cyber21

Which of the following statements best describes the principal difference between a Vickrey auction and other types of sealed bid auctions?

A) A Vickrey auction does not use sealed bids.

B) In a Vickrey auction, the winner pays the price bid by the second-highest bidder.

C) In a Vickrey auction, the winner pays the reservation price.

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A Vickrey auction is a second-price sealed bid auction, in which the winner pays the price bid by the second highest bidder. The reservation price is the highest price that a bidder is willing to pay. In a second price sealed bid auction, a bidder’s optimal strategy is to bid his reservation price. Because he pays the second highest bid, the winner pays less than his reservation price.

cyber21

Which of the following most accurately describes society's allocation of resources to the production of goods with external costs or external benefits, respectively?

A) Under-allocation; over-allocation.

B) Over-allocation; under allocation.

C) Over-allocation; over-allocation.

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External costs are costs associated with the production of goods which are not entirely borne by producers. The industrial pollution of fishing waters decreases the yield to the fishing industry. However, the lost revenue to the fishing industry is not considered a cost to the firms generating the pollution. The result is an over-allocation of resources to the production of goods made by the firms generating the pollution.
External benefits refer to benefits received by those other than the buyers of a good. Scenic gardens and fountains built by private enterprises for their own interests are examples of goods with external benefits. Since the marginal benefit to society is greater than that of the marginal cost to the producer, less than the efficient quantity is produced.

cyber21

Which of the following is least likely to be an obstacle to the efficient allocation of resources?

A) Common resources.

B) Price controls.

C) Technological advancement.

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As opposed to being an obstacle to allocative efficiency, technological advancement requires a constant reallocation of an economy’s resources to more efficient uses.

cyber21

Which of the following is least accurate regarding obstacles to the efficient allocation of resources in a competitive market?

A) Subsidies lead to production of more than the efficient quantity of the good.

B) Quotas result in production of less than the efficient quantity of the good.

C) Public goods, such as national defense, tend to be overproduced because they can be consumed by everyone whether they pay for the goods or not.

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Public goods can be consumed by every member of a society, regardless of whether they paid for them or not. In a competitive market for public goods, fewer goods than the efficient quantity would be produced because it is not in each person’s interest to pay their share of the cost.

cyber21

Which of the following relationships most accurately describes the inefficiency resulting from government imposed production quotas?

A) Marginal cost exceeds marginal benefit leading to underproduction.

B) Marginal benefit exceeds marginal cost leading to overproduction.

C) Marginal benefit exceeds marginal cost leading to underproduction.

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Government imposed quotas restrict production to a level below that which would occur if marginal benefit equals marginal cost. This restricted output quantity is less than the equilibrium quantity, so marginal benefit exceeds marginal cost.

cyber21

Which of the following statements regarding deadweight loss is least accurate?

A) An overproduction of goods can lead to a reduction in consumer surplus.

B) Deadweight loss from underproduction leads to a loss of producer surplus but not consumer surplus.

C) Deadweight loss occurs when the quantity supplied does not maximize the sum of consumer and producer surplus.

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Deadweight loss is the reduction in consumer and producer surplus due to underproduction or overproduction.

cyber21

Which of the following is least likely to be considered an obstacle to the efficient allocation of an economy’s resources?

A) Rent controls.

B) Taxes.

C) Changes in consumer tastes.

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Price controls and taxes are obstacles to allocative efficiency. Rent controls and minimum wages are examples of price controls. As opposed to being obstacles to the efficient allocation of resources, changes in consumer tastes lead to the reallocation of society’s resources, producing a different mix of goods or services that provide increased benefits.

cyber21

When a tax is imposed on the consumption of a good, which of the following terms refers to who bears the burden of the tax?

A) The deadweight loss.

B) The incidence of a tax.

C) Consumer surplus.

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The incidence of a tax refers to how the burden of a tax is actually shared between buyers and sellers. The deadweight loss is the loss of the gains from trade from the lower equilibrium quantity that results from the tax. Consumer surplus is the gains from trade that consumers accrue from the existence of the market.

cyber21

Which of the following statements is most accurate with respect to the effects of taxes imposed on goods and services?

A) The actual incidence will fall more heavily on the seller if the supply is less elastic relative to demand.

B) The actual incidence will fall more heavily on the buyer if the demand is more elastic relative to supply.

C) The statutory incidence will fall more heavily on the buyer if the supply is less elastic relative to demand.

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When supply is relatively inelastic, changes in quantity are small for a given change in price, and a larger share of the tax burden—the tax incidence—will fall on the sellers.

cyber21

The decrease in production and trade as a result of a tax is called:

A) total tax incidence.

B) statutory incidence.

C) deadweight loss.

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When the equilibrium quantity for a product or service is reduced as the result of a tax, this is called the deadweight loss. This represents the loss, in terms of production and trade, that results from the presence of the tax.