Multiple Choice Problem With Solution on Social Choice Theory
1. The concept of welfare economics deals with:
A) The study of well-being and living standards
B) The distribution of wealth in an economy
C) The efficiency of resource allocation
D) The impact of government policies on economic outcomes
Answer: C) The efficiency of resource allocation
2. In a perfectly competitive market, consumer surplus is represented by:
A) The area below the demand curve and above the market price
B) The area below the market price and above the supply curve
C) The area between the demand and supply curves
D) The area above the equilibrium price and below the demand curve
Answer: A) The area below the demand curve and above the market price
3. A production externality occurs when:
A) The cost of production is higher than the market price
B) The production of a good or service affects the
well-being of third parties
C) The government intervenes in the market
D) The demand for a good exceeds the supply
Answer: B) The production of a good or service affects the well-being of third parties
4. In a market with a negative externality, the social cost of production is:
A) Equal to the private cost of production
B) Less than the private cost of production
C) Greater than the private cost of production
D) Unrelated to the private cost of production
Answer: C) Greater than the private cost of production
5. A Pigouvian tax is designed to:
A) Discourage production of goods with positive externalities
B) Discourage consumption of goods with negative externalities
C) Encourage production of goods with positive externalities
D) Encourage consumption of goods with negative externalities
Answer: B) Discourage consumption of goods with negative externalities
6. The Coase theorem suggests that:
A) Government intervention is always necessary to address externalities
B) Private bargaining can lead to an efficient solution to externalities
C) Externalities can be eliminated through taxes and subsidies
D) Markets are inherently inefficient in the presence of externalities
Answer: B) Private bargaining can lead to an efficient solution to externalities
7. The deadweight loss from a market failure caused by a negative externality is represented by:
A) The difference between the private cost and the social cost
B) The difference between the social benefit and the private benefit
C) The area between the demand and supply curves
D) The triangle formed by the social cost, demand, and supply curves
Answer: D) The triangle formed by the social cost, demand, and supply curves