11) In the figure above, the total revenue from pizza per day is
A) $60,000.
B) $100,000.
C) $40,000.
D) $80,000.
E) $50,000.
12) In the figure above, the producer surplus is
A) $60,000.
B) $100,000.
C) $40,000.
D) $80,000.
E) $50,000.
The figure above shows the market for pizza.
13) In the figure above, when the market is in equilibrium, marginal benefit ________ marginal
cost, so the quantity of pizza produced is ________.
A) equals; efficient
B) exceeds; efficient
C) is below; efficient
D) is below; not efficient
E) exceeds; not efficient
14) In the figure above, if pizza production is restricted to 5,000 pizzas a day, then marginal
benefit ________ marginal cost, and ________ occurs.
A) exceeds; overproduction
B) exceeds; underproduction
C) is below; overproduction
D) is below; underproduction
E) exceeds; efficient production
15) In the figure above, if pizza production increases to 15,000 pizzas a day, then marginal
benefit ________ marginal cost, and ________ occurs.
A) exceeds; overproduction
B) exceeds; underproduction
C) is below; overproduction
D) is below; underproduction
E) exceeds; efficient production
16) In the figure above, if pizza production is restricted to 5,000 pizzas a day, the deadweight
loss is
A) $45,000 per day.
B) $12,500 per day.
C) $22,500 per day.
D) $90,000 per day.
E) zero.
17) In the figure above, if pizza production increases to 15,000 pizzas a day, the deadweight loss
is
A) $45,000 per day.
B) $12,500 per day.
C) $22,500 per day.
D) $90,000 per day.
E) zero.
6.7 Integrative Questions
1) The figure above shows the market for brooms. If the market is efficient,
A) 0 brooms are produced.
B) 600 brooms are produced.
C) more than 1000 brooms are produced.
D) between 0 and 600 brooms are produced.
E) between 600 and 1000 brooms are produced.
2) The figure above shows the market for brooms. If 800 brooms are produced,
A) consumer surplus is maximized.
B) producer surplus is maximized.
C) a deadweight loss occurs.
D) marginal cost is less than marginal benefit.
E) there is no deadweight loss.
3) The figure above shows the market for brooms. If 800 brooms are produced,
A) marginal cost exceeds marginal benefit.
B) a deadweight loss does not occur because everyone who wants to buy a broom can.
C) the “big tradeoff” occurs.
D) value exceeds price.
E) the “fair results” approach to fairness is definitely not violated.
4) The figure above shows the market for brooms. If 400 brooms are produced,
A) consumer surplus is maximized.
B) producer surplus is maximized.
C) a deadweight loss occurs.
D) marginal cost is greater than marginal benefit.
E) consumer surplus equals zero.
5) The figure above shows the market for brooms. Which of the following could lead to the
production of fewer than 600 brooms?
A) a monopoly
B) a deadweight loss
C) subsidies
D) an external cost
E) a big tradeoff
6) When society must decrease the production of something in order to produce more of another
good or service, society has necessarily achieved
A) only production efficiency.
B) only allocative efficiency.
C) both production efficiency and allocative efficiency.
D) a free lunch.
E) the maximum opportunity cost..
7) When a society achieves production efficiency, it is
A) definitely producing at a point on its PPF.
B) perhaps producing at a point on its PPF and perhaps producing at a point inside its PPF.
C) definitely producing that combination of goods and services that society values most highly.
D) not fully employing all of its available resources to produce goods and services.
E) enjoying a free lunch.
8) Production efficiency requires that
A) the economy be producing on the PPF but the marginal cost of a good does not need to equal
its marginal benefit.
B) the economy be producing on the PPF and that the marginal cost of a good equals its
marginal benefit.
C) the marginal cost of a good equals its marginal benefit but the economy does not need to be
producing on its PPF.
D) the society be producing at the point of allocative efficiency.
E) opportunity costs be minimized.
9) If an economy is producing on its PPF, then it is definitely achieving
A) both production and allocative efficiency.
B) only production efficiency but it definitely is not achieving allocative efficiency.
C) only allocative efficiency but it is definitely not achieving production efficiency.
D) neither production nor allocative efficiency.
E) only production efficiency.
10) If society can produce more of one good but must forgo some of another good to do so, it is
definitely achieving
A) both production and allocative efficiency.
B) only production efficiency.
C) only allocative efficiency.
D) neither production nor allocative efficiency.
E) None of the above answers is correct because when society must forgo another good to
produce more of one good, then society might be production efficient or it might be allocatively
efficient.
11) Which of the following is true?
i. Production efficiency occurs only when resources are used to produce the combination of
goods that has the greatest value.
ii. Allocative efficiency occurs when marginal benefit equals marginal cost.
iii. A demand curve is a marginal cost curve.
A) Only ii
B) Only i
C) Only iii
D) i and ii
E) ii and iii
12) Which of the following is true?
i. Marginal cost is measured by the maximum price that consumers are willing to pay for
another unit of a good or service.
ii. Producer surplus equals marginal benefit minus price, summed over the quantity produced.
iii. A supply curve is a marginal cost curve.
A) Only iii
B) Only i
C) Only ii
D) i and ii
E) i and iii
13) Which of the following is true? When there are no externalities, public goods, or common
resources, then
i. allocative efficiency occurs when marginal benefit exceeds marginal cost by as much as
possible.
ii. an a competitive equilibrium, resource allocation is efficient.
iii. fair rules require income transfers from the rich to the poor.
A) Only ii
B) Only i
C) Only iii
D) i and ii
E) i and iii
14) To achieve ________, marginal cost ________ marginal benefit.
A) production efficiency; must equal
B) production efficiency; must be greater than
C) allocative efficiency; must be greater than
D) allocation efficiency; must be less than
E) allocative efficiency; must equal
15) When marginal benefit exceeds marginal cost in a market,
A) only consumer surplus is reduced.
B) only producer surplus is reduced.
C) consumer surplus and producer surplus are not affected compared to when production is such
that marginal cost equals marginal benefit.
D) the deadweight loss is negative.
E) None of the above answers is correct.
16) At a competitive equilibrium with no externalities, which of the following occurs?
i) an efficient outcome
ii) definitely a fair outcome when judged by the fair-results approach
iii) marginal cost equals marginal benefit
iv) producer surplus equals consumer surplus
A) i and iii
B) i, ii and iii
C) ii and iii
D) i, ii, iii and iv
E) only i
17) The fair results approach to fairness
A) requires property rights and voluntary exchange.
B) supports transferring income from the rich and giving it to the poor.
C) requires efficient market outcomes.
D) ensures that marginal cost equals marginal benefit.
E) never creates a big tradeoff.
18) The fair rules approach to fairness requires
A) consumer surplus equals producer surplus.
B) income transfers from rich to poor.
C) property rights and voluntary exchange.
D) that marginal cost equal marginal benefit.
E) consumer surplus exceed producer surplus because there are more consumers than producers.
19) Consumer surplus equals
A) producer surplus at a market equilibrium.
B) marginal benefit minus price, summed over the quantity consumed.
C) price minus marginal cost.
D) the deadweight loss if there is underproduction.
E) the deadweight loss plus the producer surplus.
20) Suppose a market produces 5,000 tons of wheat. At this quantity, the marginal cost exceeds
the marginal benefit. This outcome could be the result of
A) a quantity regulation limiting the amount that can be produced.
B) a monopoly.
C) a subsidy.
D) an external benefit.
E) producing a public good.
1) What allocation method is the primary method used in the United States?
2) “Allocative efficiency in the production of cherries means that consumers can eat all of the
cherries they desire.” Is this statement true or false?
3) “Allocative efficiency requires that the maximum number of people have access to all of the
goods and services that our economy produces.” Is this statement true or false? Explain your
answer.
4) When less than the efficient amount of a good is produced, how does the marginal benefit of
the last unit produced compare to its marginal cost?
5) Why does the marginal benefit curve have a negative slope?
6) The table above shows the production possibilities frontier for the nation of Isolanda.
a. Find the marginal cost of a pound of fish using the above PPF.
b. How does the marginal cost of a pound of fish change as more fish are caught?
7) Draw and describe a marginal benefit curve for slices of pizza where the opportunity cost of
consuming a slice of pizza is a taco.
8) Draw and describe a marginal cost curve for slices of pizza where the opportunity cost of
producing a slice of pizza is a taco.
9) At the current production point on a nation’s production possibilities frontier, the marginal
benefit of a slice of pizza is 500 tacos while the marginal cost of producing a slice of pizza is 750
tacos. For the nation to produce at the point of allocative efficiency, what should be done?
10) Using the values for the marginal benefit and the marginal cost of a bushel of apples given in
the table above, what is the allocatively efficient quantity of apples? Suppose 10 million bushels
of apples are produced. Should the quantity be increased or decreased? What if 20 million
bushels are produced; should the quantity be increased or decreased?
11) Suppose a factory can be designed to produce either trucks or cars. The figure above shows
the marginal cost and marginal benefit of producing trucks in terms of the forgone cars.
a. What is the marginal benefit of the 25th truck?
b. What is the marginal cost of the 25th truck?
c. Should the 25th truck be produced? Why or why not.
d. What is the marginal benefit of the 75th truck?
e. What is the marginal cost of the 75th truck?
f. Should the 75th truck be produced? Why or why not?
g. What is the allocatively efficient quantity of trucks?
12) Compare and contrast production efficiency and allocative efficiency.
6.9 Essay: Value, Price, and Consumer Surplus
1) Is the marginal benefit someone places on a good or service the same as the price he or she
pays? Explain your answer.
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2) Why is the demand curve the same as the marginal benefit curve?
3) The demand curve is the same as another curve. Which curve is the same as the demand
curve? Why are the curves the same?
4) What are the two ways demand curves can be interpreted?
5) “A demand curve is the same as a marginal cost curve.” Is this statement correct or incorrect?
Explain your answer.
6) What is consumer surplus?
7) What must be true for a consumer to enjoy a consumer surplus from a unit of a good?
8) If the demand for a good does not change, how will an increase in the price of that good affect
the consumer surplus from it?