Microeconomics Chapter: Efficiency and Equity
15 Questions
1 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What are the alternative methods for allocating scarce resources?

Market price, Command, Majority rule, Contest, First-come, first-served, Lottery, Personal characteristics, Force

How does a market allocate a scarce resource?

  • To the highest bidder
  • Randomly selected individuals
  • To those willing to pay the market price (correct)
  • To those who need it the most
  • Majority rule allocates resources based on individual preferences.

    False

    Consumer surplus is calculated as the marginal benefit minus ____ over the quantity bought.

    <p>price</p> Signup and view all the answers

    Match the resource allocation method with its description:

    <p>First-Come, First-Served = Allocates resources to those who are first in line Lottery = Allocates resources to those with the winning number or lucky outcome Personal Characteristics = Allocates resources based on certain characteristics Force = Plays a role in allocating resources, e.g., war or theft</p> Signup and view all the answers

    In equilibrium, what happens to the quantity demanded and the quantity supplied?

    <p>They are equal.</p> Signup and view all the answers

    When production is equal to the equilibrium quantity:

    <p>MSC = MSB</p> Signup and view all the answers

    According to Adam Smith's 'invisible hand' idea, competitive markets lead to an efficient allocation of resources.

    <p>True</p> Signup and view all the answers

    What happens when total surplus is maximized?

    <p>Efficient quantity is produced.</p> Signup and view all the answers

    What is the term used to describe it when too little of an item is produced in a market?

    <p>Underproduction</p> Signup and view all the answers

    What can lead to underproduction in a market according to the content?

    <p>Price and quantity regulations</p> Signup and view all the answers

    What effect do subsidies have on the quantity produced in a market?

    <p>Increase</p> Signup and view all the answers

    What causes overproduction due to externalities?

    <p>External cost creation</p> Signup and view all the answers

    What is the term used to describe the situation when a monopoly produces too little?

    <p>Underproduction</p> Signup and view all the answers

    Match the source of market failure with its description:

    <p>Taxes and subsidies = Lead to underproduction or overproduction Monopoly = Sole provider of a good or service Externalities = Cost or benefit affecting parties not involved in the transaction</p> Signup and view all the answers

    Study Notes

    Resource Allocation Methods

    • Alternative methods for allocating scarce resources:
      • Market price
      • Command
      • Majority rule
      • Contest
      • First-come, first-served
      • Lottery
      • Personal characteristics
      • Force

    Market Price

    • Allocates resources to those who are willing to pay the market price
    • Most goods and services are allocated by market price
    • Works well for most goods and services

    Command

    • Allocates resources by the order of someone in authority
    • Works well in organizations with clear lines of authority
    • Does not work well in an entire economy

    Majority Rule

    • Allocates resources based on the majority vote
    • Works well for decisions that affect many people
    • Requires self-interest to be suppressed for efficient use of resources

    Contest

    • Allocates resources to the winner
    • Works well when efforts are hard to monitor and reward directly

    First-Come, First-Served

    • Allocates resources to those who are first in line
    • Works well when resources can only serve one person at a time in a sequence

    Lottery

    • Allocates resources randomly
    • Works well when there is no effective way to distinguish among potential users

    Personal Characteristics

    • Allocates resources based on personal characteristics
    • Can be used in unacceptable ways (e.g., discrimination)

    Force

    • Allocates resources through force or coercion
    • Can be used to distribute resources, but not an effective way to allocate resources

    Benefit, Cost, and Surplus

    • Value is what we get, price is what we pay
    • Marginal benefit is the value of one more unit of a good or service
    • Demand is the relationship between the price of a good and the quantity demanded

    Individual Demand and Market Demand

    • Individual demand is the relationship between the price of a good and the quantity demanded by one person
    • Market demand is the relationship between the price of a good and the quantity demanded by all buyers in the market

    Consumer Surplus

    • The excess of the benefit received from a good over the amount paid for it
    • Calculated as the marginal benefit minus the price, summed over the quantity bought

    Supply and Marginal Cost

    • Supply is the relationship between the price of a good and the quantity supplied
    • Marginal cost is the cost of one more unit of a good or service

    Producer Surplus

    • The excess of the amount received from the sale of a good over the cost of producing it
    • Calculated as the price received minus the marginal cost, summed over the quantity sold

    Is the Competitive Market Efficient?

    • Efficient allocation of resources occurs when the quantity demanded equals the quantity supplied
    • Resources are used efficiently when marginal social benefit equals marginal social cost
    • Market failure occurs when the market delivers an inefficient outcome

    Market Failure

    • Sources of market failure:
      • Price and quantity regulations
      • Taxes and subsidies
      • Externalities
      • Public goods and common resources
      • Monopoly
      • High transactions costs

    Is the Competitive Market Fair?

    • Ideas about fairness:
      • It's not fair if the result isn't fair
      • It's not fair if the rules aren't fair
    • Utilitarianism: the principle that strives to achieve the greatest happiness for the greatest number
    • The big tradeoff: between efficiency and fairness

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Economics Lecture Notes PDF

    Description

    This quiz covers the allocation of scarce resources, consumer and producer surplus, efficient and inefficient markets, and fairness in economics.

    More Like This

    Use Quizgecko on...
    Browser
    Browser