Economics 27/11/24

The slope of the budget line represents:

• The consumer's level of income.

• The ratio of the prices of the two goods.

• The marginal utility of each good.

• The opportunity cost of the goods.

Which of the following is NOT a characteristic of indifference curves?

• They slope downward from left to right.

• They are convex to the origin.

• They intersect at least once.

• Higher indifference curves represent higher levels of satisfaction.

An increase in a consumer's income will cause:

• A movement along the budget line.

• An inward shift of the budget line.

• An outward shift of the budget line.

• A pivot of the budget line around one intercept.

If a consumer moves along an indifference curve, this indicates:

• Their total utility changes.

• They are substituting one good for another while maintaining the same utility.

• Their budget constraint has changed.

• They are consuming more of both goods.

Productive efficiency occurs when:

• Goods are distributed according to consumer preferences.

• Goods are produced at the lowest possible average cost.

• Market equilibrium price is achieved.

• There is no deadweight loss.

Market failure is most likely to occur when:

• Firms operate in perfectly competitive markets.

• Externalities are present in production or consumption.

• All firms earn normal profits.

• Prices are flexible and determined by supply and demand.

Which of the following is most likely to correct market failure caused by under-consumption of a merit good?

• Imposing a tax on the good.

• Introducing a subsidy for consumers.

• Allowing free market forces to operate.

• Reducing public spending.

The socially optimal level of production occurs when:

• Marginal private benefit equals marginal private cost.

• Marginal social benefit equals marginal social cost.

• Marginal private benefit exceeds marginal social cost.

• Marginal social benefit is less than marginal social cost.

A Pigouvian tax is used to:

• Increase the supply of public goods.

• Reduce the deadweight loss caused by negative externalities.

• Ensure that producers earn supernormal profits.

• Reduce the production of merit goods.

Which of the following is an example of a private cost?

• Noise pollution caused by a factory.

• Wages paid by a company to its workers.

• Healthcare expenses for individuals affected by pollution.

• A subsidy given to a firm by the government.