Question 1

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
A)maximizes both the total revenue for firms and the quantity supplied of the product.
B)maximizes the combined welfare of buyers and sellers.
C)minimizes costs and maximizes output.
D)minimizes the level of welfare payments.

Accepted Answer

Welfare economics focuses on maximizing the overall welfare, or benefit, to society as a whole. This includes both buyers and sellers in the market. The equilibrium price is considered the best price because it results in the highest combined welfare of buyers and sellers. At this price, the quantity supplied equals the quantity demanded, meaning that both parties are able to transact at a price that they are willing to accept. Any other price would result in a decrease in welfare for one or both parties.

Question 2

Welfare economics explains which of the following in the market for televisions?
A)The government sets the price of televisions; firms respond to the price by producing a specific level of output.
B)The government sets the quantity of televisions; firms respond to the quantity by charging a specific price.
C)The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.
D)The market equilibrium price for televisions maximizes consumer welfare and minimizes producer profit.

Accepted Answer

Welfare economics is concerned with the overall well-being of consumers and producers in the market. It seeks to find the market equilibrium that maximizes the total welfare of both buyers and sellers. Therefore, choice C is the best answer as it explains that welfare economics can help determine the market equilibrium price for televisions that is optimal for both consumers and producers. Choices A and B suggest that government intervention controls either the price or quantity of televisions, which is outside the scope of welfare economics. Choice D is incorrect as welfare economics is concerned with maximizing total welfare, not just consumer welfare.

Question 3

Which of the Ten Principles of Economics does welfare economics explain more fully?
A)The cost of something is what you give up to get it.
B)Markets are usually a good way to organize economic activity.
C)Trade can make everyone better off.
D)A country's standard of living depends on its ability to produce goods and services.

Accepted Answer

Welfare economics focuses on the role and effectiveness of markets in distributing resources and goods. This aligns closely with the principle that "Markets are usually a good way to organize economic activity."

Question 4

An example of normative analysis is studying
A)how market forces produce equilibrium.
B)surpluses and shortages.
C)whether equilibrium outcomes are socially desirable.
D)income distributions.

Accepted Answer

Normative analysis involves evaluating whether economic outcomes are desirable from a societal perspective. The other choices listed are examples of positive analysis, which involves describing how the economy works without making an evaluation about whether the outcomes are good or bad.

Question 5

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
A)maximizes costs of the seller.
B)maximizes tax revenue for the government.
C)maximizes the combined welfare of buyers and sellers.
D)minimizes the expenditure of buyers.

Accepted Answer

The particular price that results in quantity supplied being equal to quantity demanded, also known as equilibrium price, is the best price because it maximizes the combined welfare of buyers and sellers. This is because it allows both parties to trade at a price that they are willing to accept, leading to efficient allocation of resources and mutual gains from trade. Options A, B, and D are inaccurate and do not reflect the real benefits of equilibrium price.

Question 6

Which of the Ten Principles of Economics does welfare economics explain more fully?
A)The cost of something is what you give up to get it.
B)Rational people think at the margin.
C)Markets are usually a good way to organize economic activity.
D)People respond to incentives.

Accepted Answer

Welfare economics explains the principle that markets are usually a good way to organize economic activity by focusing on how to maximize social welfare and efficiency through market outcomes. Welfare economists evaluate market failures and consider ways to correct them through government intervention or market design.

Question 7

One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of
A)factor markets.
B)energy markets.
C)welfare economics.
D)labor economics.

Accepted Answer

The principle that markets are usually a good way to organize economic activity is a cornerstone of welfare economics, which seeks to understand how society can allocate resources to create the most benefit for everyone. Factors such as labor and energy markets are certainly important components of this understanding, but the principle itself is broader than any single market.

Quiz 7: Consumers, Producers, and the Efficiency of Markets

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

Welfare economics explains which of the following in the market for televisions?

Which of the Ten Principles of Economics does welfare economics explain more fully?

An example of normative analysis is studying

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it

Which of the Ten Principles of Economics does welfare economics explain more fully?

One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of