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Multiple Choice Quiz
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1
Welfare economics evaluates the way that resources are allocated based on:
A)supply and demand.
B)efficiency and equity.
C)debt and equity.
D)normative and positive issues.
2
A reservation price is:
A)the maximum price that consumers are willing to pay.
B)the minimum price that suppliers are willing to accept.
C)the maximum price that suppliers are willing to accept.
D)the minimum price that consumers are willing to pay.
3
Consumer surplus measures:
A)the difference between the value received and the amount paid.
B)the total value received from producers.
C)quantity supplied minus quantity demanded.
D)the difference between what consumers buy and what they need.
4
Suppose that demand can be expressed as P = 4 – 1/400Q and supply can be expressed as P = 4 + 1/500Q. At the equilibrium price, consumer surplus is equal to:
A)$2
B)$640
C)$800
D)$1600
5
A market is said to be efficient if it:
A)determines a price where there is no shortage of goods.
B)maximizes the sum of consumer and producer surpluses.
C)minimizes the sum of consumer and producer surpluses.
D)determines a price where there is no surplus of goods.
6
At equilibrium, the market mechanism:
A)is inefficient because some consumers are not satisfied.
B)is just as efficient as the random allocation of goods.
C)leaves producers with unsold merchandise.
D)leaves no potential for profitable trades.
7
The excess burden of a tax is:
A)the difference between the loss in producer and consumer surplus and the government’s tax revenue.
B)the difference between the price paid by consumers and the revenue received by firms.
C)jobs lost as a result of the firms’ reduced output.
D)the excess supply caused by the higher price.
8
A deadweight loss is:
A)the reduction in output caused by a tax.
B)another name for the excess burden of a tax.
C)the reduction in consumer surplus resulting from a tax.
D)The reduction in producer surplus resulting from a tax.
9
Distortions caused by such things as taxes:
A)are the higher prices that consumers pay.
B)are the lower prices received by producers.
C)are the surpluses in the market place.
D)are the result of the inefficient allocation of resources.
10
An income tax imposed on labour income is expected to:
A)lead to higher wages for the working poor.
B)be borne entirely by the firms.
C)reduce the willingness of people to work.
D)result in no deadweight loss.
11
The presence of a negative externality leads to:
A)an underallocation of resources to that particular good.
B)an overallocation of resources to that particular good.
C)an equally efficient allocation of resources.
D)the complete failure of the market system.
12
Positive externalities may occur when:
A)marginal private benefits exceed marginal social benefits.
B)marginal social costs exceed marginal private costs.
C)the government reallocates income from the rich to the poor.
D)individuals or producers get to be free riders on the efforts of others.
13
A system of government-issued pollution permits:
A)may be capable of countering the effects of a negative externality.
B)will not assist in the fight against global warming.
C)will do nothing to increase the efficiency of the market.
D)may lead to lower prices for products such as gasoline.
14
Horizontal equity refers to the idea that:
A)demand curves should be perfectly elastic.
B)supply curves should be perfectly elastic.
C)people with different incomes should pay the same tax.
D)people with the same income should pay the same tax.
15
Rent-seeking activities are associated with:
A)looking for suitable accommodation.
B)the unproductive use of resources.
C)the effects of rent controls.
D)government intervention in the market.





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