Parkin&Bade, Microeconomics, 2nd edition

Chapter 6: Efficiency and Fairness of Markets

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) Myer has a small number of 'Black Fridays' (that is, days when people do not shop, such as the day after Christmas Day). So, to get people to shop, Myer offers special items on sale at prices that are well below their usual prices. When Myer opens at 7am on Boxing Day, Myer is using a ________ allocation method for these items.

A) market price

B) contest

C) majority rule

D) command

E) first-come, first-served

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

2) The Adelaide Football Club reserves 5,000 free tickets to each home football game for its members, but members must stand in line to receive their ticket. Football tickets are allocated through which method?

A) Force

B) First-come, first-served

C) Sharing equally

D) Personal characteristics

E) Market price

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

3) Usually, when you arrive at your favourite restaurant with your date, you have to wait 25 minutes for a table. This restaurant is allocating tables using which method?

A) Sharing equally

B) First-come, first-served

C) Command

D) Market price

E) Personal characteristics

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

4) Which of the following situations describing a resource allocation method most resembling the force method?

A) Lattes are sold at Starbucks.

B) Food from the Salvation Army Food Bank is distributed to families in need.

C) Mandy saved her pocket money to buy a 12 pack of Coke Cola. When Mandy's brother saw the soft drinks, he took four.

D) Jose works at Intel. His manager tells him what work needs to be completed each month.

E) Seventy per cent of Austin's chess club wanted to purchase new chess sets and thirty per cent did not. The club purchased the sets.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

5) The resource allocation method used for the online auctions on eBay is

A) lottery.

B) market price.

C) first-come, first-served.

D) sharing equally.

E) contest.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

6) Which of the following situations describing a resource allocation method most resembles the market price method?

A) Food from the Salvation Army Food Bank is distributed to families in need.

B) Seventy per cent of Austin's chess club wanted to purchase new chess sets and thirty per cent did not. The club purchased the sets.

C) Lattes are sold at Starbucks.

D) Jose works at Intel. His manager tells him what work needs to be completed each month.

E) Matt's mother has the rule that whoever cuts the cake chooses their slice last.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

7) Canned milk was only rationed to babies and small children during World War II. This rationing was an example of allocation by

A) force.

B) first-come, first-served.

C) market price.

D) personal characteristics.

E) sharing equally.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

8) Allocating resources by the order of someone in authority is a ________ allocation method.

A) first-come, first-served

B) command

C) contest

D) market price

E) majority rule

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

9) The chair of the Department of Economics at Melbourne University decided that office space is for tenured staff and that graduate students are required to share cubicles. What method is used to allocate office space?

A) Command

B) First-come, first-served

C) Majority rule

D) Sharing equally

E) Lottery

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

10) If you split your dessert with your date, you are using a ________ allocation method.

A) sharing equally

B) first-come, first-served

C) command

D) contest

E) personal characteristics

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

11) Seventy per cent of Austin's chess club wanted to purchase new chess sets and thirty per cent 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) Lottery

E) Majority rule

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

12) The tickets to the Rugby World Cup grand final are usually distributed to fans through a random selection of those people who registered on a website. The tickets are allocated by which method?

A) Personal characteristics

B) Lottery

C) First-come, first-served

D) Majority rule

E) Contest

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

13) The organisers of the Australian Open randomly draw a few people from hundreds of applicants to compete in the junior section of the championship. The method of allocation for the opportunity to participate in competition is ________, and the method of allocation for determining the winner of the competition is ________.

A) contest; command

B) first-come, first-served; lottery

C) contest; lottery

D) lottery; contest

E) lottery; first-come, first-served

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

14) 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 is not achieved.

B) allocative and production efficiency are both achieved.

C) production efficiency is not achieved but allocative efficiency might be achieved.

D) production efficiency occurs because resources are not overused.

E) allocative efficiency is achieved because both goods are produced.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

15) Allocative efficiency refers to

A) producing the goods and services most highly valued.

B) producing the maximum possible amount of output.

C) using the least amount of labour to produce output.

D) obtaining the least output with the most inputs.

E) producing at any point on the PPF.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

16) To achieve allocative efficiency, an economy

A) must have increases in technology.

B) can produce either on or within its PPF.

C) might leave some resources unemployed.

D) does not necessarily need to be production efficient.

E) must produce on its PPF.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

17) Marginal benefit is the benefit that a person receives from consuming

A) all of the possible units of a good or service that can be consumed.

B) one more unit of a good or service.

C) only goods and services that are free.

D) one more unit of a good, and is equal to the cost of producing the unit of the good.

E) a good or service until the person has grown tired of it.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

18) The marginal benefit of an apple is measured by

A) the opportunity cost of producing another apple.

B) the price of the apple.

C) the amount of another good a person is willing to give up to get one more apple.

D) the amount of another good a person must give up to get one more apple.

E) a point on the PPF.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

19) As more of a good is consumed, the marginal benefit of the good

A) decreases.

B) increases.

C) first decreases and then increases.

D) remains constant.

E) is unpredictable.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

20) In general, the marginal benefit curve

A) has a negative slope.

B) has a positive slope.

C) is concave.

D) is vertical.

E) is horizontal.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

21) The marginal benefit of the first hotdog consumed is ________ the marginal benefit of the fifth hotdog consumed.

A) the inverse of

B) equal to

C) equal to 5 times

D) greater than

E) less than

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

22) Marginal cost equals

A) all the opportunity cost of producing the amount of output.

B) productive efficiency.

C) the profitability derived from producing another unit of output.

D) or exceeds the marginal benefit.

E) the opportunity cost of producing one more unit of output.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

23) The marginal cost of a good or service

A) graphs as a positively sloped curve, so it cannot be derived from the production possibilities frontier, which is downward sloping.

B) can be derived from the production possibilities frontier.

C) can be calculated from the marginal benefit of that good or service.

D) decreases as more of the good or service is produced.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

24) The marginal cost curves slope upward because of the principle of

A) decreasing total benefit.

B) increasing marginal cost.

C) increasing marginal benefits.

D) decreasing marginal cost.

E) decreasing marginal benefits.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

25) Which of the following is necessary for allocative efficiency to be achieved?

A) The difference between marginal benefit and marginal cost must be maximised.

B) Production must be at a point inside the production possibilities frontier.

C) Marginal benefit must be maximised.

D) Marginal benefit must equal marginal cost.

E) Marginal cost must be minimised.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

26) To achieve allocative efficiency, one must compare the

A) marginal cost to the production efficiency cost.

B) marginal benefit of a good to its marginal cost.

C) opportunity cost to the attainable point on the production possibilities frontier.

D) point of production efficiency to the point of allocative efficiency.

E) marginal cost of a good to its opportunity cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

27) Allocative efficiency is achieved when the marginal benefit of a good

A) equals zero.

B) is less than its marginal cost.

C) is equal to its marginal cost.

D) exceeds the marginal cost regardless of how much the difference is.

E) exceeds the marginal cost by as much as possible.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

28) All points on the production possibilities frontier

A) are production inefficient.

B) are allocatively efficient but only one point achieves production efficiency.

C) are production efficient but only one point achieves allocative efficiency.

D) are allocatively inefficient.

E) achieve allocative efficiency.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

29) 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) people must be educated to demand more bikes.

B) it must be determined if the production of bikes can be increased.

C) more bikes should be produced.

D) no more and no fewer bikes should be produced.

E) fewer bikes should be produced.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

30) If the difference between the marginal benefit and the marginal cost of a good is as large as possible,

A) more of the good should be produced.

B) allocative efficiency has been attained.

C) resources are being used with maximum efficiency.

D) resources would create more value producing other goods and hence the production of this good should be decreased.

E) Both answers A and D are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

31) 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 anywhere on the PPF.

D) Produce on the PPF and then produce where the marginal benefit exceeds marginal cost by as much as possible.

E) Produce on the PPF and then produce where marginal benefit and marginal cost are constant.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

32) When society produces the combination of goods and services on the PPF that it values the most highly, society has

A) achieved only allocative efficiency and definitely not production efficiency.

B) achieved a free lunch.

C) perhaps achieved production efficiency and perhaps achieved allocative efficiency.

D) achieved only production efficiency and definitely not allocative efficiency.

E) achieved both production efficiency and allocative efficiency.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

33) The figure above shows Kaley's marginal benefit from swimming with manatees (manatee is another name for a sea cow or dugong) 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) $10, $40

B) $25; $25

C) $40; $10

D) $40; $40

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

34) The figure above shows Kaley's marginal benefit from swimming with manatees (manatee is another name for a sea cow or dugong) 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) $2.

B) more than $30.

C) $20.

D) $30.

E) $10.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

35) 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) production efficiency is achieved but allocative efficiency is not achieved because there are no tacos being produced.

B) production efficiency is achieved but allocative efficiency is not achieved because the number of tacos produced is at its absolute maximum.

C) allocative efficiency is achieved but production efficiency is not achieved because there are no tacos being produced.

D) both allocative and production efficiency are achieved.

E) neither allocative nor production efficiency has been achieved.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

36) Allocative efficiency occurs when

A) all citizens have equal access to goods and services.

B) the most highly valued goods and services are produced.

C) goods and services are free.

D) the environment is protected at all costs.

E) production takes place at any point on the PPF.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

37) In general, the marginal cost curve

A) is vertical.

B) is U-shaped.

C) has a positive slope.

D) is horizontal.

E) has a negative slope.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.1 Allocation Methods and Efficiency

38) Which describes the economic meanings of value and price?

A) Value is the marginal benefit obtained and price is the dollars that must be paid.

B) Value is exchange worth minus marginal benefit and price is the dollars that must be paid.

C) Value refers to the dollars that must be paid and price refers to the cost of producing the good.

D) 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.

E) They are the same and both mean the dollars that must be paid.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

39) To an economist, 'value' is the same as

A) the minimum price that people are willing to pay for another unit of the good.

B) total surplus.

C) marginal benefit.

D) marginal cost.

E) consumer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

40) Value and price can be compared by noting that

A) value is what we must pay while price is what we are willing to pay.

B) value is always greater than price.

C) value is what the seller receives when we buy a good, and price is what we must pay when we buy a good.

D) price is what we must pay and value is what we are willing to pay.

E) they are the same thing.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

41) The marginal benefit of each additional unit of a good consumed

A) increases as more is consumed.

B) will maximise consumer surplus.

C) is always equal to its marginal cost.

D) is equal to the deadweight loss if the unit of the good is not produced.

E) decreases as more is consumed.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

42) Mark loves ice cream. At any point in time, he will buy an additional ice cream cone if

A) the marginal benefit from it is zero.

B) there is no deadweight loss produced by his purchase of a cone.

C) the marginal benefit from it exceeds the price.

D) his willingness to pay is less than the price.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

43) A point on the demand curve shows the

A) maximum price that people are willing to pay for another unit of a good.

B) consumer surplus a person gains from consuming a unit of a good.

C) dollars' worth of other goods that people must sacrifice to consume another unit of the good.

D) minimum price that people are willing to pay for another unit of a good.

E) marginal benefit minus the consumer surplus from consuming another unit of a good.

Diff: 0 Type: MC

A-Head: 6.2 Value, Price and Consumer Surplus

AACSB: Reflective thinking

44) A demand curve can be interpreted as

A) an average benefit curve.

B) a marginal cost curve.

C) a marginal benefit curve.

D) a total benefit curve.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

45) Consumers' total benefit from consuming a good is equal to the

A) consumer surplus minus the total amount spent on the good.

B) total amount spent on the good divided by the number of units purchased.

C) total amount spent on the good.

D) consumer surplus plus the total amount spent on the good.

E) consumer surplus on the quantity purchased.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

46) 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) $10.00

C) $12.50

D) $7.50

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

47) Jake just bought a new hockey stick. When he was leaving the shop, he thought he had such a great deal and would have paid $50 more dollars for the stick. Jake received

A) total surplus.

B) consumer surplus.

C) equilibrium.

D) marginal cost.

E) producer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

48) The consumer acquires a consumer surplus on a good if the marginal benefit is

A) less than the price.

B) greater than the price.

C) less than the marginal cost.

D) equal to the price.

E) zero.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

49) Which of the following statements is correct?

A) Consumer surplus equals the price paid for a good.

B) An increase in price decreases consumer surplus.

C) The consumer surplus from a good is always larger than the total benefit from the good.

D) The consumer surplus from a good or service must always equal producer surplus.

E) An increase in price has no effect on consumer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

51) Consumer surplus is the area

A) below the supply curve and above the market price.

B) above the demand curve and below the market price.

C) above the supply curve and below the market price.

D) below the demand curve and above the supply curve.

E) below the demand curve and above the market price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

52) 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 equalled

A) $20.

B) $50.

C) $5.

D) $40.

E) $10.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

53) The price of a 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) Only Willie and Waylon will purchase the cowboy hat.

B) The sum of consumer surplus will be $30.

C) Merle's consumer surplus is $15.

D) Willie's consumer surplus is $30.

E) Waylon's consumer surplus is $0.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

54) 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) $2,500.

C) $3,000.

D) $500.

E) zero because he buys the piano.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

55) Which of the following is an example of consumer surplus?

A) Sue would have paid $15 for a new compact disc but paid only $10.

B) Jose buys a hamburger for $2 and tells you he would not have paid a penny more.

C) Mary buys a pad of paper for $2 and finds the same good at another store for $1.50.

D) John believes the price he paid for his computer was too high.

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.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

56) If a seller charges a buyer the exact price the buyer is willing to pay, then the buyer would

A) receive the maximum consumer surplus.

B) receive no consumer surplus from that unit of the good.

C) receive no benefit from the good.

D) suffer a deadweight loss from buying the good.

E) not buy the good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

57) In the figure above, at the market price of $15, the consumer surplus equals

A) $10,000.

B) 2,000 units.

C) $40,000.

D) $20,000.

E) $30,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

58) In the figure above, suppose that $20 is the market equilibrium price. Which area is the consumer surplus?

A) A

B) B

C) B ÷ A

D) B - A

E) A + B

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

59) In the figure above, suppose that $20 is the market equilibrium price. What is the amount of the consumer surplus?

A) $375

B) 150 units

C) $3,000

D) $1,500

E) $3,375

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

60) The figure above shows Diane's demand curve for soft drinks. The price of a soft drink is $1.00. Diane's consumer surplus from her 10th soft drink is

A) $2.50.

B) $1.50.

C) $0.50.

D) $1.00.

E) $0.00.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

61) The figure above shows Diane's demand curve for soft drinks. The price of a soft drink is $1.00. Diane's consumer surplus from all 15 soft drinks is

A) $15.00.

B) $11.25.

C) $8.00.

D) $22.50.

E) $1.50.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

62) The figure above shows Diane's demand curve for soft drinks. The price of a soft drink is $1.00. Diane's total benefit from consuming 15 soft drinks is

A) $15.00.

B) $26.25.

C) $0.

D) $11.25.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

63) In general, as the consumption of a good or service increases, the marginal benefit from consuming that good or service

A) stays the same.

B) increases.

C) decreases.

D) at first increases and then decreases.

E) at first decreases and then increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

64) Suppose the price of a scooter is $200 and Zoe is willing to pay $250. Zoe's

A) consumer surplus from that scooter is $200.

B) marginal benefit from that scooter is $100.

C) consumer surplus from that scooter is $250.

D) consumer surplus from that scooter is $50.

E) consumer surplus from that scooter is $150.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.2 Value Price and Consumer Surplus

65) Which of the following describes the economic meanings of cost and price?

A) Cost refers to what the buyers pay for the good, and price refers to what sellers receive when the good is sold.

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 the price that buyers must pay to buy the good.

E) Cost is exchange worth, and price is dollar worth.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

66) The cost of producing one more unit of a good or service is equal to its

A) consumer surplus.

B) marginal expenditure.

C) marginal cost.

D) marginal benefit.

E) producer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

67) The supply curve of a good or service is the same as

A) the marginal benefit curve.

B) the marginal cost curve.

C) the demand curve.

D) the total surplus curve.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

68) A supply curve shows quantities supplied at various prices. It also shows the

A) marginal cost of production.

B) marginal benefit of the good.

C) total profit the firm earns at a given level of output.

D) producer surplus, which is equal to the slope of the supply curve.

E) total cost of production.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

69) The supply curve is upward sloping because of

A) decreasing marginal cost.

B) increasing marginal benefit.

C) decreasing marginal benefit.

D) increasing marginal cost.

E) increasing total cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

70) In the above figure, what is the marginal cost of the 4th pizza?

A) $9

B) $36

C) $4

D) $0

E) 4 pizzas

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

71) Producer surplus definitely exists when the

A) marginal benefit exceeds the marginal cost.

B) marginal cost exceeds the price.

C) price exceeds marginal benefit.

D) marginal benefit exceeds the price.

E) price exceeds marginal cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

72) If the price is greater than the marginal cost of producing a good, the seller has

A) a loss.

B) no benefit from the sale.

C) some producer surplus from the sale.

D) some negative consumer surplus from the sale.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

73) The producer surplus of making and selling 10 chairs is found by

A) subtracting the marginal cost from the selling price for each chair and summing the differences for all 10 chairs.

B) adding the marginal cost and the price of all 10 chairs.

C) multiplying the selling price by 10.

D) subtracting from the total revenue the cost of producing one chair multiplied by 10.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

74) 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) $40.

B) $10.

C) $4.

D) $2.

E) $20.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

75) The price of a 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) The sum of producer surplus is $30.

C) All three of these sellers will gain producer surplus from selling a hat.

D) Willie's producer surplus is $30.

E) The sum of producer surplus is $45.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

76) 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) $0.

B) $480.

C) $20.

D) $8.

E) More information is needed to answer the question.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

77) The figure above shows the supply curve for soft drink. The market price is $1.00 per soft drink. The marginal cost of the 10,000th soft drink is

A) $1.00.

B) $0.00.

C) $0.50.

D) more than $0.50 and less than $1.00.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

78) The figure above shows the supply curve for soft drink. The market price is $1.00 per soft drink. The producer surplus from the 10,000th soft drink is

A) $0.00.

B) $1.00.

C) $0.50.

D) more than $1.00.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

79) The figure above shows the supply curve for soft drink. The market price is $1.00 per soft drink. The producer surplus from all the soft drinks sold is

A) $1.00.

B) $0.00.

C) $15.00.

D) $20.00.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

80) 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) marginal benefit of 150th unit.

D) producer surplus.

E) consumer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

81) 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.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

82) 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) average price of all the prices the seller could charge.

B) highest price the seller hopes to realise for this output.

C) price that sets the marginal benefit equal to the price.

D) minimum price the seller must receive to produce this unit.

E) only price for which the seller is willing to sell this unit of the good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

83) 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) $15 an hour

B) $5 an hour

C) $10 an hour

D) $25 an hour

E) More than $25 an hour

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.3 Cost, Price and Consumer Surplus

84) In a competitive market with no externalities,

A) at the equilibrium price, marginal benefit exceeds marginal cost.

B) buyers cannot control the price, so the consumer surplus is zero.

C) the consumer surplus is equal to zero because of competition.

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.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

85) If marginal benefit is equal to marginal cost, then the

A) producer surplus is equal to the consumer surplus.

B) deadweight loss is more than zero but less than its maximum.

C) market has squeezed out total surplus so that it equals zero.

D) sum of producer surplus and consumer surplus is as large as possible.

E) sum of producer surplus and consumer surplus equals zero.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

86) Efficiency occurs in a market when

A) consumer surplus is greater than producer surplus.

B) total revenue is maximised.

C) consumer surplus is equal to producer surplus.

D) the sum of consumer surplus and producer surplus is maximised.

E) consumer surplus is less than producer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

87) At the market equilibrium, when efficiency is attained, the marginal benefit ________ the marginal cost.

A) is equal to

B) is equal to the marginal deadweight loss which is equal to

C) has no necessary relationship with

D) is less than

E) is greater than

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

88) When efficiency is attained, the sum of the total amount of consumer surplus and producer surplus is

A) undefined.

B) equal to the deadweight loss.

C) equal to zero.

D) maximised.

E) minimised.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

89) 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) equal to the deadweight loss from the 80th slice.

E) indeterminate.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

90) The figure above represents the competitive market for slices of key lime pie. When the price is $3, the total consumer surplus equals

A) $60.

B) $120.

C) $90.

D) $0.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

91) The figure above shows the marginal benefit and marginal cost curves for pizza. In the figure, what is the efficient quantity of pizza?

A) 20,000 pizzas

B) 30,000 pizzas

C) 0 pizzas

D) 10,000 pizzas

E) The efficient quantity cannot be determined without more information.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

92) In the figure above, if the market price is $12, then the total consumer surplus is

A) minimised.

B) $10.

C) $12.

D) $480.

E) $240.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

93) 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; C

B) A; C

C) C; B

D) A; B

E) B; C

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

94) In the figure above, suppose the market is at equilibrium. Then area A is the

A) deadweight loss.

B) amount of the consumer surplus.

C) marginal benefit.

D) amount of the producer surplus.

E) marginal cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

95) In the figure above, suppose the market is at equilibrium. Then area B is the

A) amount of the consumer surplus.

B) marginal cost.

C) amount of the producer surplus.

D) deadweight loss.

E) marginal benefit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

96) In the above figure, the market is at its equilibrium. Area A + area B is equal to

A) total surplus.

B) producer surplus.

C) consumer surplus.

D) total revenue.

E) marginal benefit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

97) Adam Smith's Wealth of Nations, written in 1776, describes the market's invisible hand representing the

A) efficiency the market achieves without the interference of governments.

B) control all governments have in organising the market.

C) King of England's control over the colonies.

D) inefficiency of markets when governments do not organise them.

E) invisible command system that efficiently allocates resources.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

98) The 'invisible hand' refers to the notion that

A) marginal benefit decreases as more is consumed.

B) no matter what allocation method is used, the resulting production is efficient.

C) competitive markets send resources to their highest-valued uses.

D) marginal cost increases as more is produced.

E) government intervention is necessary to ensure efficiency.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

99) The efficiency of competitive markets happens because

A) the Australian economy uses a command system to allocate resources within the competitive markets.

B) prices adjust to make buying plans and selling plans compatible.

C) governments organise and monitor production.

D) people make environmentally aware purchasing decisions.

E) of the benevolence of the butcher, the brewer and the baker.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

100) At a competitive equilibrium, if there are no taxes, subsidies, price regulations, quantity regulations, or externalities,

A) both the marginal benefit and the marginal cost of the last unit produced equal zero.

B) the marginal benefit is less than the marginal cost.

C) the marginal benefit is greater than the marginal cost.

D) the marginal benefit is greater than the marginal cost by as much as possible.

E) resource use is efficient.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

101) When technology increases the supply of a good and lower prices increase the quantity demanded,

A) the invisible hand is unnecessary.

B) the economy is reallocating resources to achieve an efficient allocation.

C) consumer surplus falls.

D) the economy is no longer efficient because the quantity changes.

E) the marginal benefit of the good increases with the quantity produced.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

102) When there is market failure so that a market produces less than the efficient amount,

A) there is a deadweight loss.

B) consumers definitely lose and producers definitely gain.

C) the sum of producer surplus and consumer surplus is larger than when the efficient quantity is produced.

D) consumers definitely gain and producers definitely lose.

E) consumer surplus definitely is larger than when the efficient quantity is produced.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

103) 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) Quantity restriction

B) Subsidy

C) Tax

D) Price floor

E) Deadweight loss

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

104) In the above figure, if the market is in equilibrium, area A + area B + area C equals

A) consumer surplus.

B) producer surplus.

C) deadweight loss.

D) total revenue.

E) total surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

105) 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 A + area B.

C) area A + area B + area C.

D) area B + area D + area F.

E) area C + area E.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

106) 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) total surplus.

C) total revenue.

D) producer surplus.

E) consumer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

107) Which of the following leads to a deadweight loss?

i. Overproduction

ii. Underproduction

iii. Taxes

iv. Monopoly

A) i, ii, iii and iv

B) i and ii

C) ii only

D) iii and iv

E) i, ii, and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

108) Which of the following government policies ensures market efficiency?

A) A subsidy paid to producers

B) A sales tax

C) Quantity regulations

D) Price regulations

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

109) 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) iii only

C) i and iii

D) i, ii and iii

E) i and ii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

110) Subsidies ________ the price paid by the buyer and ________ the price received by the seller.

A) increase; decrease

B) do not change; increase

C) increase; increase

D) decrease; increase

E) decrease; decrease

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

111) 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/internal cost.

B) an external benefit.

C) an external cost.

D) an external profit.

E) a public cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

112) Air pollution is an external cost because it

A) benefits no one.

B) is created only when production occurs.

C) is not associated with resource use.

D) is a pollution of the external environment.

E) is a cost not borne by the producer of the good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

113) A benefit that accrues to people other than the buyers of a good is known as ________ benefit.

A) an external

B) a subsidised

C) a total

D) an internal

E) a marginal

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

114) A good or service that can be consumed by a person even if he or she didn't pay for it is called ________ good.

A) an inferior

B) a normal

C) a public

D) a private

E) an external

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

115) A monopoly is

A) a firm that has control of a market because it is the only seller.

B) a cost of producing a good or service.

C) a firm that faces intense competition.

D) a firm that creates enormous external costs.

E) the single buyer of some good or service.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

116) Deadweight loss and market failure are created when a market produces

A) less than the efficient quantity, but not when more than the efficient quantity is produced.

B) either more or less than the efficient quantity.

C) more than the efficient quantity, but not when less 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.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

117) The figure above shows the market for pants. If the efficient quantity is produced,

A) the consumer surplus on all the pants must equal the producer surplus on all the pants.

B) the sum of consumer and producer surplus will be maximised.

C) a small deadweight loss will result.

D) the sum of consumer and producer surplus will be minimised.

E) there will be no consumer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

118) The figure above shows the market for pants. If 6 million pairs of pants are produced, the deadweight loss is

A) the triangle BCE.

B) the triangle BCE minus the triangle ABE.

C) the triangle ACE.

D) zero.

E) the triangle ABE.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

119) Which of the following occurs when a market is efficient?

A) Production costs equal total benefit.

B) Producers earn the highest income possible.

C) Every consumer has all of the good or service he or she wants.

D) Scarce resources are used to produce the goods and services that people value most highly.

E) Consumer surplus equals producer surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

120) When underproduction occurs,

A) there is a deadweight loss that is borne by the entire society.

B) consumer surplus increases to a harmful amount.

C) producers gain more surplus at the expense of consumers.

D) the deadweight loss harms only consumers.

E) marginal cost is greater than marginal benefit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

121) 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) ii only

B) ii and iii

C) iii only

D) i and iii

E) i only

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.4 Are Markets Efficients

122) The 'equality of opportunity' idea of fairness claims that

A) it's not fair if the rules aren't fair.

B) a society should make the poorest as well off as possible.

C) only a first-come, first-served system of allocating resources is fair.

D) the results and the rules should both be fair.

E) private property can be transferred under government order.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

123) 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) The government must allocate resources using a command mechanism.

B) All people are earning equal incomes.

C) There are no public goods, monopolies, high transactions costs, or external costs and benefits.

D) The costs of administering redistribution equals the benefits the poor receive.

E) The government must redistribute income in a fashion that minimises the 'big tradeoff'.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

124) Which of the following is most closely related to the 'fair results' approach to fairness?

A) Price hikes in a natural disaster

B) Voluntary exchange

C) Having an equal income distribution

D) Efficient resource use

E) The command system of allocating resources

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

152) The 'big tradeoff' refers to

A) efficiency and fairness.

B) taking an economics course instead of some other course.

C) marginal benefit versus marginal cost.

D) producing capital goods instead of consumable goods.

E) using market prices rather than a command system to allocate resources.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

153) When economists use the term 'big tradeoff' when discussing efficiency they are referring to the tradeoff between

A) deadweight loss and producer/consumer surplus.

B) marginal cost and marginal benefit.

C) producer surplus and consumer surplus.

D) efficiency and fairness.

E) external costs and external benefits.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

154) Which of the following is part of the cost of income transfers?

A) Income transfers are a similar to allocating resources using a lottery.

B) Income transfers make the results more unfair.

C) Taxing incomes encourages people to work harder.

D) Income transfers increase the size of the economic pie.

E) Tax-collecting agencies cost money to administer.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

155) As pointed out by the 'big tradeoff', government action that redistributes incomes so that everyone has the same income leads to

A) efficient markets.

B) lower taxes on the rich than on the poor so that the rich do not lose their incentive to work.

C) resources being allocated according to a command system.

D) a smaller total output.

E) fairness according to the 'fair rules' approach.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

156) Why does redistribution, so that the distribution of income is equal, bring about less total output?

A) No one can determine marginal benefit or marginal cost as a result.

B) Because the marginal benefit and marginal cost of work have been equally increased.

C) The premise of the question is incorrect because an equal distribution of income would increase rather than decrease the total amount produced.

D) Those in political power will likely receive a larger income.

E) Incentives to work are reduced.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

157) 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) Because we live in a democracy, the government must use majority rule as the rationing mechanism.

B) The government must produce the good itself.

C) Nothing.

D) Some rationing mechanism must be set up to determine who gets the good.

E) Everyone hurt in the natural disaster must get one of the goods.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair

158) The idea that unequal incomes are unfair generally uses the ________ principle of fairness.

A) it's not fair if the rules aren't fair

B) involuntary exchange

C) voluntary exchange

D) big tradeoff

E) it's not fair if the result isn't fair

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 6.5 Are Markets Fair