Question

Lesson 5: Introduction to Efficiency

1. What is the relationship between the demand curve, the supply curve, the marginal social benefit curve, and the marginal social cost curve?

2. In a supply and demand (marginal social cost and marginal social benefit) figure, show the efficient quantity of output (along the horizontal axis), consumer surplus, and producer surplus.

Answer the following multiple choice questions.

3. Marginal cost is the _____ one more unit of a good and ____.
a. opportunity cost of producing; increases as production increases
b. opportunity cost of producing; decreases as production increases
c. benefit from consuming; increases as consumption increases
d. benefit from consuming; decreases as consumption increases

4. Suppose that Charlene is willing to pay $5.00 for a sandwich. If Charlene must pay ____ for a sandwich, she ____.
a. $4.00; does not receive consumer surplus
b. $4.00; receives consumer surplus
c. $6.00; receives consumer surplus
d. $6.00; receives a marginal cost

5. The supply curve for CDs shows the
a. minimum price that consumers are willing to pay if a given quantity of CDs is available.
b. maximum price that consumers are willing to pay if a given quantity of CDs is available.
c. maximum price that producers must be offered to get them to produce a given quantity of CDs.
d. minimum price that producers must be offered to get them to produce a given quantity of CDs.

6. If the marginal social cost of producing the last table saw is more than the marginal social benefit of the last table saw, then
a. production of table saws should be decreased to reach the efficient level.
b. production of table saws should be increased to reach the efficient level.
c. production of table saws is currently at the efficient level.
d. producer surplus will be larger than consumer surplus.

7. The most anyone is willing to pay for another purse is $80. Currently the price of a purse is $60, and the cost of producing another purse is $50. The total surplus to society if one more purse is produced is
a. $80.
b. $60.
c. $30.
d. $20.
e. $10.

8. When a deadweight loss occurs in a market, we can be certain that
a. taxes have been imposed in a market.
b. the market is a monopoly.
c. there underproduction in the market.
d. the society as a whole experiences a loss.

Answer 1

1. The demand curve is also known as the marginal benefit curve. This is because it shows the benefit which the consumer gets at different quantities.

The supply curve is also known as the marginal cost curve. This is because it shows the cost the producers have to incurr at various price levels.

2. Shown in image.

MCQs

3. The correct answer is that marginal cost is the opportunity cost of producing. It increases as the production increases. This is shown by an upward rising supply curve.

4. The correct answer is b. If Charlene pays $4, she receives consumer surplus. This is because consumer surplus is the difference between willingness to pay and the actual amount paid by the consumer.

5. The correct option is d. Supply curve shows the minimum price the producers should get in order to supply a particular quantity. This is because producers can supply the same quantity at higher price. However, they will not supply the same quantity if they do not get the price shown on the supply curve. Moreover, supply curve shows the behavious of the producers and not consumers.

6. The correct answer is that the production should be decreased. This is because if the cost is more than the benefit, this means that the production should be decreased so that the cost declines and benefit increases and the optimal point is reached.

(Only 1st 4 questions according to guidelines)