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| 1 | |
Which of the following statements is/are true about Pareto efficiency?
- An outcome is most efficient when no change could be made to benefit one party without harming the other
- An outcome is most efficient when one person can be made better off without making anybody else worse off
- Market equilibrium price and quantity are considered to be efficient
- Maximizing the amount of work done regardless of the resources used is considered to be efficient
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| | A) | Statement 1 only |
| | B) | Statement 1, 2 and 3 only |
| | C) | Statement 1 and 3 only |
| | D) | All of the statements are true |
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| 2 | |
In economics, a transaction cannot take place unless: |
| | A) | The consumer's reservation price is greater than the producer's reservation price |
| | B) | The producer's reservation price is greater than the consumer's reservation price |
| | C) | The consumer's reservation price is equal to the producer's reservation price |
| | D) | None of the above |
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| 3 | |
Producer surplus is: |
| | A) | The difference between the price received by the buyer and his or her reservation price |
| | B) | The difference between the price received by the seller and the buyer's reservation price |
| | C) | The difference between the buyer's reservation price and the seller's reservation price |
| | D) | The difference between the price received by the seller and his or her reservation price |
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| 4 | |
Total economic surplus is: |
| | A) | The area above the market price and below the demand curve |
| | B) | The area between the demand and supply curves up to the point of equilibrium |
| | C) | The area below the market price and above the supple curve |
| | D) | None of the above |
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| 5 | |
Assume that Hala's reservation price for her laptop is $1,000, and Tala values it at $3,000. If Hala sells the laptop to Tala for $2,500, which of the following is true? |
| | A) | The total economic surplus is $1,500 |
| | B) | The total economic surplus is $500 |
| | C) | The total economic surplus is $4,000 |
| | D) | The total economic surplus is $2,000 |
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| 6 | |
Assume that Mohammed has a car that he values at $10,000. If Saeed values the car at $13,000, which of the following is most likely to occur? |
| | A) | Mohammed and Saeed will not agree on a price and no exchange will occur |
| | B) | Mohammed will sell the car to Saeed at any price between $10,000 and $13,000 and both parties will benefit |
| | C) | Mohammed will sell the car for $9,000 |
| | D) | Saeed will buy the car for $15,000 |
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| 7 | |
We have a socially optimal quantity when: |
| | A) | Keep expanding production until marginal cost equals marginal benefit |
| | B) | Keep expanding production as long as marginal cost exceeds marginal benefit |
| | C) | Keep expanding production as long as the total cost exceeds total benefit |
| | D) | Keep expanding production until total cost equals total benefit |
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| 8 | |
Government intervention through price ceilings result in: |
| | A) | An increase in total economic surplus |
| | B) | A reduction in total economic surplus |
| | C) | Total economic surplus remaining the same |
| | D) | None of the above |
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| 9 | |
Assume that an airplane of 30 seats has 35 reservations, with the highest passenger willingness to pay being $50. Assume also that willingness to pay decreases by $1 for each passenger until it reaches $16. Thus, the average willingness to pay is $33. If the airline uses a compensation approach rather than a first come first served approach to checking passengers in, then: |
| | A) | This results in the creation of a surplus of $75 |
| | B) | This results in a loss of a surplus of $75 |
| | C) | This results in the creation of a surplus of $90 |
| | D) | This results in the creation of a surplus of $165 |
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| 10 | |
If the government is producing a good or a service, and its goal is to maximize total economic surplus, then: |
| | A) | Value of the last unit to the buyer should equal to the average cost of supplying the good or service |
| | B) | Value of the last unit to the buyer should equal to the total cost of supplying the good or service |
| | C) | Value of the last unit to the buyer should equal to the marginal cost of supplying the good or service |
| | D) | None of the above |
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| 11 | |
If producer surplus is on the y-axis and equilibrium price is on the x-axis, then the curve representing the relationship between producer surplus and equilibrium price is: |
| | A) | Upward sloping |
| | B) | Downward sloping |
| | C) | Horizontal |
| | D) | Vertical |
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