Econ Test #2- Surplus, Efficiency, and Deadweight Loss

Negative-sum environment

A situation in which the sum of gains and losses over all people is negative in value

Zero-sum environment

A situation in which the sum of gains and losses over all people is zero in value

Positive-sum environment

A situation in which the sum of gains and losses over all people is positive in value

Win-win outcome

An outcome for which all people are better off than they would have been if the outcome was not realized (i.e., everybody "wins")

Win-lose outcome

An outcome for which some people are better off and come people are worse off than they would have been if the outcome was not realized (i.e., some people "win" but other people "lose")

Consumer's surplus

A measure of the net gain that a buyer realizes from making a purchase, equal to the difference between his reservation price for the item and the price he actually pays for the item

Producer's surplus

A measure of the net gain that a seller realizes from making a sale, equal to the difference between the price she actually receives for the item and her reservation price for the item

Social surplus

A measure of the net gains to society from a trade, equal to the summation of the individual gains (or losses) from the trade over all members of society

Total social surplus

A measure of the total gains from trade realized by society, defined as a social surplus, added over all units traded

Total consumers' surplus

A measure of the total gains from trade realized by all consumers, defined as each individual's consumer's surplus, added over all units purchased

Total producers' surplus

A measure of the total gains from trade realized by all sellers, defined as each individual's producer's surplus, added over all units sold

Efficient level of trade

The level of trade which maximizes total social surplus

Deadweight loss

The difference between maximum possible total social surplus and realized total social surplus
-By construction, deadweight loss is zero at the efficient level of trade and is positive at any other level of trade

Open-ended fallacy

A logical error whereby someone incorrectly concludes that simply because there are benefits (to some people) from higher levels of an activity that more of the activity is always better

"Deadweight Loss" refers to

A. The negative impact of industrial production on our scarce environmental resources
B. The difference between "maximum possible Total Social Surplus" and "realized Total Social Surplus"
C. The profits that firms make in a free market economy
D. The burden that consumers incur from having to pay for goods, instead of being given the goods for free

Ty owns a copy of the book "The Economic Naturalist: In Search of Explanations for Everyday Enigmas," autographed by the author Robert Frank. His reservation price as a seller of this item is $70. Bob's reservation price as a buyer of this item is $60. If this unit was traded (i.e., transferred from Ty to Bob)

A. Social Surplus would be decreased by $10
B. Social Surplus would be increased by $10
C. Social Surplus would be increased by $130
D. Social Surplus would be increased, but the magnitude of the increase depends upon the price at which trade takes place

A situation in which the sums of gains and losses over all people is positive in value is defined as

A. Win-win outcome
B. Win-lose outcome
C. Positive-sum outcome
D. Negative-sum outcome

Consider a market in which the efficient level of trade is 5,250 units. There would be a positive Deadweight-Loss if ????? units were traded

A. 0
B. 4,500
C. 7,750
D. More than one (perhaps all) of the above answers are correct

Dave bought 10 comic books from Eric. This trade gave Eric a Producer's Surplus of $20 and generated a Social Surplus of $36. It follows that Dave realized a ????? from this trade

A. Negative Consumer's Surplus
B. Consumer's Surplus of $16
C. Consumer's Surplus of $56
D. None of the above answers are correct

In most markets Total Social Surplus is equal to

A. "Total Consumers' Surplus" plus "Total Producers' Surplus"
B. "Total Consumers' Surplus" minus "Total Producers' Surplus"
C. "Total Benefit to Buyers" minus "Total Amount Paid by Buyers"
D. "Equilibrium Price" multiplied by "Equilibrium Quantity"

Consider an outcome for which A1 loses $4, Beth gains $3, and Charles gains $2. Based upon this information, it appears as it this is a

A. Positive-sum environment
B. Zero-sum environment
C. Negative-sum environment
D. Win-win outcome

Questions #8 and #9 look at graph

#8- B #9-C

Consider an item that Scott values as a buyer at $15 and Brad values as a seller at $10. Trade of this item (i.e., transferring ownership from Brad to Scott)

A. Is a zero-sum environment
B. Results in a win-win outcome if trade takes place at a price of $25
C. Results in a win-lose outcome if trade takes place at $5
D. None of the above answers are correct

The ????? refers to the logical error whereby someone incorrectly concludes that simply because there are benefits (to some people) from higher levels of an activity, that more of the activity is always better

A. Invisible Hand
B. Economic Calculation Problem
C. Open-Ended Fallacy
D. Phillips Curve

Which of the following statements is correct?

A. "In a positive-sum environment a win-win outcome will always be realized"
B. "In a zero-sum environment a win-win outcome can never be realized"
C. "A win-lose outcome can possibly be realized in a positive-sum environment"
D. More than one (perhaps all) of the above statements are correct

The market equilibrium price

A. Determines the efficient quantity of trade
B. Determines the split of total gains from trade between buyers and sellers at the market equilibrium
C. Determines if the free market outcome is a negative-sum, zero-sum, or positive-sum environment
D. Determines if deadweight-loss is positive or negative at the free market outcome