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.

cyber21

When a tax on a good or service is imposed on the producers of the good or service, the:

A) supply will decrease, but the incidence of the tax falls on the sellers only.

B) supply will decrease, but the incidence of the tax falls on both buyers and sellers.

C) demand will decrease, but the incidence of the tax falls on both buyers and sellers.

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When a tax is imposed on the producers of a good or service, they will reduce supply at any given level or market price, because they receive the market price minus the tax. However, the incidence of the tax, meaning how its cost is shared, falls on both the buyers and the sellers, depending upon the relative elasticities of supply and demand.

cyber21

The actual incidence of a tax imposed on buyers or sellers is most accurately defined as:

A) the amount of tax times the equilibrium quantity.

B) the proportion of the tax burden borne by buyers and sellers.

C) the party legally responsible for paying the tax.

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Tax revenue is the amount of a tax times the equilibrium quantity. Statutory tax incidence refers to who is legally responsible for paying a tax. Actual tax incidence represents the extent to which buyers bear the cost of the tax through a higher price paid and sellers bear the cost through a lower price received.