ECO 201 Chapter Notes - Chapter 8: Allocative Efficiency, Economic Surplus, Marginal Utility

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30 Dec 2017

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Occurs when it"s impossible to produce more of one good without giving up something else. Arises when marginal benefit equals marginal costs for each good or service. The benefit received from consuming one more unit of a good. Law of increasing marginal cost: marginal cos curve is upward sloping. A firm will produce all units of a produce where price does not equal marginal cost. The marginal cost curve is the firm"s supply curve. If marginal benefit is greater than marginal cost, should produce and consume more of the good or service. If marginal benefit is less than marginal cost, should produce and consume less of the good or service. If marginal benefit equals marginal cost, allocative efficiency has been obtained. Difference between maximum amount consumers are willing to pay and the price of a good. Measured by the area under the demand curve (marginal benefit curve) and above the price paid, up to the quantity bought.

Related Questions

1. the marginal cost curve is

A. Downward sloping to reflect the bowed out PPF.

B. Downward sloping as marginal benefits increase.

C. Upward sloping because marginal cost falls as more of a good or service is produced.

D. Upward sloping to reflect the increasing opportunity cost of producing one more unit.

E. U-shaped to reflect the bowed out PPF.

2. Allocative efficiency occurs

A. Anywhere inside or on the production possibilities frontier.

B. When the total cost of production is minimized

C. At all points on the production possibilities frontier.

D. At only one point on the production possibilities frontier.

E. At the points where the production possibilities frontier crosses the horizontal or vertical axis.

3. Auditors working for a large accounting firm are often away from the office. When they are in the office, they are allowed to use any desk that is available. Which method is used to allocate desks?

A. lottery

B. first-come, first-served

C. Command

D. Contest

E. Sharing equally

4. The marginal cost of a good or service

A. Can be calculated from the marginal benefit of that good or service.

B. decreases as more of the good or service is produced.

C. Can be derived from the production possibilities frontier.

D. Graphs as a positively sloped curve, so it cannot be derived from the production possibilities frontier, which is downward sloping.

E. None of the above answers is correct.

5. The maximum amount of other goods and services that people are willing to give up in order to get one more unit of a good is defined as the good's

A. Marginal benefit.

B. Total benefit.

C. Marginal cost

D. Total cost.

E. Price.

14. âFlat of the curve medicineâ refers to the situation where the
a. aggregate value of health care inputs approaches zero
b. marginal value of health care inputs approaches zero
c. average value of health care inputs approaches zero
d. median value of health care inputs approaches zero
e. none of the above
15. At the monopolistâs profit maximizing level of output:
a. marginal cost is less than marginal benefit
b. marginal cost is greater than marginal benefit
c. marginal cost is less than marginal revenue
d. marginal cost is greater than marginal revenue
16. Which of the following will not lead to an increase in the price of blueberries
a. rise in agricultural wages
b. bug infestation that damages the blueberry crop
c. decrease in the price of strawberries
d. study showing that blueberries reduce the risk of stomach cancer
17. Each of the following leads to more elastic demand for a product, except:
a. plentiful substitutes
b. longer time-horizon
c. larger share of household budget
d. greater degree of necessity
18. In a regression examining the determinants of income, the estimated effect of education on income will be upward biased if education is:
a. positively correlated with an omitted variable which is uncorrelated with income
b. positively correlated with an omitted variable which is negatively correlated with income
c. positively correlated with an omitted variable which is positively correlated with income
d. uncorrelated with an omitted variable which is positively correlated with income
19. Which of the following correctly identifies an efficiency property of competitive equilibria:
a. the good is produced by the lowest cost producers
b. consumers who deserve the good the most get it
c. the good is produced up to the point where marginal benefit equals zero
d. none of the above

Assume that for a perfectly competitive firm marginal revenue equals rising marginal cost at 100 units of output. At this output level, the firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $10 per unit, the firm should produce

Select one:

a. zero units of output.

b. less than 100 units of output.

c. 100 units of output.

d. more than 100 units of output.

e. Cannot be determined from the information given.

When the marginal-cost curve lies below the marginal-revenue curve

Select one:

a. the firm cannot improve its profit since revenue is already greater than cost.

b. marginal revenue is greater than marginal cost, and the firm should therefore increase production to increase profits.

c. marginal revenue is greater than marginal cost, and the firm should therefore decrease production to increase profits.

d. marginal revenue is less than marginal cost, and the firm should therefore decrease production to increase profits.

e. it is not possible for this firm to increase profits since it is failing to operate at an efficient point.

ECO 201 Chapter Notes - Chapter 8: Allocative Efficiency, Economic Surplus, Marginal Utility

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