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King: Economics

Chapter 12

Instructions

Answer the following questions and then press 'Submit' to get your score.

Question 1

Suppose a country uses its resources in a Pareto-efficient way. Which of the following statements is true?

Question 2

Which of the following statements is the correct definition of market failure?

Question 3

Suppose a firm is economically efficient. The firm uses two inputs, capital and labour, for which it has the marginal products MPK and MPL and for which it faces the prices PK and PL. Which of the following statements is false?

Question 4

Which of the following statements about productive efficiency is true?
X     It means that an economy is producing at a point on its production possibility frontier.
Y    It will arise if all firms face the same prices for any inputs that are used by more than one firm, and if all firms are economically efficient.

Question 5

Which of the following statements about consumption inefficiency is true?
X     It could arise even if an economy is producing at a point on its production possibility frontier.
Y     It could arise even if all consumers face the same prices for each product.

Question 6

Suppose the firms in a perfectly competitive industry merge to form a monopoly. Which of the following would not occur?

Question 7

Suppose a profit-making unregulated natural monopoly is brought under the control of regulator who requires it in future to follow a marginal cost pricing rule. Which of the following statements is false?

Question 8

Suppose the regulator in question 7 now tells the natural monopoly to follow an average cost pricing rule rather than a marginal cost pricing rule. Which of the following statements is true?

Question 9

Suppose at various times, the regulator of a natural monopoly switches its rules as shown in the following four statements. Which switch might not result in the firm making a lower loss or more profit?

Question 10

Which of the following statements about competition policy is false?