Efficiency and Equity Flashcards
What is the primary method by which market prices allocate scarce resources?
Market prices allocate resources by responding to supply and demand, ensuring those willing and able to pay the market price get the resources.
What is the command system of resource allocation?
A command system allocates resources by orders from authority, commonly used in organizations and governments where lines of authority are clear.
How does the first-come, first-served method work in resource allocation?
Resources are allocated to those who are first in line, minimizing the waiting time for users.
What is a contest-based allocation system?
A contest allocates resources to the winner or group of winners, encouraging participants to exert effort which increases total output.
Define “marginal benefit.”
Marginal benefit is the maximum price someone is willing to pay for an additional unit of a good or service.
What does the market demand curve represent?
The market demand curve is the marginal social benefit (MSB) curve, showing the total demand from all buyers at different prices.
What is producer surplus?
Producer surplus is the difference between the price a firm receives for a good and the cost of producing it.
What is deadweight loss?
Deadweight loss is the loss in total surplus that results from an inefficient level of production, either overproduction or underproduction.
What is the utilitarian approach to fairness in markets?
The utilitarian approach suggests income should be transferred from the rich to the poor to maximize the overall happiness or benefit.
What is price gouging?
Price gouging is the practice of selling essential items at an excessively high price during emergencies or shortages.
In which of the following situations is a command system most effective?
A) When the market can adjust prices quickly
B) In large organizations with clear lines of authority
C) In public contests with difficult-to-monitor activities
D) In a lottery system with no effective way to distinguish among user
Answer: B) In large organizations with clear lines of authority
Which method of resource allocation works best when resources are used sequentially and only one person can use them at a time?
A) Lottery
B) Market price
C) First-come, first-served
D) Command
Answer: C) First-come, first-served
What does the marginal cost curve represent in a market?
A) The total cost of production for all goods
B) The demand curve for all consumers
C) The minimum price producers must receive to offer an additional unit
D) The total social benefit of a good or service
Answer: C) The minimum price producers must receive to offer an additional unit
Which of the following is true about a competitive market at equilibrium?
A) Producer surplus is zero
B) Marginal social cost equals marginal social benefit
C) The market experiences overproduction
D) The total surplus is minimized
answer: B) Marginal social cost equals marginal social benefit
Which of the following leads to underproduction in a market?
A) Price floor
B) Price cap
C) Subsidies
D) Public goods
Answer: B) Price cap
What is the key principle behind the utilitarian view of fairness?
A) Resources should be allocated to those with the right characteristics
B) Income redistribution should be maximized to achieve equality
C) Market forces should not be interfered with
D) The state should minimize its role in the economy
Answer: B) Income redistribution should be maximized to achieve equality
A firm is experiencing a producer surplus when:
A) Price equals marginal cost
B) Price exceeds marginal cost
C) Supply equals demand
D) Demand exceeds supply
Answer: B) Price exceeds marginal cost
MCQ 8
What does deadweight loss represent in a market?
A) A surplus of resources
B) The cost of making a product
C) The social loss from inefficient production
D) The revenue gained by producers
Answer: C) The social loss from inefficient production
Which of the following is an example of a public good?
A) Healthcare
B) National defense
C) Fish in the ocean
D) Private education
Answer: B) National defense
Why might price gouging be viewed as unfair during emergencies?
A) It prevents additional supply from reaching the market
B) It increases the deadweight loss in the economy
C) It exploits vulnerable buyers and rewards unscrupulous sellers
D) It leads to overproduction and a surplus of goods
Answer: C) It exploits vulnerable buyers and rewards unscrupulous sellers
