Deck 5: Efficiency and Equity

Question 1

Lotteries allocate resources to

A)those who work for the government.
B)those who come up lucky in a gaming system.
C)those who work for private firms.
D)people who are employed by gaming corporations.
E)those who are in command.

Answer 1

those who come up lucky in a gaming system.

Question 2

The first-come,first-served method of resource allocation allocates resources to

A)the wealthiest.
B)people who are willing to take risks.
C)people who are not willing to take risks.
D)the first in line.
E)honest, hard-working people.

Answer 2

the first in line.

Question 3

Choose the statement or statements that are correct.
I.The value of one more unit of a good or service is its marginal benefit.
II.Marginal benefit equals the total amount we spend on a good or service.
III.Marginal benefit is the maximum amount willingly paid for another unit of a good or service.

A)I only.
B)II only.
C)I and III.
D)III only.
E)I, II, and III.

Answer 3

I and III.

Question 4

Restaurants don't use market price to allocate their tables because ________.

A)they would have to watch the price of a table at other restaurants to keep competitive
B)restaurants would have to advertise the price
C)the price of a table would fluctuate hourly, customer uncertainty would deter patrons, and lower demand would bring lower profit
D)they would have to continually change the supply of tables to keep the price constant
E)the price of a table would eventually fall to zero and restaurants would incur a loss

Question 5

At West,recognized as the "jewel in Vancouver's culinary crown",reservations are essential.At Le Bistro Chez Michel,a restaurant in North Vancouver,reservations are recommended.At Vij's,a restaurant not too far from the University of British Columbia,reservations are not accepted.
West allocates scarce table resources by ________,Le Bistro Chez Michel allocates scarce table resources by ________,and Vij's allocates scarce table resources by ________.

A)market price;market price and force;force
B)personal characteristics;personal characteristics and first-come, first-served;first-come, first-served
C)a command system;a combination of a command system and first-come, first-served;first-come, first-served
D)first-come, first-served;first-come, first-served;first-come, first-served
E)personal characteristics;personal characteristics;first-come, first-served

Question 6

Majority rule allocates resources in the way that

A)politicians choose.
B)a majority of voters choose.
C)democracies choose.
D)all voters choose.
E)the military chooses.

Question 7

What is the consumer surplus for the market from the production of the 100th unit of a good?

A)the marginal social cost of the 100th unit
B)the marginal social benefit from the 100th unit
C)the opportunity cost of producing the 100th unit
D)the marginal social benefit from the 100th unit minus the marginal social cost of the 100th unit
E)the marginal social benefit from the 100th unit minus the price paid for the 100th unit

Question 8

The demand curve for a good is the same as the

A)marginal cost curve of that good.
B)marginal benefit curve for that good.
C)consumer surplus curve of that good.
D)production possibilities frontier (PPF).
E)none of the above.

Question 9

In a command system,resources are allocated by

A)people who show interest to use the resources.
B)people who are able to pay for the resources.
C)market price.
D)the order of someone in authority.
E)those people who come first in line.

Question 10

Except for the very last unit of a good sold,the price paid by consumers of that good for an additional unit is

A)less than the marginal social benefit from that unit.
B)more than the marginal social benefit from that unit.
C)less than the marginal social cost of producing that unit.
D)less than the opportunity cost of producing that unit.
E)equal to consumer surplus.

Question 11

When a market price allocates a scarce resource

A)everyone in the economy can use the resource.
B)only those who show interest can use the resource.
C)willingness-to-pay is not an issue.
D)ability to pay for the resource is less important than willingness-to-pay.
E)only those who are willing and able to pay get the resource.

Question 12

What method of resource allocation depends on willingness-to-pay and ability-to-pay?

A)command
B)lottery
C)market price
D)first-come, first-served
E)force

Question 13

If the owner of an apartment building rents only to married couples over the age of 30,the method of resource allocation is

A)majority rule.
B)contest.
C)personal characteristics.
D)market price.
E)force.

Question 14

As a method of resource allocation,force

A)plays a crucial negative role but not a positive role.
B)plays a crucial positive role but not a negative role.
C)plays a crucial role for both good and ill.
D)is always better than majority rule.
E)is always better than first-come, first-served.

Question 15

A contest allocates resources to

A)a winner or a group of winners.
B)an athlete.
C)a gambler.
D)the government.
E)private firms.

Question 16

When a scarce resource is allocated to someone who is the winner,the method of resource allocation is

A)a lottery.
B)a contest.
C)first-come, first-served.
D)force.
E)personal characteristics.

Question 17

Contests do a good job in resource allocation

A)under any circumstances.
B)when the efforts of the players are easy to monitor and reward directly.
C)when the efforts of the players are hard to monitor and reward directly.
D)when the first-come, first-served allocation method has failed.
E)only under a command system.

Question 18

Which of the following is true?

A)When resources are allocated on the basis of personal characteristics, all people who are willing and able to pay the price get the resource.
B)When the range of activities to be monitored is large and complex, a command system allocates resources better than a market price.
C)When a market price allocates resources, some people who are willing and able to pay that price don't get the resource.
D)Force provides the state with an effective method of transferring wealth from the rich to the poor.
E)When resources are allocated by force, people with the "right" characteristics get the resources.

Question 19

In the Canadian economy,the command system

A)is not used at all.
B)is used occasionally inside firms and government departments.
C)is used only by private companies.
D)is used extensively in place of markets.
E)is used extensively inside firms and government departments.

Question 20

Lotteries work best

A)under any circumstances.
B)under the first-come, first served allocation method.
C)when there is no effective way to distinguish among potential users of a scarce resource.
D)when potential users of scarce resources are unknown.
E)under a command system.

Question 21

The market for strawberries is perfectly competitive.Joe and Haley are consuming the same amount of strawberries,but Joe's demand is much more elastic than Haley's.Which statement is true?

A)Joe's consumer surplus exceeds Haley's.
B)Haley's consumer surplus equals Joe's.
C)Haley's consumer surplus exceeds Joe's.
D)In comparing consumer surpluses, no statement can be made.
E)Any comparison of consumer surplus depends on the price of strawberries.

Question 22

A new car has a sticker price of $35,000.Fred decided that he would pay no more than $32,000 for this car.He bought the car for $31,000.Fred obtained a consumer surplus of

A)$35,000.
B)$32,000.
C)$4,000.
D)$3,000.
E)$1,000.

Question 23

Use the figure below to answer the following questions.

Figure 5.2.2
Refer to Figure 5.2.2 If the price falls from P? to P?,then the change in consumer surplus is

A)A.
B)A + B.
C)A + B + C.
D)B + C.
E)A + B + D.

Question 24

Use the figure below to answer the following questions.

Figure 5.2.1
Consider the demand curve in Figure 5.2.1.What is the value of the first unit of the good?

A)$10
B)$9
C)$8
D)$5
E)$4

Question 25

An oil painting has an opportunity cost of $1,000.The painting was purchased for $1,500.How much consumer surplus did the buyer obtain?

A)$1,500
B)$1,000
C)$500
D)zero
E)cannot be determined from the information given

Question 26

Consumer surplus is

A)the difference between the maximum price consumers are willing to pay and the minimum price producers are willing to accept.
B)the excess of the benefit received from a good over the amount paid for it.
C)the total value to consumers of a good.
D)equal to the area under the demand curve.
E)the total amount paid for a good.

Question 27

When demand is perfectly elastic,then consumer surplus is

A)infinite.
B)zero.
C)1.00.
D)-1.00.
E)between zero and 1.00.

Question 28

The maximum price a consumer is willing to pay for a good is the

A)consumer surplus.
B)value of the good.
C)opportunity cost of producing the good.
D)minimum supply-price.
E)marginal cost of the good.

Question 29

Use the figure below to answer the following questions.

Figure 5.2.2
Refer to Figure 5.2.2 If the price is P?,consumer surplus is

A)A.
B)B plus C.
C)D plus E.
D)A plus B plus C.
E)A plus B plus C plus D plus E.

Question 30

Consumer surplus is

A)the difference between the market price of the good and the cost of the good.
B)greater on the last unit sold than on the first unit sold.
C)greater on the first unit sold than on the last unit sold.
D)equal to price multiplied by quantity sold.
E)equal to the area below the demand curve.

Question 31

Charlene is willing to pay $5.00 for a sandwich.If the price of a sandwich is ________,Charlene ________.

A)$4.00;does not receive any consumer surplus
B)$4.00;receives a consumer surplus
C)$6.00;receives a consumer surplus
D)$6.00;receives a marginal cost
E)$4.00;receives a producer surplus

Question 32

A used truck has a sticker price of $21,000.Arthur decided that he would pay no more than $19,500 for this truck.He bought the truck for $19,250.Arthur obtained a consumer surplus of

A)$21,000.
B)$19,500.
C)$19,250.
D)$1,750.
E)$250.

Question 33

Use the figure below to answer the following questions.

Figure 5.2.1
Consider the demand curve in Figure 5.2.1.If the price of the good is $4,what is the consumer surplus?

A)$32.50
B)$25.00
C)$20.00
D)$12.50
E)none of the above

Question 34

Use the figure below to answer the following questions.

Figure 5.2.1
Consider Figure 5.2.1.If the price is $4,what is the consumer surplus from the third unit of the good?

A)$0
B)$1
C)$2
D)$3
E)$4

Question 35

Use the figure below to answer the following questions.

Figure 5.2.2
Refer to Figure 5.2.2.If the price is P?,consumer surplus is

A)A.
B)B plus C.
C)D plus E.
D)A plus B plus C.
E)A plus B plus C plus D plus E.

Question 36

Bill and Ted each consume 15 chocolate bars at the current price.If Bill's demand for chocolate bars is more elastic than Ted's demand,then

A)Bill's willingness to pay for the last chocolate bar is greater than Ted's.
B)Ted's willingness to pay for the last chocolate bar is greater than Bill's.
C)Bill's consumer surplus is greater than Ted's.
D)Ted's consumer surplus is greater than Bill's.
E)Bill's consumer surplus equals Ted's.

Question 37

Use the figure below to answer the following questions.

Figure 5.2.1
Consider Figure 5.2.1.When the price is $4,what is the consumer surplus from the second unit of the good?

A)$7
B)$3
C)$4
D)$1
E)$10

Question 38

Consumer surplus

A)will definitely be low for inexpensive goods.
B)will definitely be high for inexpensive goods.
C)will definitely be low for expensive goods.
D)will definitely be high for expensive goods.
E)may be low or high for any type of good, expensive or inexpensive, depending on the characteristics of demand.

Question 39

Use the figure below to answer the following questions.

Figure 5.2.2
Refer to Figure 5.2.2.If the price is P₀,then the value of the last unit consumed is

A)P₀.
B)P₁.
C)equal to area A + B + C.
D)0.
E)P₁- P₀.

Question 40

Use the figure below to answer the following questions.

Figure 5.2.2
Refer to Figure 5.2.2.If the price rises from P? to P?,the change in consumer surplus is

A)A.
B)B plus C.
C)D plus E.
D)A plus B plus C.
E)A plus B plus C plus D plus E.

Question 41

A market supply curve is

A)the horizontal sum of the individual supply curves.
B)downward sloping.
C)the vertical sum of the individual supply curves.
D)is downward sloping initially, and then upward sloping.
E)is represented by a line with a constant slope.

Question 42

If we produce one more bottle of water

A)we cannot be acting efficiently.
B)we incur a marginal cost.
C)we must move away from market equilibrium.
D)the price of a bottle of water must rise.
E)the marginal social benefit from bottled water increases.

Question 43

Marginal cost

A)is always less than price.
B)can be negative.
C)is the minimum price a producer must receive to induce him to offer one more unit of a good or service for sale.
D)is greater than price.
E)decreases as more of a good or service is produced.

Question 44

A market demand curve is constructed by

A)adding the prices all consumers are willing to pay for any given quantity.
B)determining the quantity supplied by all producers at all possible prices.
C)subtracting the quantity supplied by all producers from the quantity demanded by all individuals at each price.
D)adding the quantities demanded by all individuals at each price.
E)subtracting the quantity demanded by all individuals from the quantity supplied by all producers at each price.

Question 45

Suppose that the Hot Dog House can produce hotdogs at a constant cost of $0.25 each.If the Hot Dog House sells hotdogs for $0.50 each,then the Hot Dog House

A)receives a producer surplus.
B)will raise the price of hot dogs.
C)will allow consumers to receive a consumer surplus.
D)has no producer surplus.
E)has an opportunity cost of $0.50 a hot dog.

Question 46

What is the producer surplus for the market from the production of the 100th unit of a good?

A)the marginal cost of producing the 100th unit
B)the marginal benefit from the 100th unit
C)the opportunity cost of producing the 100th unit
D)the marginal social benefit from the 100th unit minus the marginal cost of producing the 100th unit
E)the price paid for the 100th unit minus the marginal social cost of producing the 100th unit

Question 47

Producer surplus is

A)the value producers place on a good minus the price of the good.
B)the price of the good minus the value producers place on it.
C)zero if price equals marginal cost.
D)greater the more elastic the supply of the good.
E)none of the above.

Question 48

The marginal cost of producing one more hot dog is $1.00.The price of a hot dog is $1.50.The producer surplus from selling one more hotdog is

A)$1.00.
B)$1.50.
C)$0.50.
D)zero.
E)$2.50.

Question 49

Sal likes to eat pizza.The ________ is the maximum amount that Sal is willing to pay for one more slice of pizza.

A)market price
B)marginal cost
C)consumer surplus
D)marginal benefit
E)producer surplus

Question 50

Producer surplus is

A)the difference between the maximum price consumers are willing to pay and the minimum price producers are willing to accept.
B)the excess of the amount received from the sale of a good or service over the cost of producing it.
C)equal to the marginal cost of production.
D)equal to the area under the supply curve.
E)the total amount paid for the good.

Question 51

Use the table below to answer the following questions.
Table 5.2.1

Refer to Table 5.2.1.If the price is $6 a unit,the producer surplus on the third unit is

A)$3.
B)$6.
C)$5.
D)$4.
E)$2.

Question 52

Table 5.2.4

Table 5.2.4 shows the demand schedules for pizza for Abby and Barry who are the only buyers in the market.
Refer to Table 5.2.4.What is the marginal social benefit from the 45th slice of pizza?

A)$3.50
B)$4.00
C)$2.50
D)$5.00
E)$4.50

Question 53

Market demand is the

A)sum of the prices that each individual is willing to pay for each quantity demanded.
B)sum of the quantity demanded by each individual at each price.
C)sum of the consumer surplus of each individual.
D)difference between the maximum amount each individual is willing to pay for a good and the market price.
E)difference between the market price and the maximum amount each individual is willing to pay for a good.

Question 54

Table 5.2.3

If the firm sells the first movie at a price of $7, what is the producer surplus on that movie?
A)$28
B)$3
C)$7
D)$6
E)$1
Answer: B
Diff: 2 Type: MC
Topic: Benefit, Cost, and Surplus
Use the information below to answer the following question.

Figure 5.2.3
Consider the demand and supply curves in Figure 5.2.3.If the market is at the competitive equilibrium,which area in the diagram indicates the cost of producing the quantity sold?

A)ABC
B)AEC
C)EBC
D)0BCD
E)0ECD

Question 55

An oil painting has a marginal cost of $1,000.The painting was bought for $1,500.How much producer surplus did the painter obtain?

A)$1,500
B)$1,000
C)$500
D)zero
E)cannot be determined from the information given

Question 56

If you increase your consumption of pop by one additional can a week,your marginal benefit from this last can is $1.00.For you,the ________ this last can of pop is $1.00

A)price of
B)marginal cost of
C)value from
D)consumer surplus from
E)producer surplus

Question 57

A supply curve is

A)the same as a production possibilities frontier.
B)a marginal social benefit curve.
C)a marginal benefit curve.
D)a marginal cost curve.
E)a downward-sloping curve.

Question 58

Use the table below to answer the following questions.
Table 5.2.1

Table 5.2.1 gives information on marginal cost for the XYZ firm.If XYZ sells the first unit at a price of $6,what is the producer surplus on that unit?

A)$4
B)$6
C)$9
D)$12
E)$7

Question 59

The marginal cost of producing an additional basket of tomatoes is $5.00.The consumer is willing to pay a maximum of $9.00 for an additional basket.A farmer sells a basket of tomatoes for $6.00 each.The farmer receives a producer surplus from selling an additional basket of tomatoes equal to

A)$1.00.
B)$3.00.
C)$4.00.
D)$5.00.
E)$9.00.

Question 60

Sally and Eric are the only people in an economy.Sally buys 3 bottles of water when the price is $2 a bottle and 4 bottles of water when the price is $1 a bottle.Eric buys 10 bottles of water when the price is $0.50 a bottle and 5 bottles of water when the price is $1 a bottle.In the market for water,the quantity demanded ________.

A)increases as the price rises
B)is 4 bottles at a price of $1 a bottle
C)increases as the price falls
D)is 8 bottles at a price of $2 a bottle
E)is 15 bottles at a price of $0.50 a bottle

Question 61

Use the figure below to answer the following questions.

Figure 5.3.2
Refer to Figure 5.3.2.If the level of output is 150 units,the consumer surplus is area

A)BCF.
B)ACG.
C)DCE.
D)ACH.
E)HCG.

Question 62

A negative externality results in

A)underproduction.
B)zero production.
C)overproduction.
D)efficient production.
E)zero deadweight loss.

Question 63

When the efficient quantity is produced

A)total consumer surplus is zero.
B)total producer surplus is zero.
C)consumer surplus exceeds producer surplus by the greatest possible amount.
D)producer surplus exceeds consumer surplus by the greatest possible amount.
E)the sum of consumer surplus and producer surplus is maximized.

Question 64

When the efficient quantity is produced

A)marginal social benefit equals marginal social cost.
B)the quantity demanded equals the quantity supplied.
C)resources are used in the activities in which they are most highly valued.
D)the sum of consumer surplus and producer surplus is maximized.
E)all of the above.

Question 65

Use the figure below to answer the following questions.

Figure 5.3.1
Refer to Figure 5.3.1.If the price is $15 a unit,

A)production is efficient.
B)marginal social benefit equals marginal social cost.
C)deadweight loss is zero.
D)the sum of consumer surplus and producer surplus is maximized.
E)all of the above.

Question 66

An external cost

A)is a marginal benefit.
B)results in underproduction.
C)is a payment from the government to a producer.
D)is a cost that affects someone other than the seller.
E)is a payment from a producer to the government.

Question 67

A monopoly leads to

A)overproduction.
B)underproduction.
C)efficient production.
D)maximization of consumer surplus.
E)zero deadweight loss.

Question 68

Which of the following can lead to an inefficient outcome?
I.Price regulations
II.Increasing marginal cost
III.Monopoly

A)I only
B)II only
C)I and III
D)III only
E)I, II, and III

Question 69

Use the figure below to answer the following questions.

Figure 5.3.1
Refer to Figure 5.3.1.The efficient quantity is

A)250 units.
B)200 units.
C)150 units.
D)100 units.
E)50 units.

Question 70

Consider the market for hot dogs.If this market becomes a monopoly,then there will be

A)underproduction of hot dogs.
B)overproduction of hot dogs.
C)a deadweight loss in the market for hot dogs.
D)an efficient quantity of hot dogs.
E)both A and C are correct.

Question 71

Use the figure below to answer the following questions.

Figure 5.3.2
Refer to Figure 5.3.2.If the level of output is 100 units,the deadweight loss is area

A)BCF.
B)ACG.
C)DCE.
D)ACH.
E)HCG.

Question 72

Which of the following lead to an inefficient outcome?
I.Decreasing marginal social benefit
II.Taxes
III.High transactions cost

A)I only
B)II only
C)I and III
D)II and III
E)I, II and III

Question 73

Suppose the market for diamonds is a monopoly.We can expect

A)underproduction of diamonds.
B)overproduction of diamonds.
C)marginal social benefit to equal marginal social cost in the diamond market.
D)an efficient quantity of diamonds.
E)the allocation of diamonds to be first-come, first-served.

Question 74

Use the figure below to answer the following questions.

Figure 5.3.1
Refer to Figure 5.3.1.If the quantity produced is 100,

A)marginal social benefit exceeds marginal social cost.
B)marginal social cost exceeds marginal social benefit.
C)production is efficient.
D)marginal social benefit is minimized.
E)deadweight loss is zero.

Question 75

Use the figure below to answer the following questions.

Figure 5.3.2
Refer to Figure 5.3.2.If the level of output is 150 units,the producer surplus is area

A)BCF.
B)ACG.
C)DCE.
D)ACH.
E)HCG.

Question 76

When a deadweight loss occurs in a market,we can be certain that

A)taxes have been imposed in the market.
B)the market is a monopoly.
C)there is underproduction in the market.
D)the entire economy experiences a loss.
E)both A and C.

Question 77

Use the figure below to answer the following questions.

Figure 5.3.2
Refer to Figure 5.3.2.If the level of output is 200 units,the deadweight loss is area

A)BCF.
B)ACG.
C)DCE.
D)ACH.
E)HCG.

Question 78

Use the figure below to answer the following questions.

Figure 5.3.1
Refer to Figure 5.3.1.At the efficient quantity,the price is

A)$20 a unit.
B)$15 a unit.
C)$10 a unit.
D)$5 a unit.
E)zero.

Question 79

Choose the correct statement.

A)Producer surplus is an external cost.
B)Consumer surplus is an external benefit.
C)A government subsidy paid to a producer is an external benefit.
D)Consumer surplus is an external cost.
E)Subsidies lead to overproduction.

Question 80

Use the figure below to answer the following questions.

Figure 5.3.1
Refer to Figure 5.3.1.If the quantity produced is 200,

A)a deadweight loss exists.
B)the sum of consumer surplus and producer surplus is maximized.
C)production is efficient.
D)the sum of consumer surplus and producer surplus is zero.
E)deadweight loss is minimized.