Public Finance - Chapter 2

Positive economics:

• makes recommendations designed to achieve certain goals

• establishes cause-and-effect relationships between economic variables

• is based on value judgments

• can never be used to make predictions

If the efficient output of a good is produced each week, then the:

• marginal social benefit of the good equals its marginal social cost each week.

• marginal social benefit of the good is at a maximum

• total social benefit of the good is at a maximum

• total social benefit of the good equals its total social cost

If the marginal social benefit of a good exceeds the marginal social cost at the current monthly output, then:

• it will be possible to make buyers of the good better off without harming sellers of the good

• it will be possible to make sellers of the good better off without harming buyers of the good.

• a reduction in monthly output will be required for efficiency

• either (a) or (b)

The marginal social cost of bread exceeds the marginal social benefit at the current weekly output. Therefore,

• the marginal net benefit of bread is positive.

• the output of bread is efficient.

• an increase in weekly output of bread is necessary to achieve efficiency

• a reduction in weekly output of bread is necessary to achieve efficiency

The total social benefit of automobiles equals the total social cost at current annual output. Then it follows that:

• the annual output of automobiles is efficient

• the annual output of automobiles exceeds the efficient amount

• less than the efficient annual output of automobiles is produced.

• it is not possible to make buyers of automobiles better off without harming sellers

• both (a) and (d)

Eggs are sold in a perfectly competitive market. No persons other than the buyers and sellers of eggs are affected in any way when eggs are traded in the market. Then it follows that:

• the price of eggs equals the marginal social cost of eggs

• the price of eggs equals the marginal social benefit of eggs

• the price of eggs exceeds the marginal social benefit of eggs.

• both (a) and (b)

Points on a utility possibility curve represent:

• a given distribution of well-being between two persons.

• an efficient allocation of resources

• the maximum well-being of any one person, given the resources available and the well-being of another person.

• all of the above

Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that:

• the marginal social benefit of diamonds exceeds its marginal social cost

• the marginal social cost of diamonds exceeds its marginal social benefit

• the price of diamonds equals its marginal social cost.

• the price of diamonds exceeds its marginal social benefit.

• both (c) and (d)

A move from an inefficient resource allocation to an efficient one:

• will always be unanimously approved, even if gainers do not compensate losers

• will be unanimously opposed.

• will be unanimously approved if gainers compensate losers

• can never result in losers.

If efficiency has been attained,

• it will be possible to make any one person better off without harming another

• it will not be possible to make any one person better off without harming another

• perfect competition must exist.

• the opportunity cost of any change in resource use must be zero