Chapter 12: Economic Efficiency

Question 1

Productive efficiency for the firm

Answer 1

When the firm chooses among all available production methods to produce a given level of output at the lowest possible cost

Question 2

Productive efficiency for the industry

Answer 2

When the industry is producing a given level of output at the lowest possible cost, requires the marginal cost be equated across all firms in the industry

Question 3

Allocative efficiency

Answer 3

A situation in which the output of each good is such that its market price and marginal cost are equal

Question 4

Perfect competition is ____ efficient

Answer 4

Productively

Question 5

Monopoly is not allocatively efficient because the monopolist’s ____ always exceeds its ____ ____

Answer 5

• Price

- Marginal cost

Question 6

Producer surplus

Answer 6

The difference between price and marginal cost (for each unit sold)

Question 7

Consumer surplus

Answer 7

The difference between the value that consumers place on a product and the payment they actually make to buy the product

Question 8

What is one of the most important issues in public policy?

Answer 8

How government action can increase the allocative efficiency of market outcomes

Question 9

Crown corporations

Answer 9

Canadian firms that are owned by the federal or provincial government

Question 10

When a natural monopoly with falling average costs sets price equal to marginal cost, it will experience ____

Answer 10

Losses

Question 11

3 methods of regulating natural monopolies

Answer 11

• Marginal-cost pricing
• Two-part tariff
• Average-cost pricing

Question 12

Competition policy

Answer 12

Policy designed to prohibit the acquisition and exercise of monopoly power by business firms