Analytical thinking
30) Lauren and Katy each bought a new bike lock for $20. Both Lauren and Katy would have paid $25 for the lock. Katy's consumer surplus equaled
A) $10.
B) $40.
C) $5.
D) $20.
E) $50.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
31) Lauren and Katy each bought a new bike lock for $20. Both Lauren and Katy would have paid $25 for the lock. The total consumer surplus for Lauren and Katy taken together equaled
A) $15.
B) $10.
C) $40.
D) $20.
E) $50.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
32) The price of a cowboy hat is $100. Willie is willing to pay $130, Waylon is willing to pay $100, and Merle is willing to pay $85. All of the following statements are true EXCEPT
A) Merle's consumer surplus is $15.
B) the sum of consumer surplus will be $30.
C) Waylon's consumer surplus is $0.
D) only Willie and Waylon will purchase the cowboy hat.
E) Willie's consumer surplus is $30.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
33) Mary is willing to pay $50 for a Christmas tree, John is willing to pay $45 and Jeff is willing to pay $40. The price of a tree is $40. The total consumer surplus for Mary, John and Jeff taken together is
A) $15.
B) $135.
C) $40.
D) $95.
E) $120.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
34) Suppose Dan is willing to pay a maximum of $3,000 for a piano, but finds one he can buy for $2,500. Dan's consumer surplus from this piano is
A) $5,500.
B) $3,000.
C) $2,500.
D) $500.
E) zero because he buys the piano.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
35) John has a marginal benefit of $7 for 1 slice of pizza, $5 for a second slice, $3 for a third slice, $1 for a fourth slice, and $0.50 for a fifth slice. The price of pizza is $1.50 per slice. Which of the following statements is correct?
A) John will purchase 3 slices of pizza and have consumer surplus of $10.50.
B) John will purchase 4 slices of pizza and have consumer surplus of $12.00.
C) John will purchase 2 slices of pizza and have consumer surplus of $1.50.
D) John will purchase 3 slices of pizza and have consumer surplus of $4.50.
E) John will purchase 2 slices of pizza and have consumer surplus of $3.00.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
36) Which of the following is an example of consumer surplus?
A) Jose buys a hamburger for $2 and tells you he would not have paid a penny more.
B) John believes the price he paid for his computer was too high.
C) Mary buys a paper tablet for $2 and finds the same good at another store for $1.50.
D) Sue would have paid $15 for a new compact disc but paid only $10.
E) Anne finds a mountain bike for which she is willing to pay a maximum of $550 and the price of the bike is $600.
Topic: Consumer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
37) If you are willing to pay no more than $4 for a slice of pizza and the price of a slice of pizza is $4, then
A) if you buy it, you would be cheated because you would realize no total benefit from the purchase.
B) you buy it but you get no marginal benefit from the purchase.
C) you will not buy it.
D) you buy it but you get no consumer surplus from the purchase.
E) you might buy it depending on how the slice's marginal benefit compares to its price.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
38) If a seller charges a buyer the exact price the buyer is willing to pay, then the buyer would
A) not buy the good.
B) receive the maximum consumer surplus.
C) receive no benefit from the good.
D) receive no consumer surplus from that unit of the good.
E) suffer a deadweight loss from buying the good.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
39) The figure above shows that for the 8,000th ticket, the marginal benefit is ________ and the consumer surplus is ________.
A) $60; $20
B) $40; $60
C) $70; $40
D) $150,000; $40
E) $60; $150,000
Topic: Marginal benefit
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Application of knowledge
40) The figure above shows that for the 10,000th ticket, marginal benefit equals ________ and consumer surplus equals ________.
A) $40; $40
B) $40; zero
C) $150,000; $150,000
D) zero; $40
E) $70; $40
Topic: Marginal benefit
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Application of knowledge
41) The figure above shows that the total benefit equals ________ which is the total of ________.
A) $900,000; consumer surplus plus the amount paid
B) $500,000; only the consumer surplus
C) $150,000; only the consumer surplus
D) $100,000; consumer surplus minus the amount paid
E) $400,000; only the amount paid
Topic: Total surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Application of knowledge
42) In the figure above, for the 3,000th unit, the maximum price a consumer is willing to pay is
A) $5.
B) $10.
C) $15.
D) $0.
E) $25.
Topic: Marginal benefit
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
43) In the figure above, at the market price of $15, the consumer surplus equals
A) $10,000.
B) $30,000.
C) $40,000.
D) 2,000 units.
E) $20,000.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
44) The figure above shows Lauren's demand curve for Barbie dolls and the market price for Barbie dolls. Using the area of the consumer surplus triangle, Lauren's total consumer surplus from purchasing 3 dolls is
A) $5.50.
B) $10.00.
C) $22.50.
D) $45.00.
E) 3 dolls.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
45) The figure above shows Lauren's demand curve for Barbie dolls and the market price for Barbie dolls. In order for Lauren to avoid paying more for dolls than they are worth to her, she must not purchase any more than
A) 0 dolls.
B) 1 doll.
C) 3 dolls.
D) 5 dolls.
E) 4 dolls.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
46) In the figure above, suppose that $20 is the market equilibrium price. Which area is the consumer surplus?
A) A
B) B
C) A + B
D) B - A
E) B ÷ A
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
47) In the figure above, suppose that $20 is the market equilibrium price. What is the amount of the consumer surplus?
A) $3,375
B) $3,000
C) $375
D) 150 units
E) $1,500
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
48) The figure above shows Diane's demand curve for soda. The price of a soda is $1.00. Diane's consumer surplus from her 10th soda is
A) $0.00.
B) $0.50.
C) $1.00.
D) $1.50.
E) $2.50.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
49) The figure above shows Diane's demand curve for soda. The price of a soda is $1.00. Diane's consumer surplus from her 15th soda is
A) $0.00.
B) $0.50.
C) $1.00.
D) $1.50.
E) $2.50.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
50) The figure above shows Diane's demand curve for soda. The price of a soda is $1.00. Diane's consumer surplus from all 15 sodas is
A) $15.00.
B) $22.50.
C) $11.25.
D) $8.00.
E) $1.50.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
51) The figure above shows Diane's demand curve for soda. The price of a soda is $1.00. Diane's total benefit from consuming 15 sodas is
A) $15.00.
B) $26.25.
C) $11.25.
D) $0.
E) None of the above answers is correct.
Topic: Total benefit
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
52) Value is
A) the price we pay for a good.
B) the cost of resources used to produce a good.
C) objective so that it is determined by market forces, not preferences.
D) the marginal benefit we get from consuming another unit of a good or service.
E) the difference between the price paid for a good and the marginal cost of producing that unit of the good.
Topic: Value and price
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
53) A marginal benefit curve
A) is the same as a demand curve.
B) is the same as a supply curve.
C) slopes upwards.
D) is a vertical line at the efficient quantity.
E) is U-shaped.
Topic: Demand curve and marginal benefit curve
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
54) In general, as the consumption of a good or service increases, the marginal benefit from consuming that good or service
A) increases.
B) decreases.
C) stays the same.
D) at first increases and then decreases.
E) at first decreases and then increases.
Topic: Marginal benefit
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
55) The difference between the marginal benefit from a new pair of shoes and the price of the new pair of shoes is
A) the consumer surplus from that pair of shoes.
B) what we get.
C) what we have to pay.
D) the price when the marginal benefit is maximized.
E) the consumer's expenditure on the shoes.
Topic: Consumer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
56) Suppose the price of a scooter is $200 and Cora Lee is willing to pay $250. Cora Lee's
A) consumer surplus from that scooter is $200.
B) consumer surplus from that scooter is $50.
C) marginal benefit from that scooter is $100.
D) consumer surplus from that scooter is $150.
E) consumer surplus from that scooter is $250.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
57) If the price of a pizza is $10 per pizza, the consumer surplus from the first pizza consumed ________ the consumer surplus from the second pizza consumed.
A) is greater than
B) equals
C) is less than
D) cannot be compared to
E) None of the above answers is correct because more information is needed about the marginal cost of producing the pizzas to answer the question.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
6.3 Cost, Price, and Producer Surplus
1) To a seller, the cost of a good or service is ________, and the price is ________.
A) what must be given up to produce the good or service; what is received for the good or service
B) what is received for the good or service; what must be given up to produce the good or service
C) the producer surplus the seller receives; the consumer surplus the buyer receives
D) the producer surplus the buyer receives; the consumer surplus the seller receives
E) None of the above answers is correct.
Topic: Cost and price
Skill: Level 1: Definition
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
2) Which of the following describes the economic meanings of cost and price?
A) Cost is exchange worth, and price is dollar worth.
B) Cost is what must be given up to produce a good, and price is what a seller receives when the good is sold.
C) They are the same, and they both mean what is received when a good is sold.
D) Cost refers to what the buyers pay for the good, and price refers to what sellers receive when the good is sold.
E) Cost refers to the price that buyers must pay to buy the good.
Topic: Cost and price
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
3) The opportunity cost of producing one more unit of a good or service is the
A) marginal cost.
B) marginal benefit.
C) efficient level of production.
D) market outcome.
E) price of the good or service.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
4) The cost of producing one more unit of a good or service is equal to its
A) marginal benefit.
B) producer surplus.
C) marginal expenditure.
D) consumer surplus.
E) marginal cost.
Topic: Marginal cost
Skill: Level 1: Definition
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
5) Ben's cost of making an additional rocking chair is $75.
A) If he sells it for a $100, his producer surplus is $25.
B) His marginal cost is equal to $75.
C) The marginal benefit to the consumer from the chair will be $75.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
6) A supply curve is the same as a
A) total cost curve.
B) marginal cost curve.
C) total benefit curve.
D) marginal benefit curve.
E) deadweight loss curve.
Topic: Supply curve and marginal cost curve
Skill: Level 1: Definition
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
7) The supply curve of a good or service is the same as
A) the demand curve.
B) the marginal benefit curve.
C) the marginal cost curve.
D) the total surplus curve.
E) None of the above answers is correct.
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
8) A point on the supply curve can illustrate the
A) price and the corresponding quantity supplied.
B) marginal cost of that unit of the good.
C) price the consumer is willing to pay.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Topic: Supply curve and marginal cost curve
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
9) The supply curve shows the
A) marginal benefit of a firm producing another unit of a good.
B) dollars' worth of other goods and services we are willing to give up to get another unit of the good.
C) minimum price that firms must receive to supply a certain quantity of a good.
D) producer surplus of producing the good.
E) maximum price that firms will accept in order to supply a certain quantity of a good.
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
10) A supply curve shows quantities supplied at various prices. It also shows the
A) total profit the firm earns at a given level of output.
B) marginal benefit of the good.
C) total cost of production.
D) marginal cost of production.
E) producer surplus, which is equal to the slope of the supply curve.
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
11) A supply curve shows the marginal
A) benefit consumers receive from consuming a good.
B) profit businesses earn from selling a good.
C) cost of producing the good.
D) price paid for a good.
E) benefit sellers receive from selling a good.
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
12) The supply curve is upward sloping because of
A) increasing marginal cost.
B) decreasing marginal benefit.
C) decreasing marginal cost.
D) increasing marginal benefit.
E) increasing total cost.
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
13) Which of the following is a correct description of the supply curve?
i. The supply curve is also the marginal cost curve.
ii. The supply curve shows the dollars' worth of other goods that we must sacrifice to produce another unit of a good.
iii. The supply curve shows the additional cost of producing another unit of a good.
A) i only
B) i and ii
C) ii and iii
D) i, ii, and iii
E) ii only
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
14) The figure shows the t-shirt market. For the 16,000th t-shirt, the marginal cost of producing the shirt is ________ and the producer surplus is ________.
A) $4; $1
B) $5; $4
C) $4; $5
D) $80,000; $4
E) $4; $80,000
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Application of knowledge
15) The figure shows the t-shirt market. For which shirt does the marginal cost of producing the shirt equal the producer surplus from the shirt?
A) the 4,000th shirt
B) the 24,000th shirt
C) the 12,000th shirt
D) the 8,000th shirt
E) All of the answers above are correct because the marginal cost of producing a shirt always equals the producer surplus from the shirt.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Application of knowledge
16) The total cost of producing 24,000 t-shirts is ________ which equals the ________.
A) $84,000; amount received minus the producer surplus
B) $156,000; sum of the amount received plus the producer surplus
C) $36,000; producer surplus
D) $120,000; amount received
E) $5; amount received for the 24,000th t-shirt
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Application of knowledge
17) In the above figure, what is the marginal cost of the 4th pizza?
A) $0
B) $4
C) $9
D) $36
E) 4 pizzas
Topic: Supply curve and marginal cost curve
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
18) In the above figure, what is the marginal cost of the 8th pizza?
A) $1.50
B) $12
C) $6
D) $96
E) 8 pizzas
Topic: Supply curve and marginal cost curve
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
19) Producer surplus is the ________ summed over the quantity produced.
A) price of the good minus the marginal cost of producing it
B) marginal benefit of the good minus its marginal cost
C) marginal benefit of the good minus its price
D) marginal cost of the good minus the opportunity cost of producing it
E) None of the above answers is correct.
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
20) Producer surplus definitely exists when the
A) price exceeds marginal benefit.
B) price exceeds marginal cost.
C) marginal cost exceeds the price.
D) marginal benefit exceeds the price.
E) marginal benefit exceeds the marginal cost.
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
21) When the price of a product exceeds the marginal cost of producing it, producers have a
A) consumer surplus.
B) producer surplus.
C) consumer shortage.
D) producer shortage.
E) deadweight surplus.
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
22) If the price is greater than the marginal cost of producing a good, the seller has
A) no benefit from the sale.
B) a loss.
C) some producer surplus from the sale.
D) some negative consumer surplus from the sale.
E) None of the above answers is correct.
Topic: Producer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
23) The producer surplus is found by subtracting the ________ and then adding the difference for all units sold.
A) marginal cost from price
B) price from marginal cost
C) marginal benefit from total benefit
D) marginal cost from marginal benefit
E) deadweight loss from the price
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
24) When the price rises and the supply curve does not shift, the firms' producer surplus ________. When the price falls and the supply curve does not shift, the firms' producer surplus ________.
A) increases; decreases
B) decreases; increases
C) decreases; decreases
D) increases; increases
E) does not change; does not change
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
25) The producer surplus of making and selling 10 chairs is found by
A) multiplying the selling price by 10.
B) subtracting the marginal cost from the selling price for each chair and summing the differences for all 10 chairs.
C) subtracting from the total revenue the cost of producing one chair multiplied by 10.
D) adding the marginal cost and the price of all 10 chairs.
E) None of the above answers is correct.
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
26) Producer surplus
A) increases if market price rises and the supply curve does not shift.
B) decreases if market price rises and the supply curve does not shift.
C) is equal to the maximum price consumers are willing to pay.
D) is the same as the marginal cost.
E) always must equal consumer surplus.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
27) Hester owns an ice cream shop. It costs her $2 per cone to make 10 ice cream cones. If she sells 10 cones for $4 each, her producer surplus on the 10 cones is equal to
A) $2.
B) $20.
C) $10.
D) $40.
E) $4.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
28) If a firm produces five chairs with marginal costs of $25, $30, $40, $55, and $75, respectively, and sells them for $80 each, what is the firm's total producer surplus?
A) $400
B) $225
C) $175
D) $150
E) $80
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
29) The price of a cowboy hat is $100. Willie can produce a hat at a marginal cost of $130, Waylon can produce at a marginal cost of $100, and Merle can produce at a marginal cost of $85. Which of the following statements is correct?
A) The sum of producer surplus is $15.
B) All three of these sellers will gain producer surplus from selling a hat.
C) The sum of producer surplus is $30.
D) Willie's producer surplus is $30.
E) The sum of producer surplus is $45.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
30) Graphically, producer surplus is the area under the
A) demand curve and above the supply curve, up to the relevant quantity.
B) price and above the demand curve, up to the relevant quantity.
C) price and above the supply curve, up to the relevant quantity.
D) price and above the quantity axis, up to the relevant quantity.
E) demand curve and above the price, up to the relevant quantity.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
31) Bill and Krista sell potted plants from a roadside stand. The figure above shows Bill and Krista's marginal cost curve and the market price. If Bill and Krista sell 60 plants per week, their producer surplus from the 60th plant will equal
A) $8.
B) $480.
C) $0.
D) $20.
E) More information is needed to answer the question.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
32) Bill and Krista sell potted plants from a roadside stand. The figure above shows Bill and Krista's marginal cost curve and the market price. If Bill and Krista sell 60 plants per week at $8 per plant, their producer surplus from all their plants is
A) $8.
B) $480.
C) $240.
D) $0.
E) More information is needed to answer the question.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
33) The figure above shows the supply curve for soda. The market price is $1.00 per soda. The marginal cost of the 10,000th soda is
A) $0.00.
B) $0.50.
C) $1.00.
D) more than $0.50 and less than $1.00.
E) None of the above answers is correct.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
34) The figure above shows the supply curve for soda. The market price is $1.00 per soda. The marginal cost of the 20,000th soda is
A) $0.00.
B) $0.50.
C) $1.00.
D) more than $1.00.
E) None of the above answers is correct.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
35) The figure above shows the supply curve for soda. The market price is $1.00 per soda. The ________ price that must be offered so that the 10,000th soda is produced is ________.
A) minimum; $0.50
B) minimum; $1.00
C) maximum; $0.50
D) maximum; $1.00
E) minimum; more than $0.50 but less than $1.00
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
36) The figure above shows the supply curve for soda. The market price is $1.00 per soda. The producer surplus from the 10,000th soda is
A) $0.00.
B) $0.50.
C) $1.00.
D) more than $1.00.
E) None of the above answers is correct.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
37) The figure above shows the supply curve for soda. The market price is $1.00 per soda. The producer surplus from the 20,000th soda is
A) $0.00.
B) $0.50.
C) $1.00.
D) more than $1.00.
E) None of the above answers is correct.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
38) The figure above shows the supply curve for soda. The market price is $1.00 per soda. The producer surplus from all the sodas sold is
A) $0.00.
B) $15.00.
C) $20.00.
D) $1.00.
E) None of the above answers is correct.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
39) In the figure above, the equilibrium market price is $20. $20 is the
A) marginal cost of 150th unit.
B) willingness to pay for the 1st unit.
C) producer surplus.
D) consumer surplus.
E) deadweight loss.
Topic: Marginal cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
40) In the figure above, the equilibrium market price is $20. Area A is the
A) marginal cost of 150th unit.
B) willingness to pay for the 150th unit.
C) producer surplus.
D) consumer surplus.
E) marginal benefit of 150th unit.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
41) In the figure above, the equilibrium market price is $20. The producer surplus is shown by the area
A) A.
B) B.
C) A + B.
D) A ÷ B.
E) A - B.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
42) In the figure above, the equilibrium market price is $20. The producer surplus equals
A) $20.
B) $1,500.
C) $3,000.
D) 150.
E) $4,500.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
43) Cost
A) is what the buyer pays to get the good.
B) is always equal to the marginal benefit for every unit of a good produced.
C) is what the seller must give up to produce the good.
D) is greater than market price, which results in a profit for firms.
E) means the same thing as price.
Topic: Costs
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
44) If a firm is willing to supply the 1,000th unit of a good at a price of $23 or more, we know that $23 is the
A) highest price the seller hopes to realize for this output.
B) minimum price the seller must receive to produce this unit.
C) average price of all the prices the seller could charge.
D) price that sets the marginal benefit equal to the price.
E) only price for which the seller is willing to sell this unit of the good.
Topic: Supply and marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
45) A supply curve shows the ________ of producing one more unit of a good or service.
A) producer surplus
B) consumer surplus
C) total benefit
D) marginal cost
E) marginal benefit to the producer
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
46) The producer surplus on a unit of a good is
A) equal to the marginal benefit from the good minus its price.
B) equal to the price of the good minus the marginal cost of producing it.
C) always equal to consumer surplus.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
47) Suppose you're willing to tutor a student for $10 an hour. The student pays you $15 an hour. What is your producer surplus?
A) $5 an hour
B) $10 an hour
C) $15 an hour
D) $25 an hour
E) More than $25 an hour
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
48) In a figure that shows a supply curve and a demand curve, producer surplus is the area
A) below the demand curve and above the market price up to the quantity consumed.
B) below the supply curve and above the market price up to the quantity produced.
C) above the demand curve and below the market price up to the quantity consumed.
D) above the supply curve and below the market price up to the quantity produced.
E) between the demand curve and the supply curve up to the equilibrium quantity.
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Revised
AACSB: Analytical thinking
6.4 Are Markets Efficient?
1) In a competitive market with no externalities
A) the consumer surplus is equal to zero because of competition.
B) buyers cannot control the price, so the consumer surplus is zero.
C) at the equilibrium price, marginal benefit exceeds marginal cost.
D) at the equilibrium price, marginal benefit equals marginal cost.
E) at the equilibrium price, the total amount of consumer surplus equals the total amount of producer surplus.
Topic: Market efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
2) A competitive market with no externalities is efficient when it is in equilibrium because
A) total benefit equals total cost.
B) marginal benefit equals marginal cost.
C) consumer surplus equals producer surplus.
D) the sum of consumer surplus plus producer surplus is minimized.
E) the deadweight gain equals its maximum.
Topic: Market efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
3) If marginal benefit is equal to marginal cost, then the
A) producer surplus is equal to the consumer surplus.
B) sum of producer surplus and consumer surplus is as large as possible.
C) sum of producer surplus and consumer surplus equals zero.
D) market has squeezed out total surplus so that it equals zero.
E) deadweight loss is more than zero but less than its maximum.
Topic: Total surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
4) Which of the following occurs when a market is efficient?
A) Consumer surplus equals producer surplus.
B) Consumer surplus is as large as possible.
C) Producer surplus is as large as possible.
D) The sum of consumer surplus and producer surplus is maximized.
E) The marginal benefit exceeds the marginal cost by as much as possible.
Topic: Total surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
5) Efficiency occurs in a market when
A) the sum of consumer surplus and producer surplus is maximized.
B) consumer surplus is equal to producer surplus.
C) consumer surplus is less than producer surplus.
D) consumer surplus is greater than producer surplus.
E) total revenue is maximized.
Topic: Market efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
6) Efficiency in a market occurs when the production of the good is such that
A) marginal benefit exceeds marginal cost.
B) marginal benefit equals marginal cost.
C) marginal benefit is lower than marginal cost.
D) the marginal cost stops increasing.
E) marginal benefit exceeds marginal cost by the maximum amount possible.
Topic: Market efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
7) At the market equilibrium, when efficiency is attained, the marginal benefit ________ the marginal cost.
A) is equal to
B) is greater than
C) is less than
D) has no necessary relationship with
E) is equal to the marginal deadweight loss which is equal to
Topic: Market efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
8) If the market for bicycles is efficient, then
A) no more bicycles can be produced.
B) marginal benefit exceeds marginal cost.
C) consumer surplus must be greater than producer surplus.
D) it is not possible to produce more bicycles without sacrificing another, more highly valued good.
E) consumer surplus must equal producer surplus.
Topic: Market efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
9) When efficiency is attained, the sum of the total amount of consumer surplus and producer surplus is
A) minimized.
B) maximized.
C) equal to the deadweight loss.
D) undefined.
E) equal to zero.
Topic: Market efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
10) When efficiency is attained, the consumer surplus
A) must be larger than the producer surplus.
B) must be smaller than the producer surplus.
C) must equal the producer surplus.
D) can be either smaller than or larger than but cannot equal the producer surplus.
E) can be smaller than, equal to, or larger than the producer surplus.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
11) If the marginal benefit of a hot dog is greater than its marginal cost, then to increase efficiency
A) more hot dogs should be produced.
B) fewer hot dogs should be produced.
C) nothing should be done if the marginal benefit is greater than the marginal cost by the maximum amount because in this case the efficient quantity of hot dogs is being produced.
D) production should be halted.
E) More information is needed about the price of a hot dog in order to determine if production should be increased, decreased, or not changed.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
12) If the demand curve is the same as the marginal benefit curve and the supply curve is the same as the marginal cost curve, then the quantity at which they cross is
i. the equilibrium quantity.
ii. the allocatively efficient quantity.
iii. the quantity with no deadweight loss.
A) i, ii, and iii.
B) only i.
C) only ii.
D) only i and ii.
E) only i and iii.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
13) The figure above shows the t-shirt market. The t-shirt market is efficient at a quantity of ________ t-shirt(s) because this is the quantity where the ________.
A) 30,000; marginal cost equals the marginal benefit
B) 30,000; total surplus is maximized
C) 1; difference between the supply and demand curves is greatest
D) 1; the price is the highest
E) both A and B are correct.
Topic: Efficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Application of knowledge
14) The figure above shows the t-shirt market. The t-shirt market produces an efficient outcome at a quantity equal to
A) 30,000 because total surplus is maximized.
B) 20,000 because consumer surplus is greater than producer surplus.
C) 20,000 because producer surplus is greater than consumer surplus.
D) 10,000 because marginal benefit exceeds marginal cost.
E) 10,000 because marginal cost exceeds marginal benefit.
Topic: Efficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Application of knowledge
15) The figure above shows the t-shirt market. Market failure will occur in the t-shirt market if the quantity produced equals
A) 20,000 because a deadweight loss occurs due to underproduction.
B) 35,000 because a deadweight loss occurs due to overproduction.
C) 30,000 because no profit is earned by firms.
D) 30,000 because consumer surplus equals zero.
E) both A and B are correct.
Topic: Efficient equilibrium
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Application of knowledge
16) The figure above shows the competitive market for slices of key lime pie. If the production is 40 slices per day, someone is willing to buy another slice of pie for
A) more than it costs to produce the slice.
B) less than it costs to produce the slice.
C) an amount equal to the cost of producing the slice.
D) an amount equal to the cost of producing all 40 slices.
E) an amount that is not comparable to the cost of producing the slice.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
17) The figure above represents the competitive market for slices of key lime pie. If the production is 80 slices per day, the cost of the 80th slice is
A) less than anyone is willing to pay for it.
B) more than anyone is willing to pay for it.
C) equal to what someone is willing to pay for it.
D) indeterminant.
E) equal to the deadweight loss from the 80th slice.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
18) The figure above represents the competitive market for slices of key lime pie. When 60 slices are produced, the marginal cost
A) exceeds the marginal benefit.
B) is less than the marginal benefit.
C) equals the marginal benefit.
D) is not defined.
E) equals the deadweight loss on the 60th slice.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
19) The figure above represents the competitive market for slices of key lime pie. When the price equals $3
A) there is a shortage of slices of pie.
B) there is a surplus of slices of pie.
C) the efficient quantity of slices is being produced.
D) the quantity produced is inefficient.
E) the deadweight loss is maximized.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
20) The figure above represents the competitive market for slices of key lime pie. When the price is $3, the total consumer surplus equals
A) $120.
B) $90.
C) $60.
D) $0.
E) None of the above answers is correct.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
21) The figure above represents the competitive market for slices of key lime pie. When the price is $3, the total producer surplus equals
A) $0.
B) $60.
C) $90.
D) $120.
E) None of the above answers is correct.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
22) The figure above shows the marginal benefit and marginal cost curves for pizza. In the figure, what is the efficient quantity of pizza?
A) 0 pizzas
B) 10,000 pizzas
C) 20,000 pizzas
D) 30,000 pizzas
E) The efficient quantity cannot be determine without more information.
Topic: Market efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
23) In the figure above, if the market price is $12, then the total consumer surplus is
A) $12.
B) $10.
C) minimized.
D) $240.
E) $480.
Topic: Consumer surplus
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
24) In the figure above, if the market is at equilibrium, then the total consumer surplus equals the area ________ and the total producer surplus equals the area ________.
A) A; B
B) B; C
C) C; B
D) A; C
E) A + B; C
Topic: Consumer surplus and producer surplus
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
25) In the figure above, if the market is at equilibrium, the sum of the total consumer surplus and the total producer surplus is
A) $240.
B) $600.
C) $1,000.
D) $0.
E) $60.
Topic: Total surplus
Skill: Level 5: Critical thinking
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
26) In the figure above, suppose the market is at equilibrium. Then area A is the
A) marginal benefit.
B) marginal cost.
C) amount of the consumer surplus.
D) amount of the producer surplus.
E) deadweight loss.
Topic: Consumer surplus
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
27) In the figure above, suppose the market is at equilibrium. Then area B is the
A) marginal benefit.
B) marginal cost.
C) amount of the consumer surplus.
D) amount of the producer surplus.
E) deadweight loss.
Topic: Producer surplus
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
28) In the above figure, the market is at its equilibrium. Area A is equal to
A) consumer surplus.
B) total revenue.
C) marginal benefit.
D) producer surplus.
E) total surplus.
Topic: Consumer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
29) In the above figure, the market is at its equilibrium. Area B is equal to
A) consumer surplus.
B) total revenue.
C) marginal benefit.
D) producer surplus.
E) total surplus.
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
30) In the above figure, the market is at its equilibrium. Area A + area B is equal to
A) consumer surplus.
B) total revenue.
C) total surplus.
D) marginal benefit.
E) producer surplus.
Topic: Total surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
31) The concept of "the invisible hand" suggests that
A) products are produced out of a seller's sense of charity.
B) when the seller is better off, the buyer is worse off.
C) sellers exploit consumers with high prices.
D) buyers and sellers are self-interested.
E) the command system is the only way of efficiently allocating resources.
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
32) Adam Smith's Wealth of Nations, written in 1776, describes the market's invisible hand representing the
A) King of England's control over the colonies.
B) control all governments have in organizing the market.
C) efficiency the market achieves without the interference of governments.
D) inefficiency of markets when governments do not organize them.
E) invisible command system that efficiently allocates resources.
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
33) What did Adam Smith identify as the source of the invisible hand in 1776?
A) a benevolent central government that decided was best for everyone
B) an individual's concern for fellow humans
C) an individual's own self-interest
D) the stock market
E) buyers' and suppliers' concerns to obtain and retain good reputations
Topic: Invisible hand
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
34) The "invisible hand" refers to the notion that
A) competitive markets send resources to their highest valued uses.
B) government intervention is necessary to ensure efficiency.
C) marginal benefit decreases as more is consumed.
D) marginal cost increases as more is produced.
E) no matter what allocation method is used, the resulting production is efficient.
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
35) The efficiency of competitive markets happens because
A) of the benevolence of the butcher, the brewer, and the baker.
B) people make environmentally aware purchasing decisions.
C) prices adjust to make buying plans and selling plans compatible.
D) government organizes and monitors production.
E) the U.S. economy uses a command system to allocate resources within the competitive markets.
Topic: Invisible hand
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
36) The concept of "the invisible hand" suggests that to attain efficiency, the government should
A) guide economic activity.
B) set prices.
C) leave prices and output decisions to the competitive market.
D) regulate all production decisions, but not price decisions.
E) make sure that a command system is used to allocate resources.
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
37) In a competitive market for a private good with no price or quantity regulations, no external cost nor external benefit, low transactions costs, and no taxes or subsidies
A) the allocation of resources is planned by the government.
B) production is organized by government organizations.
C) efficiency can be attained in the market with no government intervention.
D) efficiency is usually be achieved by majority rule.
E) efficiency is generally obtained by using a command system.
Topic: Invisible hand
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
38) At a competitive equilibrium, if there are no taxes, subsidies, price regulations, quantity regulations, or externalities
A) the marginal benefit is greater than the marginal cost.
B) resource use is efficient.
C) the marginal benefit is less than the marginal cost.
D) both the marginal benefit and the marginal cost of the last unit produced equal zero.
E) the marginal benefit is greater than the marginal cost by as much as possible.
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
39) At a competitive market equilibrium, if there are no taxes, subsidies, price regulations, quantity regulations, or externalities
i. consumer surplus is minimized.
ii. marginal cost equals marginal benefit.
iii. resources are efficiently used.
iv. producer surplus is minimized.
A) ii and iii
B) i and ii
C) i and iv
D) i, ii, iii, and iv
E) ii only
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
40) When technology increases the supply of a good and lower prices increase the quantity demanded
A) the economy is reallocating resources to achieve an efficient allocation.
B) consumer surplus falls.
C) the invisible hand is unnecessary.
D) the marginal benefit of the good increases with the quantity produced.
E) the economy is no longer efficient because the quantity changes.
Topic: Invisible hand
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
41) When output is less than the efficient level
A) consumers are willing to pay more for another unit than it costs to produce the unit.
B) the amount consumers are willing to pay equals the cost of production.
C) the cost of production is greater than the price consumers are willing to pay.
D) the production costs can't be measured.
E) the marginal cost of producing the good must be greater than the marginal benefit from the good.
Topic: Underproduction
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
42) When there is market failure so that a market produces less than the efficient amount
A) consumer surplus definitely is larger than when the efficient quantity is produced.
B) the sum of producer surplus and consumer surplus is larger than when the efficient quantity is produced.
C) there is a deadweight loss.
D) consumers definitely lose and producers definitely gain.
E) consumers definitely gain and producers definitely lose.
Topic: Underproduction
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
43) A quantity less than the equilibrium quantity in a competitive market is inefficient because
A) the marginal benefit of another unit is greater than its marginal cost.
B) too much of the good is being produced.
C) the marginal cost of another unit is greater than its marginal benefit.
D) the marginal benefit of another unit is not equal to zero.
E) the marginal benefit is not maximized.
Topic: Underproduction
Skill: Level 5: Critical thinking
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
44) Overproduction results in
A) external costs.
B) external benefits.
C) deadweight loss.
D) super-efficiency.
E) the marginal benefit of the last unit produced being larger than the marginal cost.
Topic: Overproduction
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
45) What do economists call the loss society experiences when there is market failure and the production of a good is less than the efficient amount?
A) tax
B) subsidy
C) price floor
D) deadweight loss
E) quantity restriction
Topic: Deadweight loss
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
46) In the above figure, if the market is in equilibrium, area A + area B + area C equals
A) total surplus.
B) consumer surplus.
C) deadweight loss.
D) producer surplus.
E) total revenue.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
47) In the above figure, if the market quantity is restricted to 500,000 and the price is allowed to rise to set the quantity demanded equal to the quantity supplied, then the producer surplus is equal to
A) area D + area F.
B) area C + area E.
C) area A + area B + area C.
D) area A + area B.
E) area B + area D + area F.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
48) In the above figure, if the quantity is restricted to 500,000 and the price is allowed to rise to set the quantity demanded equal to the quantity supplied, then area C + area E is equal to
A) deadweight loss.
B) consumer surplus.
C) total surplus.
D) producer surplus.
E) total revenue.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
49) In the above figure, if the quantity is equal to 500,000 units, the deadweight loss is equal to
A) area C.
B) area D + area I.
C) area B + area F.
D) area G + area H.
E) None of the above answers is correct because the deadweight loss is equal to zero.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
50) In the above figure, if the quantity is equal to 2,500,000 units, the deadweight loss is equal to
A) area B + area F.
B) area D + area I.
C) area C.
D) area G + area H.
E) None of the above answers is correct because the deadweight loss is equal to zero.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
51) In the above figure, if the quantity is equal to 1,500,000 units, the deadweight is equal to
A) area A + area B.
B) area C.
C) area B + area F.
D) area G + area H.
E) None of the above answers is correct because the deadweight loss is equal to zero.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
52) Which of the following leads to a deadweight loss?
i. overproduction
ii. underproduction
iii. taxes
iv. monopoly
A) ii only
B) iii and iv
C) i and ii
D) i, ii, iii, and iv
E) i, ii, and iii
Topic: Obstacles to efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
53) Which of the following leads to a deadweight loss?
i. competition
ii. taxes
iii. consumer surplus
iv. monopoly
A) ii only
B) iii and iv
C) i and ii
D) ii and iv
E) i, ii, and iii
Topic: Obstacles to efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
54) Which of the following government policies ensures market efficiency?
A) subsidy
B) tax
C) price regulations
D) quantity regulations
E) None of the above answers is correct.
Topic: Obstacles to efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
55) Obstacles in achieving efficiency in a market include
A) public goods.
B) the presence of an external cost or benefit.
C) competition.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
Topic: Obstacles to efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
56) If the government imposes a tax on a competitive market with no externalities, then
i. resource use is not efficient.
ii. there is a deadweight loss.
iii. consumer surplus is at its maximum.
A) ii only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii
Topic: Taxes
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
57) What is the impact of a government subsidy to producers?
A) Less is produced relative to the efficient level, creating a deadweight loss.
B) More is produced relative to the efficient level, creating a deadweight loss.
C) Producer surplus is increased, which creates a larger consumer surplus.
D) Producers are able to sell the product at a higher price.
E) Consumers must pay a higher price for the good.
Topic: Subsidies
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
58) Subsidies ________ the price paid by the buyer and ________ the price received by the seller.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) do not change; increase
Topic: Subsidies
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
59) When there is a cost or benefit that affects someone other than the seller and buyer, then there is
A) a tax.
B) a subsidy.
C) a quantity regulation.
D) a price regulation.
E) an externality.
Topic: Externalities
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
60) When the cost of producing a product is paid, at least in part, by someone other than the producer, the cost is referred to as
A) an external cost.
B) an external profit.
C) an external benefit.
D) an external/internal cost.
E) a public cost.
Topic: External cost
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
61) A cost not borne by the producer but borne by other people is known as ________ cost.
A) a marginal
B) an internal
C) an external
D) a nonessential
E) a subsidized
Topic: External cost
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
62) Air pollution is an external cost because it
A) is a pollution of the external environment.
B) is a cost not borne by the producer of the good.
C) benefits no one.
D) is not associated with resource use.
E) is created only when production occurs.
Topic: External cost
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
63) When a product benefits people other than the buyer of the product, the product is said to have
A) an external cost.
B) an excludable cost.
C) an external benefit.
D) an excludable benefit.
E) a subsidized benefit.
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
64) A benefit that accrues to people other than the buyer of a good is known as ________ benefit.
A) an internal
B) an external
C) a marginal
D) a total
E) a subsidized
Topic: External benefit
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
65) A public good
A) is a good that is usually consumed in public, such as a restaurant meal.
B) is a good people can consume even if they do not pay for it.
C) is a good produced by government.
D) results in an efficient allocation of resources.
E) is a good for which people are willing to pay a very high price.
Topic: Public good
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
66) A good or service can be consumed by a person even if he or she didn't pay for it is called ________ good.
A) a private
B) a public
C) a normal
D) an inferior
E) an external
Topic: Public good
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
67) When people cannot be excluded from consuming a good, even if they have not paid for the good, competitive markets would
A) produce more of the good than society needs.
B) allocate more resources than the efficient amount to the production of the good.
C) produce the good so that people could enjoy a "free ride."
D) produce less than the efficient quantity.
E) eliminate the deadweight loss.
Topic: Public good
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
68) A monopoly is
A) the single buyer of some good or service.
B) a firm that has control of a market because it is the only seller.
C) a firm that creates enormous external costs.
D) a firm that faces intense competition.
E) a cost of producing a good or service.
Topic: Monopoly
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
69) If one producer has control over an entire market and underproduces, the producer will
A) increase producer surplus by lowering pollution costs.
B) increase consumer surplus by lowering producer surplus.
C) increase both consumer and producer surplus.
D) create a deadweight loss.
E) decrease the deadweight loss that would exist if the market were efficient.
Topic: Monopoly
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
70) Deadweight loss and market failure are created when a market produces
A) either more or less than the efficient quantity.
B) more than the efficient quantity but not when less than the efficient quantity is produced.
C) less than the efficient quantity but not when more than the efficient quantity is produced.
D) the efficient quantity.
E) None of the above answers is correct because deadweight loss has nothing to do with the efficient quantity.
Topic: Deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
71) The figure above shows the market for pants. If the efficient quantity is produced
A) there will be no consumer surplus.
B) the sum of consumer and producer surplus will be maximized.
C) a small deadweight loss will result.
D) the sum of consumer and producer surplus will be minimized.
E) the consumer surplus on all the pants must equal the producer surplus on all the pants.
Topic: Market efficiency
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
72) The figure above shows the market for pants. If 6 million pairs of pants are produced, the deadweight loss is
A) zero.
B) the triangle ABE.
C) the triangle BCE.
D) the triangle ACE.
E) the triangle BCE minus the triangle ABE.
Topic: Deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
73) The figure above shows the market for pants. If the production of the pants results in an external cost from pollution that is the result of the dye used, then
A) 6 million pairs is the efficient quantity.
B) fewer than 6 million pairs is the efficient quantity.
C) more than 6 million pairs is the efficient quantity.
D) None of the above answers is necessarily correct because more information is needed about the size of the external cost.
E) None of the above answers is correct because it is impossible to tell whether the external cost results in underproduction or overproduction.
Topic: External cost
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
74) The figure above shows the market for pants. If the government subsidizes the production of pants so that production expands from 6 million pairs to 7 million pairs
A) there would be no deadweight loss.
B) the government's policy would have no effect on the sum of consumer surplus and producer surplus.
C) a deadweight loss would result.
D) the government's policy would increase the sum of consumer surplus and producer surplus.
E) production would be even more efficient than if 6 million pairs of pants are produced because more is always better than less.
Topic: Subsidies
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
75) Scalping tickets means that
A) some people who purchased tickets at the box-office price (in the primary market) will sell at a higher price in the resale (secondary) market.
B) some people who purchased tickets at the box-office price (in the primary market) will sell at a lower price in the resale (secondary) market.
C) the demand in the primary market must exceed the demand in the secondary market.
D) demanders in the secondary market are the same as some of the suppliers in the primary market.
E) None of the above answers are correct.
Topic: Market efficiency
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: New
AACSB: Reflective thinking
76) Scalping tickets (selling tickets for more than the box office price)
A) creates consumer surplus in the secondary (resale) market.
B) creates a deadweight loss.
C) leads to fewer people attending the event.
D) reduces the box office price that can be charged.
E) raises the box office price that can be charged.
Topic: Market efficiency
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: New
AACSB: Analytical thinking
77) When a market is efficient, the
A) sum of consumer surplus and producer surplus is maximized.
B) deadweight gain is maximized.
C) quantity produced is maximized.
D) marginal benefit of the last unit produced exceeds the marginal cost by as much as possible.
E) total benefit equals the total cost.
Topic: Market efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
78) Which of the following occurs when a market is efficient?
A) Producers earn the highest income possible.
B) Production costs equal total benefit.
C) Consumer surplus equals producer surplus.
D) Scarce resources are used to produce the goods and services that people value most highly.
E) Every consumer has all of the good or service he or she wants.
Topic: Market efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
79) The concept of "the invisible hand" suggests that markets
A) do not produce the efficient quantity.
B) are always fair.
C) produce the efficient quantity.
D) are unfair.
E) allocate resources unfairly and inefficiently.
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
80) When underproduction occurs
A) producers gain more surplus at the expense of consumers.
B) marginal cost is greater than marginal benefit.
C) consumer surplus increases to a harmful amount.
D) there is a deadweight loss that is borne by the entire society.
E) the deadweight loss harms only consumers.
Topic: Underproduction
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
81) When production moves from the efficient quantity to a point of overproduction
A) consumer surplus definitely increases.
B) the sum of producer surplus and consumer surplus increases.
C) there is a deadweight loss.
D) consumers definitely lose and producers definitely gain.
E) consumers definitely gain and producers definitely lose.
Topic: Deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
82) Which of the following can result in a market producing an inefficient quantity of a good?
i. competition
ii. an external cost or an external benefit
iii. a tax
A) i only
B) iii only
C) ii only
D) ii and iii
E) i and iii
Topic: Obstacles to efficiency
Skill: Level 1: Definition
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
83) A country decides to impose a tax to reduce the external cost created by carbon emissions. Prior to the tax, ________ and as a result of the tax ________.
A) market failure occurred; the deadweight loss is reduced
B) there was no deadweight loss; a market failure occurs because taxes reduce production
C) market failure occurred; producer surplus will equal consumer surplus
D) producer surplus equals consumer surplus; marginal cost equals marginal benefit
E) marginal cost equals marginal benefit; marginal cost will be less than marginal benefit
Topic: Market failure
Skill: Level 5: Critical thinking
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
6.5 Are Markets Fair?
1) Economists conclude that the only way to measure fairness is
A) to insure that the rules are fair.
B) to insure that the result is fair.
C) to insure that both the rules and the result are fair.
D) to compare the allocatively efficient quantity to the equilibrium quantity.
E) None of the above answers is correct.
Topic: Fair rules
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
2) Equal opportunity but unequal results
A) occurs only when the economy is not producing at the allocative efficient point on the PPF.
B) means that the outcome is definitely not fair.
C) can occur under the fair-rules view of fairness.
D) cannot occur if all exchange is voluntary.
E) occurs only if the state fails to establish and protect private property rights.
Topic: Fair rules
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
3) Assume the Nozick rules are being followed in the economy so that the distribution of income is fair. What must be TRUE for this to create an efficient allocation of resources?
A) All people are earning equal incomes.
B) There are no public goods, monopolies, high transactions costs, or external costs and benefits.
C) The costs of administering redistribution equals the benefits the poor receive.
D) The government must redistribute income in a fashion that minimizes the "big tradeoff."
E) The government must allocate resources using a command mechanism.
Topic: Fair rules
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
4) An unequal distribution of income is considered fair according to Robert Nozick if
A) marginal cost equals marginal benefit.
B) the cost of administering a welfare system is minimized.
C) property rights are enforced and voluntary exchange occurs.
D) the economy is producing its maximum total output.
E) resources are allocated using the command method.
Topic: Fair rules
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
5) Which of the following is most closely related to the "fair results" approach to fairness?
A) efficient resource use
B) having an equal income distribution
C) voluntary exchange
D) the command system of allocating resources
E) price hikes in a natural disaster
Topic: Fair results
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
6) Outcomes are fair according to the
A) rules view if private property rights are established and trade is voluntary.
B) results view if private property rights are established and trade is voluntary.
C) rules view if there is not too much inequality.
D) results view if there is not a big tradeoff.
E) results view if there is equality of opportunity.
Topic: Fairness
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
7) The "big tradeoff" refers to
A) producing capital goods instead of consumable goods.
B) marginal benefit versus marginal cost.
C) efficiency and fairness.
D) taking an economics course instead of some other course.
E) using market prices rather than a command system to allocate resources.
Topic: Big tradeoff
Skill: Level 1: Definition
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
8) The idea of the "big tradeoff" points out the costs of
A) using a results approach to fairness when the rules approach is correct.
B) transferring income using taxes that decrease efficiency.
C) price hikes during natural disasters.
D) using a rules approach to fairness when the results approach is correct.
E) None of the above answers is correct.
Topic: Big tradeoff
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
9) When economists use the term "big tradeoff" when discussing efficiency they are referring to the tradeoff between
A) external costs and external benefits.
B) marginal cost and marginal benefits.
C) producer surplus and consumer surplus.
D) efficiency and fairness.
E) deadweight loss and producer/consumer surplus.
Topic: Big tradeoff
Skill: Level 1: Definition
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
10) Which of the following is TRUE for taxes? They
A) are always administered fairly.
B) are a necessary part of living in an economy with a fair distribution of income.
C) are always administered without creating unfairness or inefficiency.
D) are an involuntary transfer of private property.
E) do not create a big tradeoff problem.
Topic: Big tradeoff
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
11) Which of the following is part of the cost of income transfers?
A) Tax-collecting agencies cost money to administer.
B) Taxing incomes encourages people to work harder.
C) Income transfers make the results more unfair.
D) Income transfers increase the size of the economic pie.
E) Income transfers are a similar to allocating resources using a lottery.
Topic: Big tradeoff
Skill: Level 3: Using models
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
12) As pointed out by the "big tradeoff," government action that redistributes incomes so that everyone has the same income leads to
A) fairness according to the "fair rules" approach.
B) efficient markets.
C) resources being allocated according to a command system.
D) a smaller total output.
E) lower taxes on the rich than on the poor so that the rich do not lose their incentive to work.
Topic: Big tradeoff
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
13) Redistributing income from the rich to the poor creates inefficiency because
A) of wasteful expenditures by people receiving welfare grants.
B) of the administrative costs to operate the government redistribution agencies.
C) the redistribution creates an incentive to produce less output.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Topic: Big tradeoff
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
14) Why does redistribution, so that the distribution of income is equal, bring about less total output?
A) Incentives to work are reduced.
B) No one can determine marginal benefit or marginal cost as a result.
C) Those in political power will likely receive a larger income.
D) Because the marginal benefit and marginal cost of work have been equally increased.
E) The premise of the question is incorrect because an equal distribution of income would increase rather than decrease the total amount produced.
Topic: Big tradeoff
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
15) Suppose Kansas had a severe ice storm that caused electrical blackouts. The Fictitious Portable Generator firm of Lawrence had several portable generators that could be used by homeowners to provide electricity. Which of the following would be the fair-rules way to provide them?
A) The government confiscates the generators owned by Fictitious and distributes them.
B) Fictitious is forced by the state to rent the generators at half the normal rate.
C) The state sets up a lottery to determine who rents the available generators at the normal rate.
D) Fictitious rents generators at the equilibrium market price.
E) Fictitious follows government commands about who gets to use the generators.
Topic: Fairness in natural disasters
Skill: Level 4: Applying models
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
16) If the government takes over the distribution of some scarce good in a time of a natural disaster and provides the good at no charge to users, what must also be done?
A) The government must produce the good itself.
B) Some rationing mechanism must be set up to determine who gets the good.
C) Everyone hurt in the natural disaster must get one of the goods.
D) Because we live in a democracy, the government must use majority rule as the rationing mechanism.
E) nothing
Topic: Fairness in natural disasters
Skill: Level 3: Using models
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
17) The "fair rules" view of fairness is based on
A) income transfers from the rich to the poor.
B) property rights and voluntary exchange.
C) utilitarianism.
D) the big tradeoff.
E) allocating resources using majority rule.
Topic: Fair rules
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
18) The idea that unequal incomes are unfair generally uses the ________ principle of fairness.
A) big tradeoff
B) involuntary exchange
C) voluntary exchange
D) it's not fair if the result isn't fair
E) it's not fair if the rules aren't fair
Topic: Fair results
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
19) Which of the following is an example in which "the big tradeoff" can occur?
A) The government redistributes income from the rich to the poor.
B) Ford increases the price of a pickup truck.
C) A basketball player signs a $5 million contract.
D) A college lowers tuition.
E) The price of personal computers falls year after year.
Topic: The big tradeoff
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Reflective thinking
20) In 2015 the president of a company decided that all employees (from president to custodians) would all earn the same wage of $60,000 per year. The president's policy followed the ________ approach to fairness.
A) fair results
B) fair rules
C) gouging
D) majority rule
E) command
Topic: Fairness
Skill: Level 4: Applying models
Section: Checkpoint 6.5
Status: Old
AACSB: Analytical thinking
6.6 Chapter Figures
The figure above shows the PPF, marginal cost curve, and marginal benefit curve for pizza.
1) In the figure above, production efficiency occurs at ________, and allocative efficiency occurs at ________.
A) all points on the PPF; only one point on the PPF
B) only one point on the PPF; all points on the PPF
C) only one point on the PPF; only one point on the PPF
D) all points on the PPF; all points on the PPF
E) all points on the PPF; all points above the PPF
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
2) In the figure above, when 2,000 pizzas are produced, the marginal benefit of a pizza ________ its marginal cost, which means ________ pizza is being produced.
A) exceeds; too little
B) exceeds; too much
C) is below; too much
D) is below; too little
E) equals; the efficient quantity of
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
3) In the figure above, when 6,000 pizzas are produced, the marginal benefit of a pizza ________ its marginal cost, which means ________ pizza is being produced.
A) exceeds; too little
B) exceeds; too much
C) is below; too much
D) is below; too little
E) equals; the efficient quantity of
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
4) In the figure above, when 4,000 pizzas are produced, the marginal benefit of a pizza ________ its marginal cost, which means ________ pizza is being produced.
A) exceeds; too little
B) exceeds; too much
C) is below; too much
D) is below; too little
E) equals; the efficient quantity of
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
The figure above shows the demand curve for pizza and the market price of pizza.
5) In the figure above, how much is the consumer who buys the 5,000th pizza willing to pay for that pizza?
A) $15
B) $10
C) $12
D) $22.50
E) $5
Topic: Willingness to pay
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
6) In the figure above, how much do the consumers pay in total for the quantity of pizza they buy per day?
A) $100,000
B) $150,000
C) $125,000
D) $50,000
E) None of the above answers is correct.
Topic: Willingness to pay
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
7) In the figure above, what is the consumer surplus per day?
A) $100,000
B) $50,000
C) $125,000
D) $150,000
E) zero
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
8) In the figure above, the total benefit from pizza is ________ per day.
A) $100,000
B) $50,000
C) $125,000
D) $150,000
E) None of the above answers is correct.
Topic: Total benefit
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
The figure above shows the supply curve for pizza and the market price of pizza.
9) In the figure above, the minimum price that must be offered for the 5,000th pizza a day to be produced is
A) $6.
B) $10.
C) $8.
D) $2.
E) $4.
Topic: Minimum supply price
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
10) In the figure above, the cost of producing 10,000 pizzas a day is
A) $60,000.
B) $100,000.
C) $40,000.
D) $80,000.
E) $50,000.
Topic: Total cost
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
11) In the figure above, the total revenue from pizza per day is
A) $60,000.
B) $100,000.
C) $40,000.
D) $80,000.
E) $50,000.
Topic: Total revenue
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
12) In the figure above, the producer surplus is
A) $60,000.
B) $100,000.
C) $40,000.
D) $80,000.
E) $50,000.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
The figure above shows the market for pizza.
13) In the figure above, when the market is in equilibrium, marginal benefit ________ marginal cost, so the quantity of pizza produced is ________.
A) equals; efficient
B) exceeds; efficient
C) is below; efficient
D) is below; not efficient
E) exceeds; not efficient
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
14) In the figure above, if pizza production is restricted to 5,000 pizzas a day, then marginal benefit ________ marginal cost, and ________ occurs.
A) exceeds; overproduction
B) exceeds; underproduction
C) is below; overproduction
D) is below; underproduction
E) exceeds; efficient production
Topic: Underproduction
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
15) In the figure above, if pizza production increases to 15,000 pizzas a day, then marginal benefit ________ marginal cost, and ________ occurs.
A) exceeds; overproduction
B) exceeds; underproduction
C) is below; overproduction
D) is below; underproduction
E) exceeds; efficient production
Topic: Overproduction
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
16) In the figure above, if pizza production is restricted to 5,000 pizzas a day, the deadweight loss is
A) $45,000 per day.
B) $12,500 per day.
C) $22,500 per day.
D) $90,000 per day.
E) zero.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
17) In the figure above, if pizza production increases to 15,000 pizzas a day, the deadweight loss is
A) $45,000 per day.
B) $12,500 per day.
C) $22,500 per day.
D) $90,000 per day.
E) zero.
Topic: Deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
6.7 Integrative Questions
1) The figure above shows the market for brooms. If the market is efficient
A) 0 brooms are produced.
B) 600 brooms are produced.
C) more than 1,000 brooms are produced.
D) between 0 and 600 brooms are produced.
E) between 600 and 1,000 brooms are produced.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
2) The figure above shows the market for brooms. If 800 brooms are produced
A) consumer surplus is maximized.
B) producer surplus is maximized.
C) market failure and a deadweight loss occur.
D) marginal cost is less than marginal benefit.
E) there is no deadweight loss.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
3) The figure above shows the market for brooms. If 800 brooms are produced
A) marginal cost exceeds marginal benefit.
B) a deadweight loss does not occur because everyone who wants to buy a broom can.
C) the "big tradeoff" occurs.
D) value exceeds price.
E) the "fair results" approach to fairness is definitely not violated.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
4) The figure above shows the market for brooms. If 400 brooms are produced
A) consumer surplus is maximized.
B) producer surplus is maximized.
C) market failure and a deadweight loss occur.
D) marginal cost is greater than marginal benefit.
E) consumer surplus equals zero.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
5) The figure above shows the market for brooms. Which of the following could lead to the production of fewer than 600 brooms?
A) a monopoly
B) a deadweight loss
C) subsidies
D) an external cost
E) a big tradeoff
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
6) When society must decrease the production of something in order to produce more of another good or service, society has necessarily achieved
A) only production efficiency.
B) only allocative efficiency.
C) both production efficiency and allocative efficiency.
D) a free lunch.
E) the maximum opportunity cost.
Topic: Production efficiency
Skill: Level 1: Definition
Section: Integrative
Status: Old
AACSB: Reflective thinking
7) When a society achieves production efficiency, it is
A) definitely producing at a point on its PPF.
B) perhaps producing at a point on its PPF and perhaps producing at a point inside its PPF.
C) definitely producing that combination of goods and services that society values most highly.
D) not fully employing all of its available resources to produce goods and services.
E) enjoying a free lunch.
Topic: Production efficiency
Skill: Level 1: Definition
Section: Integrative
Status: Old
AACSB: Reflective thinking
8) Production efficiency requires that
A) the economy be producing on the PPF but the marginal cost of a good does not need to equal its marginal benefit.
B) the economy be producing on the PPF and that the marginal cost of a good equals its marginal benefit.
C) the marginal cost of a good equals its marginal benefit but the economy does not need to be producing on its PPF.
D) the society be producing at the point of allocative efficiency.
E) opportunity costs be minimized.
Topic: Production efficiency
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
9) If an economy is producing on its PPF, then it is definitely achieving
A) both production and allocative efficiency.
B) only production efficiency, but it definitely is not achieving allocative efficiency.
C) only allocative efficiency, but it is definitely not achieving production efficiency.
D) neither production nor allocative efficiency.
E) only production efficiency.
Topic: Production efficiency
Skill: Level 1: Definition
Section: Integrative
Status: Old
AACSB: Reflective thinking
10) If society can produce more of one good but must forgo some of another good to do so, it is definitely achieving
A) both production and allocative efficiency.
B) only production efficiency.
C) only allocative efficiency.
D) neither production nor allocative efficiency.
E) None of the above answers is correct because when society must forgo another good to produce more of one good, then society might be production efficient or it might be allocatively efficient.
Topic: Production efficiency
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
11) Which of the following is TRUE?
i. Production efficiency occurs only when resources are used to produce the combination of goods that has the greatest value.
ii. Allocative efficiency occurs when marginal benefit equals marginal cost.
iii. A demand curve is a marginal cost curve.
A) only ii
B) only i
C) only iii
D) i and ii
E) ii and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
12) Which of the following is TRUE?
i. Marginal cost is measured by the maximum price that consumers are willing to pay for another unit of a good or service.
ii. Producer surplus equals marginal benefit minus price, summed over the quantity produced.
iii. A supply curve is a marginal cost curve.
A) only iii
B) only i
C) only ii
D) i and ii
E) i and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
13) Which of the following is TRUE? When there are no externalities, public goods, common resources, taxes or subsidies, then
i. allocative efficiency occurs when marginal benefit exceeds marginal cost by as much as possible.
ii. at a competitive equilibrium, resource allocation is efficient.
iii. fair rules require income transfers from the rich to the poor.
A) only ii
B) only i
C) only iii
D) i and ii
E) i and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
14) To achieve ________, marginal cost ________ marginal benefit.
A) production efficiency; must equal
B) production efficiency; must be greater than
C) allocative efficiency; must be greater than
D) allocation efficiency; must be less than
E) allocative efficiency; must equal
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
15) When marginal benefit exceeds marginal cost in a market
A) only consumer surplus is reduced.
B) only producer surplus is reduced.
C) consumer surplus and producer surplus are not affected compared to when production is such that marginal cost equals marginal benefit.
D) the deadweight loss is negative.
E) None of the above answers is correct.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
16) At a competitive equilibrium with no externalities, taxes, subsidies, public goods, common resources, or high transactions costs, which of the following occurs?
i. an efficient outcome
ii. definitely a fair outcome when judged by the fair-results approach
iii. marginal cost equals marginal benefit
iv. producer surplus equals consumer surplus
A) i and iii
B) i, ii and iii
C) ii and iii
D) i, ii, iii and iv
E) only i
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
17) The price of a shirt is $20. Charlie can produce a shirt at a marginal cost of $10, Mac can produce a shirt for $18, and Dennis can produce a shirt for $22. For a shirt, Deandra has a marginal benefit of $25, Frank has marginal benefit of $20, and Artemis has a marginal benefit of $18. Which of the following statements is correct?
A) The sum of consumer surplus is $5 and the sum of producer surplus is $12.
B) The sum of consumer surplus is $12.
C) Only Frank and Artemis will purchase a shirt.
D) Only Dennis will produce a shirt.
E) The sum of producer surplus is $10.
Topic: Consumer surplus and producer surplus
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
18) The fair results approach to fairness
A) requires property rights and voluntary exchange.
B) supports transferring income from the rich and giving it to the poor.
C) requires efficient market outcomes.
D) ensures that marginal cost equals marginal benefit.
E) never creates a big tradeoff.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Ethical understanding and reasoning
19) The fair rules approach to fairness requires
A) consumer surplus equals producer surplus.
B) income transfers from rich to poor.
C) property rights and voluntary exchange.
D) that marginal cost equal marginal benefit.
E) consumer surplus exceed producer surplus because there are more consumers than producers.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Ethical understanding and reasoning
20) Consumer surplus equals
A) producer surplus at a market equilibrium.
B) marginal benefit minus price, summed over the quantity consumed.
C) price minus marginal cost.
D) the deadweight loss if there is underproduction.
E) the deadweight loss plus the producer surplus.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
21) Suppose a market produces 5,000 tons of wheat. At this quantity, the marginal cost exceeds the marginal benefit. This outcome could be the result of
A) a quantity regulation limiting the amount that can be produced.
B) a monopoly.
C) a subsidy.
D) an external benefit.
E) producing a public good.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
6.8 Essay: Allocation Methods and Efficiency
1) What allocation method is the primary method used in the United States?
Topic: Allocation methods
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Written and oral communication
2) "Allocative efficiency in the production of cherries means that consumers can eat all of the cherries they desire." Is this statement true or false?
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Written and oral communication
3) "Allocative efficiency requires that the maximum number of people have access to all of the goods and services that our economy produces." Is this statement true or false? Explain your answer.
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Written and oral communication
4) When less than the efficient amount of a good is produced, how does the marginal benefit of the last unit produced compare to its marginal cost?
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Written and oral communication
5) Why does the marginal benefit curve have a negative slope?
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Written and oral communication
6) The table above shows the production possibilities frontier for the nation of Isolanda.
a. Find the marginal cost of a pound of fish using the above PPF.
b. How does the marginal cost of a pound of fish change as more fish are caught?
a. The table above shows the marginal cost of a pound of fish. Remember that marginal cost is calculated at the mid-point, that is, midway between the two production possibilities. For instance, moving from production point A to production point B has an opportunity cost of 5 pounds of berries. Because this movement gains 1 pound of fish, the marginal cost is 5 pounds of berries. We then attribute this marginal cost to the point midway between points A and B, which is 0.5 pounds of fish.
b. As more fish are caught, the marginal cost of a fish increases.
Topic: Marginal cost
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
7) Draw and describe a marginal benefit curve for slices of pizza where the opportunity cost of consuming a slice of pizza is a taco.
A marginal benefit curve is drawn as a downward sloping line with the marginal benefit of the slice of pizza on the vertical axis and the quantity of slices of pizza on the horizontal axis. A point on the curve shows the maximum number of tacos that people are willing to give up to get another slice of pizza.
Topic: Marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
8) Draw and describe a marginal cost curve for slices of pizza where the opportunity cost of producing a slice of pizza is a taco.
A marginal cost curve is drawn as an upward sloping line with the marginal cost of pizza on the vertical axis and the quantity of pizza on the horizontal axis. A point on the curve shows the number of tacos that must be given up to get another slice of pizza.
Topic: Marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
9) At the current production point on a nation's production possibilities frontier, the marginal benefit of a slice of pizza is 500 tacos while the marginal cost of producing a slice of pizza is 750 tacos. For the nation to produce at the point of allocative efficiency, what should be done?
Topic: Allocative efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
10) Using the values for the marginal benefit and the marginal cost of a bushel of apples given in the table above, what is the allocatively efficient quantity of apples? Suppose 10 million bushels of apples are produced. Should the quantity be increased or decreased? What if 20 million bushels are produced; should the quantity be increased or decreased?
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
11) Suppose a factory can be designed to produce either trucks or cars. The figure above shows the marginal cost and marginal benefit of producing trucks in terms of the forgone cars.
a. What is the marginal benefit of the 25th truck?
b. What is the marginal cost of the 25th truck?
c. Should the 25th truck be produced? Why or why not.
d. What is the marginal benefit of the 75th truck?
e. What is the marginal cost of the 75th truck?
f. Should the 75th truck be produced? Why or why not?
g. What is the allocatively efficient quantity of trucks?
a. 3 cars
b. 1 car
c. This truck should be produced because people value the 25th truck at 3 cars, but it only costs 1 car to make the truck.
d. 1 car
e. 3 cars
f. This truck should not be produced because people value the 75th truck at 1 car, but it costs 3 cars to make the truck.
g. 50 trucks is the allocatively efficient quantity of trucks.
Topic: Allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Analytical thinking
12) Compare and contrast production efficiency and allocative efficiency.
Topic: Production and allocative efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.1
Status: Old
AACSB: Written and oral communication
6.9 Essay: Value, Price, and Consumer Surplus
1) Is the marginal benefit someone enjoys from a good or service the same as the price he or she pays? Explain your answer.
Topic: Marginal benefit
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Written and oral communication
2) Why is the demand curve the same as the marginal benefit curve?
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Written and oral communication
3) The demand curve is the same as another curve. Which curve is the same as the demand curve? Why are the curves the same?
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Written and oral communication
4) What are the two ways demand curves can be interpreted?
1) the quantity demanded at a given price. In this view, the curve is a demand curve;
2) the maximum price people are willing to pay for a given quantity. In this view the curve is a marginal benefit curve.
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
5) "A demand curve is the same as a marginal cost curve." Is this statement correct or incorrect? Explain your answer.
Topic: Demand curve and marginal benefit curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
6) What is consumer surplus?
Topic: Consumer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
7) What must be TRUE for a consumer to enjoy a consumer surplus from a unit of a good?
Topic: Consumer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.2
Status: Old
AACSB: Reflective thinking
8) If the demand for a good does not change, how will an increase in the price of that good affect the consumer surplus from it?
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Written and oral communication
9) The figure shows the demand curve for hotel rooms at a local resort.
a. If the hotel charges $120 per night, how many rooms will they rent?
b. If there are only 40 rooms available, how much are customers willing to pay for a room?
c. If 60 rooms are available, how much are customers willing to pay?
d. What do the dollars in your answer to part (c) represent?
a. At $120 a night, the hotel will rent 20 rooms.
b. If 40 rooms are available, customers are willing to pay $90 per room.
c. If 60 rooms are available, customers are willing to pay $60 per room.
d. The $60 represents the dollars' worth of other goods and services that customers are willing to forgo to get one more night in a hotel room.
Topic: Demand curve and marginal benefit curve
Skill: Level 4: Applying models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
10) Jenn is willing to pay $75 for a purse and the purse's price is $60. What is Jenn's consumer surplus on this purse?
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
11) Jason needs help getting ready for the next test in his economics course and would like to hire Maria, an economics tutor to help him. Jason is willing to pay $30 for the first hour of tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth. The equilibrium price for tutoring is $15 per hour. For how many hours of tutoring will Jason hire Maria? Why this amount of hours? What is Jason's consumer surplus, if any, from the tutoring? What is Maria's consumer surplus from the tutoring?
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
12) The figure above shows the demand curve for pizza.
a. What is the marginal benefit of the 20th pizza?
b. What is the maximum price the consumer is willing to pay for the 20th pizza?
c. If the price of a pizza is $6, what is the consumer surplus of the 20th pizza?
d. If the price of a pizza is $10, what is the consumer surplus on all the pizzas consumed?
e. If the price of a pizza is $6, what is the consumer surplus on all the pizzas consumed?
a. The marginal benefit of the 20th pizza is $10.
b. The maximum price the consumer is willing to pay for the 20th pizza is $10.
c. If the price of a pizza is $6, the consumer surplus of the 20th pizza is $4.
d. If the price of a pizza is $10, the consumer surplus is $40.
e. If the price of a pizza is $6, the consumer surplus is $160.
Topic: Consumer surplus
Skill: Level 4: Applying models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
13) The figure above shows Cindy's demand for CDs per year.
a. What is Cindy's consumer surplus on all the CDs consumed if the price of a CD is $12?
b. What is Cindy's consumer surplus on all the CDs consumed if the price of a CD is $9?
c. What happens to Cindy's consumer surplus when the price of a CD falls?
a. Her consumer surplus when the price of a CD is $12 equals $15, the area of the triangle under the demand curve and above the price.
b. Her consumer surplus when the price of a CD is $9 equals $60, the area of the triangle under the demand curve and above the price.
c. As the price of a CD falls, Cindy's consumer surplus increases. This result reflects the observation that consumers are better off when prices are lower.
Topic: Consumer surplus
Skill: Level 4: Applying models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
14) The diagram above depicts the demand for, and market price of, buckets of raw oysters in Orlando.
a. What is the consumer surplus of the person who buys the 100th bucket of oysters?
b. What is the consumer surplus of the person who buys the 200th bucket of oysters?
c. What is the consumer surplus of the person who buys the 300th bucket of oysters?
d. What is the total consumer surplus from all the oysters consumed in the market?
a. The consumer surplus of the person who buys the 100th bucket of oysters is $6.
b. The consumer surplus of the person who buys the 200th bucket of oysters is $3.
c. The consumer surplus of the person who buys the 300th bucket of oysters is $0.
d. The total consumer surplus in the market is $1,350.
Topic: Consumer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.2
Status: Old
AACSB: Analytical thinking
6.10 Essay: Cost, Price, and Producer Surplus
1) Explain the difference between the words "value," "price," and "cost."
Price is determined in the market by the forces of supply and demand. Price is what the supplier receives for selling a good and is what the buyer pays when purchasing a good.
Cost refers to what must be given up to produce a good. The marginal cost of producing one more unit of a good is illustrated by the supply curve.
Topic: Value, price, and cost
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Written and oral communication
2) The supply curve is the same as another curve. What other curve is the same as the supply curve? Why are the curves the same?
Topic: Supply curve and marginal cost curve
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Written and oral communication
3) What is producer surplus?
Topic: Producer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
4) What must be TRUE for a producer to obtain a producer surplus from the sale of a unit of a good?
Topic: Producer surplus
Skill: Level 1: Definition
Section: Checkpoint 6.3
Status: Old
AACSB: Reflective thinking
5) If the price of a visit to Sea World exceeds the marginal cost of the visit by $13, a producer surplus exists for Sea World." Is this statement true or false?
Topic: Producer surplus
Skill: Level 2: Using definitions
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
6) Maria helps tutor students taking economics. The equilibrium price for tutoring is $15 per hour. Maria has determined her opportunity cost per hour to be $6 for the first, $9 for the second, $12 for the third, $15 for the fourth, and $18 for the fifth. How many hours will Maria tutor? Why this amount of hours? What, if any, is Maria's producer surplus?
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
7) The figure above shows the supply curve for pizzas.
a. What is the marginal cost of the 20th pizza?
b. What is the minimum supply price of the 20th pizza?
c. If the price is $6 per pizza, what is the producer surplus on the 20th pizza?
d. If the price is $6 per pizza, what is the producer surplus for the total quantity of pizzas produced?
e. If the price is $8 per pizza, what is the producer surplus for the total quantity of pizzas produced?
f. If the price is $10 per pizza, what is the producer surplus for the total quantity of pizzas produced?
a. The marginal cost of the 20th pizza is $6.
b. The minimum supply price of the 20th pizza is $6.
c. If the price is $6 per pizza, the producer surplus on the 20th pizza is zero.
d. If the price is $6 per pizza, the producer surplus is $20.
e. If the price is $8 per pizza, the producer surplus is $80.
f. If the price is $10 per pizza, the producer surplus is $180.
Topic: Producer surplus
Skill: Level 3: Using models
Section: Checkpoint 6.3
Status: Old
AACSB: Analytical thinking
6.11 Essay: Are Markets Efficient?
1) Why is a competitive market efficient?
Topic: Efficiency of a competitive market
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
2) Briefly describe the concept of the "invisible hand."
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
3) Explain how the invisible hand delivers an efficient market outcome.
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Written and oral communication
4) What is the "invisible hand"?
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Written and oral communication
5) When economists refer to "the invisible hand," what do they mean?
Topic: Invisible hand
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Written and oral communication
6) "If there is an inefficient level of nursing care in South America, a deadweight loss exists." Is this statement true or false?
Topic: Deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 6.4
Status: Old
AACSB: Reflective thinking
7) What are some of the potential obstacles that can lead to market failure by preventing a market from reaching the efficient outcome? Briefly define each obstacle.
The second set of obstacles occurs when a market is otherwise efficient but nonetheless the government intervenes in the market. The second group is comprised of price and quantity regulations, as well as taxes and subsidies. Some price regulations make prices higher than a certain price illegal; others make prices lower than a certain price illegal. Both prevent the market from reaching its (efficient) equilibrium. Taxes increase the price paid by the buyer and decrease the price received by the seller. Subsidies have the opposite effect, decreasing the price paid by the buyer and increasing the price received by the seller.
One last reason for a market to be inefficient that does not involve the government is high transactions costs. In this case it might be too expensive to operate a market.
Topic: Obstacles to efficiency
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Written and oral communication
8) Jason hires Maria to tutor him in economics. Jason is willing to pay $30 for the first hour of tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth. Maria has an opportunity cost per hour of $6 for the first, $9 for the second, $12 for the third, $15 for the fourth, and $18 for the fifth. What will be the equilibrium quantity of hours tutored and the equilibrium price? Explain why this quantity and price is the equilibrium. What is Jason's consumer surplus and what is Maria's producer surplus?
Topic: Efficiency of a competitive market
Skill: Level 3: Using models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
9) The figure above shows the market for pizza.
a. If the price of a slice of pizza is $3, what is the consumer surplus of the 50th slice?
b. If the price of a slice of pizza is $3, what is the producer surplus of the 50th slice
c. What is the efficient quantity? What is the equilibrium quantity? What is the deadweight loss when the equilibrium quantity is produced?
a. Consumer surplus is the distance between the demand curve and the price of $3 when 50 slices are consumed. That difference is $4, the marginal benefit, minus $3 or $1.
b. Producer surplus is the distance between the supply curve and the market price when 50 slices are produced. That difference is $3 minus $2, the marginal cost, or $1.
c. The efficient quantity is 100 slices because that is the quantity for which the marginal benefit equals the marginal cost. The equilibrium quantity is 100 slices, because that is the quantity for which the quantity demanded equals the quantity supplied. There is no deadweight loss at the equilibrium quantity because it is the same as the efficient quantity.
Topic: Efficiency of a competitive market
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
10) Jason wants to hire Maria to tutor him in economics. Jason is willing to pay $30 for the first hour of tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth. Maria has an opportunity cost per hour of $6 for the first, $9 for the second, $12 for the third, $15 for the fourth, and $18 for the fifth. The initial equilibrium price for tutoring is $15 an hour and hence Maria tutors Jason for 4 hours. Now, Maria realizes that she is the only economics tutor because all the other tutors have graduated. Because she is the only tutor, she has a monopoly and, as a monopolist, Maria decides to charge a price of $25 instead of $15 an hour.
a. At the price of $25 an hour, how many hours will Maria tutor Jason?
b. At the initial equilibrium price of $15 an hour, what was Jason's total consumer surplus and Maria's total producer surplus?
c. At the price of $25 an hour, how many hours will Jason hire Maria to tutor him? What is Jason's total consumer surplus and Maria's total producer surplus?
d. How does the sum of Jason's consumer surplus plus Maria's producer surplus compare at the initial equilibrium price of $15 an hour (part b) and at the new price of $25 an hour (part c)? Comment on any difference.
a. Maria will tutor Jason for 2 hours.
b. At the initial price of $15, Jason's total consumer surplus was $30, the sum of $15 from the first hour plus $10 from the second plus $5 from the third plus $0 from the fourth. Maria made a producer surplus of $18, the sum of $9 on the first hour plus $6 on the second hour plus $3 on the third hour plus $0 on the fourth hour.
c. At the new price of $25 an hour, Jason will hire Maria for 1 hour. Jason's total consumer surplus is $5, the consumer surplus from the first hour. Maria makes a producer surplus of $35, the sum of $19 on the first hour plus $16 on the second hour.
d. When the price was $15 an hour, the sum of the consumer and producer surpluses was $48. When the price is $25, the sum of the consumer and producer surpluses is $40. The $8 difference between the initial situation and the situation in which Maria is a monopolist is the deadweight loss.
Topic: Deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
11) The figure above shows the market for hot dogs.
a. What is the maximum price consumers are willing to pay for the 25th hot dog?
b. What is the efficient quantity?
c. Suppose that the production was limited to 25 hot dogs. In the figure, indicate the amount of the deadweight loss.
a. Consumers are willing to pay a maximum of $4 for the 25th hot dog.
b. The efficient quantity of hot dogs is 75 hot dogs because that is the quantity for which the marginal benefit equals the marginal cost.
c. The deadweight loss is indicated in the figure above.
Topic: Deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
12) The figure above shows the supply and demand curves for pizza. If the market is at its competitive equilibrium, what area in the graph above represents:
a. consumer surplus?
b. producer surplus?
a. AFB
b. BFC
Topic: Efficiency of a competitive market
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
13) The figure above shows the supply and demand for pizza.
a. What is the efficient level of output?
b. If 70,000 pizzas are produced, what area represents the deadweight loss?
c. Why does the deadweight loss in part (b) occur?
d. If 20,000 pizzas are produced, what area represents the deadweight loss?
e. Why does the deadweight loss in part (d) occur?
a. 40,000 pizzas is the efficient quantity.
b. If 70,000 pizzas are produced, the deadweight loss is area C.
c. The deadweight loss occurs because we are producing some pizzas, specifically pizzas 40,001 through 70,000, for which the marginal cost is greater than the marginal benefit.
d. If 20,000 pizzas are produced, the deadweight loss is area B.
e. The deadweight loss occurs because we are not producing some pizzas, namely pizzas 20,001 through 40,000, for which the marginal benefit is greater than the marginal cost.
Topic: Deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 6.4
Status: Old
AACSB: Analytical thinking
6.12 Essay: Are Markets Fair?
1) What are the two views of fairness? How does each view redistribution of income from the rich to the poor?
Topic: Fairness
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
2) How can a person argue that health care services in America are provided efficiently, but not fairly?
However, at that market price there are many people who cannot afford health care. These people, probably the poor and uninsured, are left to go to clinics, crowd emergency rooms, or else do without basic health care needs because of their lack of ability to pay the market price. This outcome could easily violate the "it's not fair if the result isn't fair" view of fairness. Thus observers who assert that the U.S. health care system might be efficient but isn't fair are using the "results" view of fairness.
Topic: Fair results
Skill: Level 4: Applying models
Section: Checkpoint 6.5
Status: Old
AACSB: Written and oral communication
3) Often politicians assert that a price, such as the price of gasoline or the rent for an apartment, is too high and that it is unfair for these prices to be so high. If these products are traded in competitive markets, what fairness rule are politicians using? Why?
Topic: Fair results
Skill: Level 4: Applying models
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
4) What approach to fairness argues in favor of government policies that redistribute income so that there is more equality of income?
Topic: Fair results
Skill: Level 2: Using definitions
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
5) What is the "big tradeoff"?
Topic: The big tradeoff
Skill: Level 1: Definition
Section: Checkpoint 6.5
Status: Old
AACSB: Written and oral communication
6) Why do societies face a tradeoff between the size of the economic pie and the degree of equality with which it is shared?
Topic: The big tradeoff
Skill: Level 4: Applying models
Section: Checkpoint 6.5
Status: Old
AACSB: Written and oral communication
7) Why does the problem of the big tradeoff arise when the government engages in the process of redistributing income using taxes and transfers?
Topic: The big tradeoff
Skill: Level 3: Using models
Section: Checkpoint 6.5
Status: Old
AACSB: Written and oral communication
8) Bill Gates is a founder of Microsoft and one of the world's richest individuals. Suppose Microsoft sells more software and Mr. Gates acquires another billion dollars in wealth. Simultaneously, suppose a burglar whose income is well below average broke into Bill Gates' house and stole a million dollars' worth of antiques. Using the "it's not fair if the rules aren't fair" approach to fairness, is Mr. Gates' acquisition of additional wealth fair? Is the (poor) thief's acquisition fair?
Topic: Fair rules
Skill: Level 4: Applying models
Section: Checkpoint 6.5
Status: Old
AACSB: Written and oral communication
9) According to the "fair rules" view of fairness, are taxes fair? Explain.
Topic: Fair rules
Skill: Level 3: Using models
Section: Checkpoint 6.5
Status: Old
AACSB: Ethical understanding and reasoning
Document Information
Connected Book
Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade
By Robin Bade