Chapter 5 efficiency and equity

Question 1

Is the Competitive Market Efficient?

Answer 1

less than the equilibrium quantity, MSB> MSC.
greater than the equilibrium quantity, MSC> MSB.
equal to the equilibrium quantity, MSC=MSB.

Question 2

resource allocation methods (9)

Answer 2

Market price, command, majority rule, contest, first come first serve, sharing equally, lottery, personal characteristics .and force

Question 3

resource allocation methods- market price

Answer 3

people willing to pay the market price get the resource

Question 4

resource allocation methods- command

Answer 4

acllocates resources by the order of someone in authoruity, works well in organization (i.e military) but bad in an entire economy

Question 5

resource allocation methods- majority rule

Answer 5

resources used in the way which the majority voted. Socities use this for BIG decisions

Question 6

resource allocation methods-contest

Answer 6

allocates resources to a winner

Question 7

resource allocation methods-first come first serve

Answer 7

allocate resources to those first in line. Best when there is scarce resources, can Only serve one person @ a time

Question 8

resource allocation methods-lottery

Answer 8

Allocate resources to those with winning numbers or cards etc. Works well when there is no effective way to distinguish amoung potential users on a scarce resource

Question 9

resource allocation methods- personal characteristics

Answer 9

allocate resources to those with the “right” characteristics. Method gets used in unacceptable ways.

Question 10

resource allocation methods- force

Answer 10

effective way of allocating resources. For the state to transfer wealth from the rich to the poor and establish legal framework in which voluntary exchange can take place in markets.

Question 11

Value

Answer 11

Value is one more unit of a G/S. measure value as the maximum price that a person is **willing **to pay

Demand curves= marginal benfit curves

Question 12

Individual Demand

Answer 12

relationship between the price of a good and the quantity demanded by one person

Question 13

Market Demand

Answer 13

relationship between the price of a good and the **quantity demanded **by all in the market

Question 14

Consumer surlpus

Answer 14

the excess of the benefit recieved from a good over the amount paid for it

CS= MB-price/ quantity bought

Question 15

Supply & Marginal cost

Answer 15

firms are in business to make profit and firms **distinguish **between *cost and price *

Question 16

Cost

Answer 16

What the producer gives up

Question 17

Price

Answer 17

what the producer recieves

Question 18

marginal cost/ supply curve

Answer 18

marginal cost= minimum price that a irm is willing to accept for a product

Therefore

Supply Curve= marginal cost curve

Question 19

Individual supply

Answer 19

relationship between price of a good and quantity supplied by one producer

Question 20

Market Supply

Answer 20

realtionship between price of a good and the quantity supplied by *all producers *

Question 21

Producer Surplus

Answer 21

excess of the amount recieved from the sale of a good over the cost of producing it

**PS= price recieved- Marginal cost/ quantity sold **