Practice Questions
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How do price signals contribute to achieving social optimality in a market?
Price signals help to use resources in the best way. Other options are incorrect because While price signals do help consumers decide what to buy, thi...
In the context of marginal analysis, which of the following scenarios represents a situation where Pareto efficiency is achieved?
This option shows that one person can be happier without making anyone else less happy. Other options are incorrect because Some might think that just...
In a market where the marginal benefit of a good is greater than its marginal cost, what should the producer do to achieve social optimality?
When the benefit of making one more unit is higher than the cost, it makes sense to produce more. Other options are incorrect because Some might think...
In the context of marginal analysis, which of the following scenarios best illustrates the concept of Pareto efficiency when comparing marginal costs and benefits?
This scenario shows Pareto efficiency because it improves public welfare without harming anyone. Other options are incorrect because This option misse...
In the context of marginal analysis, which of the following scenarios best illustrates the concept of market failure that may require government intervention for achieving social optimality?
This option shows a situation where the costs to society are not included in the prices people pay. Other options are incorrect because Some might thi...
In marginal analysis, how does the concept of marginal cost influence the decision to produce one more unit of a good?
When the cost of making one more item is less than what you gain from selling it, it's smart to produce more. Other options are incorrect because Some...
What is the primary purpose of marginal analysis in economics?
Marginal analysis helps us find the best amount to consume. Other options are incorrect because Some might think marginal analysis is about total cost...
In the context of marginal analysis, which of the following best describes the point at which social optimality is achieved?
Social optimality happens when the extra cost of making one more unit equals the extra benefit it brings. Other options are incorrect because Some mig...
A factory produces widgets and the marginal cost of producing one more widget is $5, while the marginal benefit derived from selling that widget is $7. Which category best describes this situation?
The factory can make more money by producing more widgets. Other options are incorrect because This means resources are used perfectly; This would mea...
Arrange the following steps to determine the socially optimal quantity in resource allocation: A) Identify marginal social cost B) Compare marginal social cost with marginal social benefit C) Adjust production to where marginal benefit equals marginal cost D) Determine the allocatively efficient output level
First, we find the marginal social cost, which shows the total cost to society for producing one more unit. Other options are incorrect because This o...
Marginal analysis is to allocative efficiency as social optimality is to what?
Social optimality means the best outcome for everyone in society. Other options are incorrect because Market equilibrium is when supply meets demand; ...
A local government is considering whether to impose a tax on a factory that emits pollution. The factory's marginal private cost of production is $50 per unit, while the marginal social cost, considering the pollution, is $70 per unit. The factory produces 100 units per day. If the government seeks to achieve social optimality, what is the key principle they must apply in their decision-making process regarding this tax?
The tax should match the extra cost to society from pollution. Other options are incorrect because Some might think that lower private costs mean no t...
If a market operates at a quantity where the marginal social cost exceeds the marginal social benefit, what underlying issue is likely causing this misallocation of resources?
When producers don't include extra costs that affect society, they set prices too low. Other options are incorrect because Some might think that if co...
In a market where a firm produces a good with external costs, how should the firm adjust its output to achieve social optimality?
To reach social optimality, the firm needs to balance the total costs to society with the benefits. Other options are incorrect because This option su...
Which of the following statements accurately describe the relationship between marginal analysis and social optimality? Select all that apply.
Other options are incorrect because This statement is incorrect; Many think marginal analysis only applies to perfect markets....
In marginal analysis, the socially optimal quantity is reached when the marginal _____ equals the marginal social benefit.
The socially optimal quantity happens when the cost of making one more item is equal to the benefit people get from it. Other options are incorrect be...
Which scenario best describes the socially optimal level of production?
The best level of production happens when the extra cost of making one more item is equal to the extra benefit people get from it. Other options are i...
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