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Welfare Economics

Description: Welcome to the Welfare Economics Quiz! Test your understanding of the concepts related to welfare economics, including consumer theory, producer theory, and market equilibrium.
Number of Questions: 15
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Tags: welfare economics consumer theory producer theory market equilibrium
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Which of the following is NOT a type of economic welfare?

  1. Consumer Surplus

  2. Producer Surplus

  3. Total Surplus

  4. External Costs

Show answer
Correct Option: D
Explanation:

External costs are not a type of economic welfare, but rather a type of market failure.

The demand curve for a good is downward sloping because:

  1. As the price of the good increases, consumers are willing to buy more of it.

  2. As the price of the good increases, consumers are willing to buy less of it.

  3. As the price of the good increases, consumers are indifferent to buying more or less of it.

  4. As the price of the good increases, consumers are willing to pay more for it.

Show answer
Correct Option: B
Explanation:

The law of demand states that, all other factors being equal, as the price of a good increases, consumers are willing to buy less of it.

The supply curve for a good is upward sloping because:

  1. As the price of the good increases, producers are willing to supply more of it.

  2. As the price of the good increases, producers are willing to supply less of it.

  3. As the price of the good increases, producers are indifferent to supplying more or less of it.

  4. As the price of the good increases, producers are willing to charge more for it.

Show answer
Correct Option: A
Explanation:

The law of supply states that, all other factors being equal, as the price of a good increases, producers are willing to supply more of it.

At the market equilibrium price:

  1. Consumer surplus is maximized.

  2. Producer surplus is maximized.

  3. Total surplus is maximized.

  4. All of the above.

Show answer
Correct Option: D
Explanation:

At the market equilibrium price, consumer surplus, producer surplus, and total surplus are all maximized.

A Pareto improvement is a situation in which:

  1. At least one person is made better off and no one is made worse off.

  2. At least one person is made better off and some people are made worse off.

  3. No one is made better off and at least one person is made worse off.

  4. No one is made better off and no one is made worse off.

Show answer
Correct Option: A
Explanation:

A Pareto improvement is a situation in which at least one person is made better off and no one is made worse off.

The Kaldor-Hicks criterion for economic efficiency states that:

  1. A policy is efficient if it makes at least one person better off and no one worse off.

  2. A policy is efficient if it makes at least one person better off, even if some people are made worse off.

  3. A policy is efficient if it makes no one worse off, even if no one is made better off.

  4. A policy is efficient if it makes everyone better off.

Show answer
Correct Option: B
Explanation:

The Kaldor-Hicks criterion for economic efficiency states that a policy is efficient if it makes at least one person better off, even if some people are made worse off, as long as the gainers could compensate the losers and still be better off.

Which of the following is NOT a type of market failure?

  1. Externalities

  2. Public goods

  3. Natural monopolies

  4. Information asymmetry

Show answer
Correct Option: B
Explanation:

Public goods are not a type of market failure, but rather a type of good that has the characteristics of non-rivalry and non-excludability.

A positive externality occurs when:

  1. The production or consumption of a good or service benefits a third party.

  2. The production or consumption of a good or service harms a third party.

  3. The production or consumption of a good or service has no effect on a third party.

  4. The production or consumption of a good or service is subsidized by the government.

Show answer
Correct Option: A
Explanation:

A positive externality occurs when the production or consumption of a good or service benefits a third party, such as when a firm's research and development activities lead to new technologies that benefit other firms.

A negative externality occurs when:

  1. The production or consumption of a good or service benefits a third party.

  2. The production or consumption of a good or service harms a third party.

  3. The production or consumption of a good or service has no effect on a third party.

  4. The production or consumption of a good or service is subsidized by the government.

Show answer
Correct Option: B
Explanation:

A negative externality occurs when the production or consumption of a good or service harms a third party, such as when a firm's pollution harms the health of nearby residents.

Which of the following is NOT a type of government intervention to address market failures?

  1. Taxes

  2. Subsidies

  3. Regulations

  4. Public provision

Show answer
Correct Option: D
Explanation:

Public provision is not a type of government intervention to address market failures, but rather a type of government policy in which the government directly provides a good or service.

The goal of economic policy is to:

  1. Maximize consumer surplus.

  2. Maximize producer surplus.

  3. Maximize total surplus.

  4. Promote economic growth.

Show answer
Correct Option: C
Explanation:

The goal of economic policy is to maximize total surplus, which is the sum of consumer surplus and producer surplus.

Which of the following is NOT a type of economic growth?

  1. Extensive economic growth

  2. Intensive economic growth

  3. Sustainable economic growth

  4. Balanced economic growth

Show answer
Correct Option: C
Explanation:

Sustainable economic growth is not a type of economic growth, but rather a goal of economic policy.

Extensive economic growth occurs when:

  1. The quantity of inputs used in production increases.

  2. The quality of inputs used in production increases.

  3. The efficiency of production increases.

  4. The structure of production changes.

Show answer
Correct Option: A
Explanation:

Extensive economic growth occurs when the quantity of inputs used in production increases, such as when a firm hires more workers or uses more capital.

Intensive economic growth occurs when:

  1. The quantity of inputs used in production increases.

  2. The quality of inputs used in production increases.

  3. The efficiency of production increases.

  4. The structure of production changes.

Show answer
Correct Option: B
Explanation:

Intensive economic growth occurs when the quality of inputs used in production increases, such as when a firm invests in new technology or improves the skills of its workers.

Balanced economic growth occurs when:

  1. All sectors of the economy grow at the same rate.

  2. Some sectors of the economy grow faster than others.

  3. The economy grows at a constant rate.

  4. The economy grows at an increasing rate.

Show answer
Correct Option: A
Explanation:

Balanced economic growth occurs when all sectors of the economy grow at the same rate, such as when the manufacturing sector, the service sector, and the agricultural sector all grow at the same rate.

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