Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 6 Efficiency and Fairness of Markets
6.1 Allocation Methods and Efficiency
1) Walmart has a limited number of day-after Thanksgiving Day special items on sale at prices
well below their typical price. Walmart opens at 5 AM. Walmart is using a ________ allocation
method for these items.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
2) Often people trying to withdraw money from their bank must wait in line, which reflects a
________ allocation method.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
3) University of Colorado reserves 5,000 free tickets to each home football game for students.
Students must stand in line to receive their ticket. Football tickets are allocated through which
method?
A) Market price
B) Sharing equally
C) Personal characteristics
D) First-come, first-served
E) Force
4) Auditors working for a large accounting firm are often away from the office. When they are
in the office, they are allowed to use any desk that is available. Which method is used to allocate
desks?
A) Lottery
B) First-come, first-served
C) Command
D) Contest
E) Sharing equally
5) Mandy saved her allowance to buy a 12 pack of cream soda. When Mandy’s brother saw the
soda, he took four. Sodas were allocated between Mandy and her brother through
A) Force
B) Majority rule
C) First-come, first-served
D) Sharing equally
E) Personal characteristics
6) Which of the following situations describing a resource allocation method most resembles the
force method?
A) Seventy percent of Austin’s chess club wanted to purchase new chess sets and thirty percent
did not. The club purchased the sets.
B) Lattes are sold at Starbucks.
C) Food from the Weld County Food Bank is distributed to families in need.
D) Mandy saved her allowance to buy a 12 pack of cream soda. When Mandy’s brother saw the
soda, he took four.
E) Jose works at Intel. His manager tells him what work needs to be completed each month.
7) Honda will sell its vehicles to anyone who wants to and can buy one. Honda is using a
________ allocation method.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
8) Lattes at Starbucks are allocated to individuals in society through what type of method?
A) Lottery
B) Contest
C) Sharing equally
D) Market price
E) Personal characteristics
9) Which of the following situations describing a resource allocation method most resembles the
market price method?
A) Food from the Weld County Food Bank is distributed to families in need.
B) Lattes are sold at Starbucks
C) Jose works at Intel. His manager tells him what work needs to be completed each month.
D) Matt’s mother had the rule that whoever cuts the cake chooses their slice last.
E) Seventy percent of Austin’s chess club wanted to purchase new chess sets and thirty percent
did not. The club purchased the sets.
10) If a landlord will rent an apartment only to married couples, the landlord is using a ________
allocation method.
A) majority rule
B) market price
C) contest
D) personal characteristics
E) command
11) Canned milk was only rationed to babies and small children during World War 2. This
rationing was an example of allocation by
A) market price.
B) first-come, first-served.
C) sharing equally.
D) force.
E) personal characteristics .
12) Although Jack and Vanessa were equally qualified, Jack was promoted to manager instead of
Vanessa because the president of the company thought that the other employees would not
respect a female manager. The resource, the management position, was allocated in what
manner?
A) Sharing equally
B) Contest
C) Personal characteristics
D) Command
E) Lottery
13) Allocating resources by the order of someone in authority is a ________ allocation method.
A) first-come, first-served
B) market price
C) contest
D) majority rule
E) command
14) Jose works at Intel. His manager tells him what work needs to be completed each month.
Jose’s resource, labor, is allocated with which of the following methods?
A) Command
B) Majority rule
C) Force
D) Personal characteristics
E) Lottery
15) The chair of the Department of Economics at Colorado State University decided that office
space is for tenured faculty and that graduate students are required to share cubicles. What
method is used to allocate office space?
A) Lottery
B) Majority rule
C) Command
D) First-come, first-served
E) Sharing equally
16) If you split your dessert with your date, you are using a ________ allocation method.
A) first-come, first-served
B) sharing equally
C) contest
D) personal characteristics
E) command
17) When the city of Fresno holds a referendum to determine if taxes will be raised to pay for
road repairs, the city is using a ________ allocation method.
A) majority rule
B) market price
C) contest
D) personal characteristics
E) command
18) Seventy percent of Austin’s chess club wanted to purchase new chess sets and thirty percent
did not. The club purchased the sets. Which method of allocation best describes the choice to
purchase the sets?
A) Force
B) Sharing equally
C) Command
D) Majority rule
E) Lottery
19) Which of the following situations describing a resource allocation method most resembles
the majority rule method?
A) Seventy percent of Austin’s chess club wanted to purchase new chess sets and thirty percent
did not. The club purchased the sets.
B) Lattes are sold at Starbucks.
C) Food from the Weld County Food Bank is distributed to families in need.
D) Jose works at Intel. His manager tells him what work needs to be completed each month.
E) Matt’s mother had the rule that whoever cuts the cake chooses their slice last.
20) in 2009, tickets to a Presidential Town Hall meeting were distributed to individuals through a
random selection of those who registered on a website. The tickets were allocated by which
method?
A) Lottery
B) Majority rule
C) Contest
D) First-come, first-served
E) Personal characteristics
21) The table above shows the production possibilities for an economy. When the economy
produces a combination of 900 books and 50 loaves of bread,
A) production efficiency occurs because resources are not overused.
B) allocative efficiency is achieved because both goods are produced.
C) production efficiency is not achieved.
D) allocative and production efficiency are both achieved.
E) production efficiency is not achieved but allocative efficiency might be achieved.
22) Resource use is allocative efficient
A) when it is not possible to produce more of one good.
B) when we produce goods and services that we value most highly.
C) when most resources are fully employed.
D) at any point on the PPF.
E) at all points either on or within the PPF because all these production points are attainable.
23) Allocative efficiency refers to
A) producing the goods and services most highly valued.
B) using the least amount of labor to produce output.
C) producing the maximum possible amount of output.
D) obtaining the least output with the most inputs.
E) producing at any point on the PPF.
24) When allocative efficiency occurs,
A) an economy produces the goods and services most highly valued.
B) marginal benefit exceeds marginal cost by some amount.
C) technology must be increasing.
D) we can simultaneously produce more of all goods.
E) marginal benefit exceeds marginal cost by as much as possible.
25) To achieve allocative efficiency, an economy
A) must produce on its PPF.
B) does not necessarily need to be production efficient.
C) must have increases in technology.
D) must leave some resources unemployed.
E) can produce either on or within its PPF.
26) If an economy is allocatively efficient, it must be producing
A) beyond its production possibilities frontier.
B) inside its production possibilities frontier.
C) on its production possibilities frontier.
D) the goods and services that are the most expensive.
E) the goods and services that are the least expensive to produce.
27) When a society achieves allocative efficiency, it
A) is not achieving production efficiency.
B) is producing that combination of goods and services that society values most highly.
C) might or it might not be producing at a point on society’s PPF.
D) is producing a combination of goods and services whose marginal cost exceeds their marginal
benefit.
E) is producing the combination of goods and services for which marginal benefit exceeds
marginal cost by as much as possible.
28) Marginal benefit is the benefit that a person receives from consuming
A) a good or service until the person has grown tired of it.
B) only goods and services that are free.
C) one more unit of a good or service.
D) all of the possible units of a good or service that can be consumed.
E) one more unit of a good and is equal to the cost of producing the unit of the good.
29) Marginal benefit is the
A) total benefit we receive from consuming a good or service.
B) additional benefit we receive from consuming one more unit of a good or service.
C) minimum amount of other goods or services we are willing to give up.
D) opportunities given up to get one more unit of a good or service.
E) the benefit we receive from consuming one more unit of a good or service minus the cost of
the producing one more unit of the good or service.
30) The marginal benefit of a taco is measured by
A) the price of the taco.
B) the amount of another good a person is willing to give up to get one more taco.
C) the amount of another good a person must give up to get one more taco.
D) a point on the PPF.
E) the opportunity cost of producing another taco.
31) Marginal benefit
A) increases as more of a good is consumed.
B) decreases as more of a good is consumed.
C) is the total benefit from all units consumed.
D) is constant as more of a good is consumed.
E) is the gain to the producer of producing and selling one more unit of a good.
32) As more of a good is consumed, the marginal benefit of the good
A) increases.
B) decreases.
C) remains constant.
D) is unpredictable.
E) first decreases and then increases.
33) The principle of decreasing marginal benefit explains why the marginal benefit curve
A) is upward sloping.
B) has an infinite slope.
C) is vertical.
D) is downward sloping.
E) is horizontal.
34) In general, the marginal benefit curve
A) has a positive slope.
B) has a negative slope.
C) is horizontal.
D) is vertical.
E) is concave.
35) The point that each glass of lemonade consumed on a hot day brings lower and lower levels
of satisfaction is known as the principle of
A) total benefits.
B) increasing marginal cost.
C) decreasing marginal benefit.
D) increasing opportunity cost.
E) decreasing marginal price.
36) The marginal benefit of the first hotdog consumed is ________ the marginal benefit of the
fifth hotdog consumed.
A) equal to
B) less than
C) greater than
D) the inverse of
E) equal to 5 times
37) Suppose Jennifer derives $100 in marginal benefits from her first skiing trip and $80 from
her third trip. Her marginal benefit from her second trip is likely to be
A) more than $100.
B) between $100 and $80.
C) between $79 and $51.
D) less than $51.
E) some amount that cannot be calculated without additional information.
38) Marginal benefit curves
A) have positive slopes.
B) have negative slopes.
C) are horizontal lines.
D) are vertical lines.
E) are upside-down U-shaped curves.
39) Marginal cost equals
A) the profitability derived from producing another unit of output.
B) all the opportunity cost of producing the amount of output.
C) or exceeds the marginal benefit.
D) productive efficiency.
E) the opportunity cost of producing one more unit of output.
40) Marginal cost is the opportunity cost of producing
A) every unit possible.
B) zero units.
C) the first unit and only the first unit.
D) one more unit of a good or service.
E) None of the above answers is correct.
41) Moving ________ along the marginal cost curve, the ________.
A) upward; opportunity cost increases
B) upward; marginal cost decreases
C) downward; marginal cost increases
D) upward; opportunity cost does not change
E) downward; opportunity cost does not change
42) The marginal cost of a good or service
A) can be calculated from the marginal benefit of that good or service.
B) decreases as more of the good or service is produced.
C) can be derived from the production possibilities frontier.
D) graphs as a positively sloped curve, so it cannot be derived from the production possibilities
frontier, which is downward sloping.
E) None of the above answers are correct.
43) The marginal cost curves slope upward because of the principle of
A) decreasing marginal benefits.
B) increasing marginal cost.
C) increasing marginal benefits.
D) decreasing marginal cost.
E) decreasing total benefit.
44) The marginal cost curve is
A) downward sloping to reflect the bowed out PPF.
B) downward sloping as marginal benefits increase.
C) upward sloping because marginal cost falls as more of a good or service is produced.
D) upward sloping to reflect increasing opportunity cost.
E) U-shaped to reflect the bowed out PPF.
45) As more of a good is consumed, marginal benefit ________ and as more of a good is
produced, marginal cost ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
46) To achieve allocative efficiency, one must compare the
A) marginal cost of a good to its opportunity cost.
B) opportunity cost to the attainable point on the production possibilities frontier.
C) marginal benefit of a good to its marginal cost.
D) marginal cost to the production efficiency cost.
E) point of production efficiency to the point of allocative efficiency.
47) Any point on the production possibility frontier is
A) attainable and might be allocatively inefficient.
B) attainable and must be allocatively efficient.
C) less production efficient than a point in the interior of the PPF.
D) always allocatively efficient but might or might not be production efficient.
E) always production efficient and always allocatively efficient.
48) Which of the following are the rules for finding the point of allocative efficiency?
A) Produce on the PPF and then produce where the marginal benefit and marginal cost are as
large as possible.
B) Produce on the PPF and then produce where marginal benefit equals marginal cost.
C) Produce on the PPF and then produce where marginal benefit and marginal cost are constant.
D) Produce on the PPF and then produce where the marginal benefit exceeds marginal cost by as
much as possible.
E) Produce anywhere on the PPF.
49) Allocative efficiency occurs
A) anywhere inside or on the production possibilities frontier.
B) when the total cost of production is minimized.
C) at all points on the production possibilities frontier.
D) at only one point on the production possibilities frontier.
E) at the points where the production possibilities frontier crosses the horizontal or vertical axis.
50) Which of the following is necessary for allocative efficiency to be achieved?
A) Marginal benefit must be maximized.
B) Marginal cost must be minimized.
C) Marginal benefit must equal marginal cost.
D) The difference between marginal benefit and marginal cost must be maximized.
E) Production must be at a point inside the production possibilities frontier.
51) All points on the production possibilities frontier
A) are production inefficient.
B) achieve allocative efficiency.
C) are production efficient but only one point achieves allocative efficiency.
D) are allocatively efficient but only one point achieves production efficiency.
E) are allocatively inefficient.
52) To determine how much of a good to produce to achieve allocative efficiency, we
A) construct a production possibilities frontier and choose the midpoint.
B) construct a production possibilities frontier and choose any point on it.
C) must produce on the PPF and at the point where the marginal benefit and marginal cost of the
good are equal.
D) must produce on the PPF and at the point where the marginal benefit exceeds by any amount
the marginal cost of the good.
E) must produce on the PPF and at the point where the marginal benefit exceeds by as much as
possible the marginal cost of the good.
53) When the marginal benefit and marginal cost of sodas are equal, then
A) the production of sodas might be allocatively efficient but it is definitely production
inefficient.
B) the allocatively inefficient amount of sodas is being produced.
C) more sodas should be produced to reach the allocatively efficient quantity.
D) fewer sodas should be produced to reach the allocatively efficient quantity.
E) the allocatively efficient amount of sodas is being produced.
54) When the marginal cost of producing a bike is greater than the marginal benefit of the bike,
for resource use to be allocatively efficient
A) more bikes should be produced.
B) fewer bikes should be produced.
C) no more and no fewer bikes should be produced.
D) it must be determined if the production of bikes can be increased.
E) people must be educated to demand more bikes.
55) For resource use to be efficient, when the marginal benefit of a slice of pizza exceeds the
marginal cost ________.
A) more slices of pizza should be produced
B) fewer slices of pizza should be produced
C) no more slices of pizza should be produced
D) allocative efficiency is reached only if the marginal benefit exceeds the marginal cost by as
much as possible
E) None of the above answers is correct.
56) When society produces the combination of goods and services on the PPF that it values the
most highly, society has
A) achieved only production efficiency and definitely not allocative efficiency.
B) achieved only allocative efficiency definitely not production efficiency.
C) achieved both production efficiency and allocative efficiency.
D) achieved a free lunch.
E) perhaps achieved production efficiency and has perhaps achieved allocative efficiency.
57) In order to efficiently allocate goods and services, we have to compare
A) total cost to total benefit.
B) total cost to price.
C) marginal benefit to price.
D) marginal cost to marginal benefit.
E) price to marginal cost.
58) We allocate resources efficiently when
A) marginal benefit is equal to marginal cost.
B) marginal benefit is greater than marginal cost by any amount.
C) marginal cost is greater than marginal benefit.
D) total benefit is greater than total cost.
E) marginal benefit is greater than marginal cost by as much as possible.
59) If the difference between the marginal benefit and the marginal cost of a good is as large as
possible,
A) resources are being used with maximum efficiency.
B) resources would create more value producing other goods and hence the production of this
good should be decreased.
C) more of the good should be produced.
D) allocative efficiency has been attained.
E) Both answers A and D are correct.