ECO 450 WEEK 3 QUIZ 2 CH 2 & 3
1. The normative approach to public finance prescribes certain actions to achieve predetermined criteria.
2. Positive economic analysis is based on underlying value judgments.
3. “The government should abolish tariffs to achieve efficiency” is a normative statement.
4. It is possible for efficiency not to be attained even if all production is carried on without waste.
5. Efficiency is attained when resources are used each year in such a way that no further net gain is possible.
6. The efficient annual output of any given good is attained if that good is made available in amounts up to the point at which the total social benefit of the good equals the total social cost.
7. If the marginal social benefit of smoke detectors exceeds its marginal social cost, then additional net gains are possible from an increased annual smoke detector production.
8. Monopoly power causes losses in efficiency because the marginal social benefit of output exceeds its marginal social cost at the monopoly output.
9. Government regulations that require airlines to serve routes for which the maximum price that passengers are willing to pay for a trip fall short of the minimum price that sellers are willing to accept are likely to cause losses in efficiency.
10. Points lying below a utility possibility curve are efficient.
11. Government programs can achieve efficiency when the gains to gainers from those policies exceed the losses to those who bear the costs.
12. If the marginal social cost of beer production exceeds its marginal social benefit, then more than the efficient about of beer is being produced.
13. Efficient outcomes are often viewed as inequitable.
14. If it is not possible to make someone better off without harming another, then resource allocation is efficient.
15. Compensation criteria are used to argue that changes in resource allocation should be made if the gains to some groups outweigh the losses to others, even though compensation for losses is not actually made.
16. All points on a utility possibility curve are efficient but differ in terms of the distribution of well-being.
17. A tax on a product shifts the demand curve.
18. A government subsidized price for a commodity that is higher than the market driven price results in oversupply relative to the efficient allocation.
19. When comparing the allocation of two goods relative to two consumers with individual utility functions, multiple points of Pareto efficiency can exist.
Multiple Choice Questions
1. Positive economics:
a. makes recommendations designed to achieve certain goals.
b. establishes cause-and-effect relationships between economic variables.
c. is based on value judgments.
d. can never be used to make predictions.
2. If the efficient output of a good is produced each week, then the:
a. marginal social benefit of the good equals its marginal social cost each week.
b. marginal social benefit of the good is at a maximum.
c. total social benefit of the good is at a maximum.
d. total social benefit of the good equals its total social cost.
3. If the marginal social benefit of a good exceeds the marginal social cost at the current monthly output, then:
a. it will be possible to make buyers of the good better off without harming sellers of the good.
b. it will be possible to make sellers of the good better off without harming buyers of the good.
c. either (a) or (b)
d. a reduction in monthly output will be required for efficiency.
4. The marginal social cost of bread exceeds the marginal social benefit at the current weekly output. Therefore,
a. the marginal net benefit of bread is positive.
b. the output of bread is efficient.
c. a reduction in weekly output of bread is necessary to achieve efficiency.
d. an increase in weekly output of bread is necessary to achieve efficiency.
5. The total social benefit of automobiles equals the total social cost at current annual output. Then it follows that:
a. the annual output of automobiles is efficient.
b. the annual output of automobiles exceeds the efficient amount.
c. less than the efficient annual output of automobiles is produced.
d. it is not possible to make buyers of automobiles better off without harming sellers.
e. both (a) and (d)
6. Eggs are sold in a perfectly competitive market. No persons other than the buyers and sellers of eggs are affected in any way when eggs are traded in the market. Then it follows that:
a. the price of eggs equals the marginal social cost of eggs.
b. the price of eggs equals the marginal social benefit of eggs.
c. the price of eggs exceeds the marginal social benefit of eggs.
d. both (a) and (b)
7. Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that:
a. the marginal social benefit of diamonds exceeds its marginal social cost.
b. the marginal social cost of diamonds exceeds its marginal social benefit.
c. the price of diamonds equals its marginal social cost.
d. the price of diamonds exceeds its marginal social benefit.
e. both (c) and (d)
8. Points on a utility possibility curve represent:
a. a given distribution of well-being between two persons.
b. an efficient allocation of resources.
c. the maximum well-being of any one person, given the resources available and the well-being of another person.
d. all of the above
9. If efficiency has been attained,
a. it will be possible to make any one person better off without harming another.
b. it will not be possible to make any one person better off without harming another.
c. perfect competition must exist.
d. the opportunity cost of any change in resource use must be zero.
10. A move from an inefficient resource allocation to an efficient one:
a. will always be unanimously approved, even if gainers do not compensate losers.
b. will be unanimously opposed.
c. will be unanimously approved if gainers compensate losers.
d. can never result in losers.
11. Which of the following is a normative statement?
a. When interest rates rise, the quantity of loanable funds demanded for new mortgages will decline.
b. To achieve efficiency, governments should prevent monopoly in markets.
c. Unemployment increases during a recession.
d. When governments increase income tax rates, people work less.
More Questions are Included.