Question 1

Welfare economics is the study of how&#10;A)the allocation of resources affects economic well-being.&#10;B)a price ceiling compares to a price floor.&#10;C)the government helps poor people.&#10;D)a consumer's optimal choice affects her demand curve.

Accepted Answer

Welfare economics is concerned with how the allocation of resources affects the overall level of economic well-being, including the distribution of that well-being among different individuals and groups. It seeks to understand how different policies and market outcomes impact the efficient allocation of resources and the optimal level of social welfare. Therefore, option A is the correct choice. Options B, C, and D are not directly related to the definition and scope of welfare economics.

Question 2

An example of normative analysis is studying&#10;A)how market forces produce equilibrium.&#10;B)surpluses and shortages.&#10;C)whether equilibrium outcomes are socially desirable.&#10;D)income distributions.

Accepted Answer

Normative analysis is concerned with determining whether certain outcomes or policies are desirable from a societal perspective. In this case, studying whether equilibrium outcomes are socially desirable is an example of normative analysis. The other choices, such as studying market forces and surpluses and shortages, are examples of positive analysis, which focuses on describing and explaining economic phenomena. The study of income distributions can be either normative or positive, depending on the specific questions being asked.

Question 3

Welfare economics is the study of&#10;A)taxes and subsidies.&#10;B)how technology is best put to use in the production of goods and services.&#10;C)government welfare programs for needy people.&#10;D)how the allocation of resources affects economic well-being.

Accepted Answer

Welfare economics focuses on how the allocation of resources affects economic well-being, including issues such as efficiency, equity, and social welfare. It analyzes policies and interventions that can improve overall economic welfare, such as market regulation, taxation, and social safety nets. The other options (A, B, and C) are all relevant to different aspects of economics but do not fully capture the scope of welfare economics.

Question 4

Which of the following statements is correct?&#10;A)Buyers always want to pay less and sellers always want to be paid more.&#10;B)Buyers always want to pay less and sellers always want to be paid less.&#10;C)Buyers always want to pay more and sellers always want to be paid more.&#10;D)Buyers always want to pay more and sellers always want to be paid less.

Accepted Answer

This statement is based on the fundamental concept of economics which is that buyers always want to pay less, and sellers always want to sell at a higher price. This is because buyers are looking for the best deal and want to spend the least amount of money, while sellers are looking to maximize their profits.

Question 5

Which of the Ten Principles of Economics does welfare economics explain more fully?&#10;A)The cost of something is what you give up to get it.&#10;B)Markets are usually a good way to organize economic activity.&#10;C)Trade can make everyone better off.&#10;D)A country's standard of living depends on its ability to produce goods and services.

Accepted Answer

Welfare economics explains the principle that markets are usually a good way to organize economic activity by studying how the allocation of resources affects the well-being of individuals and society. It aims to identify policies that improve economic efficiency and equity, and to evaluate the trade-offs between them.

Question 6

Welfare economics explains which of the following in the market for televisions?&#10;A)The government sets the price of televisions;firms respond to the price by producing a specific level of output.&#10;B)The government sets the quantity of televisions;firms respond to the quantity by charging a specific price.&#10;C)The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.&#10;D)The market equilibrium price for televisions maximizes consumer welfare and minimizes producer profit.

Accepted Answer

Welfare economics focuses on analyzing the allocation of resources and the distribution of goods and services, aiming to achieve the optimal level of social welfare. In the market for televisions, the market equilibrium price determines the quantity of televisions that buyers and sellers are willing and able to exchange, generating consumer and producer surplus. The market equilibrium price represents the optimal allocation of resources, where the total welfare of buyers and sellers is maximized. Hence, choice C is the correct answer. Choices A and B describe a scenario where the government intervenes to regulate the market, which is not necessarily the case in a free market economy. Choice D refers only to the specific welfare of consumers and producers, not the total welfare of both groups.

Question 7

An example of positive analysis is studying&#10;A)how market forces produce equilibrium.&#10;B)whether equilibrium outcomes are fair.&#10;C)whether equilibrium outcomes are socially desirable.&#10;D)if income distributions are fair.

Accepted Answer

Positive analysis focuses on describing and explaining how economic phenomena work, rather than making normative judgments about whether they are good or bad, fair or unfair. Studying how market forces produce equilibrium is an example of positive analysis because it describes a factual process without making any value judgments about the outcome.

Question 8

The study of how the allocation of resources affects economic well-being is called&#10;A)consumer economics.&#10;B)macroeconomics.&#10;C)willingness-to-pay economics.&#10;D)welfare economics.

Accepted Answer

Welfare economics is the study of how the allocation of resources affects economic well-being. It focuses on maximizing overall societal welfare or utility, rather than just individual gains or losses.

Question 9

Welfare economics is the study of&#10;A)the well-being of less fortunate people.&#10;B)welfare programs in the United States.&#10;C)how the allocation of resources affects economic well-being.&#10;D)the effect of income redistribution on work effort.

Accepted Answer

Welfare economics is the study of how the allocation of resources affects economic well-being, including issues related to market efficiency, equity, and income distribution. It is not limited to studying the well-being of less fortunate people or welfare programs in the United States, although these may fall under the broader scope of welfare economics. While welfare economics may consider the effect of income redistribution, it is not limited to that particular topic.

Question 10

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it&#10;A)maximizes costs of the seller.&#10;B)maximizes tax revenue for the government.&#10;C)maximizes the combined welfare of buyers and sellers.&#10;D)minimizes the expenditure of buyers.

Accepted Answer

The particular price that results in quantity supplied being equal to quantity demanded, also known as the equilibrium price, maximizes the combined welfare of buyers and sellers. At this price, the market reaches efficiency and there is no excess supply or demand. Both buyers and sellers are able to find mutually beneficial transactions at this price, resulting in the highest possible total satisfaction for both parties. Thus, the equilibrium price maximizes the overall welfare of the market participants.

Deck 7: 0: Sec 70 Mc Consumers Producers and the Efficiency of Markets