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Economics, 7/e

David Begg, Birkbeck College, University of London
Rudiger Dornbusch
Stanley Fischer

Welfare economics

Self-test Questions

Select the radio button corresponding to your choice of answer for each question, and then click on "Submit Answers" to find out how many you answered correctly.


1	An allocation is Pareto-efficient if no reallocation of resources would make some people ____________ without making others ______________

		A)	worse off, worse off
		B)	better off, better off
		C)	better off, worse off
		D)	equal, unequal

2	Looking at a diagram of the efficiency frontier, Pareto-efficient points are _________ the frontier

		A)	to the right of
		B)	to the left of
		C)	on the vertical axis of
		D)	on

3	For given resources and technology the economy has ___________ Pareto-efficient point(s)

		A)	a unique
		B)	an infinite number of
		C)	many
		D)	two

4	We cannot say whether one allocation of resources is better than another allocation because

		A)	some people can't count
		B)	some people may not be permanent residents
		C)	not all economic activity is legal
		D)	we can't make value judgements to compare different people's welfare

5	A competitive equilibrium is Pareto-efficient because producers are price takers and _______

		A)	consumers and producers face the same prices
		B)	marginal costs and benefits are equal
		C)	prices equal marginal cost and benefit
		D)	all of the above

6	The allocation of resources is not efficient if ____________

		A)	the marginal cost of production does not equal society's marginal benefit
		B)	the distribution is inequitable
		C)	economic growth is low
		D)	unemployment is high

7	If my neighbour burns garden waste causing my house to fill with smoke this is an example of _______________

		A)	a production externality
		B)	a second-best solution
		C)	transaction costs
		D)	a consumption externality

8	Externalities arise because there is a divergence between __________ and ___________

		A)	private costs, private benefits
		B)	private costs, social costs or benefits
		C)	social costs, social benefit
		D)	insiders, outsiders

9	Market failure may arise because of

		A)	imperfect competition
		B)	taxation
		C)	externalities
		D)	missing markets
		E)	all of the above

10	Markets sometimes fail to exist because of

		A)	transactions costs
		B)	the free-rider problem
		C)	poor transport
		D)	a and b
		E)	a and c

11	A competitive equilibrium is Pareto-efficient

		A)	TRUE
		B)	FALSE

12	The second best allocation of resources removes all distortions in the economy on the second attempt.

		A)	TRUE
		B)	FALSE

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