Consumers, Producers, and the Efficiency of Markets - Market

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?

• profits and costs to firms

• consumer and producer surplus

• the equilibrium price and quantity

• incomes of and prices paid by buyers

Economists typically measure efficiency using

• the price paid by buyers.

• the quantity supplied by sellers.

• total surplus

• profits to firms.

Which of the following equations is not valid?

• Consumer surplus = Value to buyers - Amount paid by buyers

• Producer surplus = Amount received by sellers - Cost to sellers

• Total surplus = Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers

• Total surplus = Value to sellers - Cost to sellers

We can say that the allocation of resources is efficient if

• producer surplus is maximized.

• consumer surplus is maximized.

• total surplus is maximized.

• sellers’ costs are minimized.

Efficiency in a market is achieved when

• a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs.

• the sum of producer surplus and consumer surplus is maximized.

• all firms are producing the good at the same low cost per unit.

• no buyer is willing to pay more than the equilibrium price for any unit of the good.

At the equilibrium price of a good, the good will be purchased by those buyers who

• value the good more than price.

• value the good less than price.

• have the money to buy the good.

• consider the good a necessity.

The distinction between efficiency and equality can be described as follows:

• Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers.

• Efficiency refers to minimizing the price paid by buyers;

  equality refers to maximizing the gains from trade among buyers and sellers

• Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.

• Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

Moving production from a high-cost producer to a low-cost producer will

• lower total surplus.

• raise total surplus.

• lower producer surplus

• raise producer surplus but lower consumer surplus.

Inefficiency exists in an economy when a good is

• not being consumed by buyers who value it most highly.

• not distributed fairly among buyers

• not produced because buyers do not value it very highly.

• being produced with less than all available resources.

The "invisible hand" refers to

• the marketplace guiding the self-interests of market participants into promoting general economic well-being.

• the fact that social planners sometimes have to intervene, even in perfectly competitive markets, to make those markets more efficient.

• the equality that results from market forces allocating the goods produced in the market.

• the automatic maximization of consumer surplus in free markets.