CSU AREC 202 FINAL Exam Tested Questions & Revised Correct Answers

CSU AREC 202 FINAL Exam Tested Questions & Revised Correct Answers THE rule (and its variations): How is the optimal level of any activity (for consumers, firms or governments) determined? - ANSWER : Marginal cost = marginal benefit On the 2x2 efficiency table: What effect on efficiency (total surplus) do government interventions have in a market in which originally the government had not intervened? - ANSWER : Market works well - marginal benefit =marginal cost total surplus was maximized, and the government intervenes things will go wrong and vice versa (if it's not broke don't broke don't fix it and vice versa) (tax, regulation, etc.) What is meant by "deadweight loss"? - ANSWER : amount that total surplus decreases What is meant by the terms "efficiency," "socially optimal outcome" and "total surplus"? - ANSWER : Efficiency - what you produce such that you can't make anyone better off without taking something from someone else (not concerned with fairness, but does marginal benefit = marginal cost) Socially optimal outcome - when there is more benefit all around (you don't want anything to go to waste) (no getting something from nothing) Total surplus = producer surplus + consumer surplus Why is perfect competition (under certain assumptions) efficient? - ANSWER : Price = marginal cost (amount needed to produce last unit) (can't charge higher price cause will go by from someone else) (multiple sellers of same product) won't let sellers place a higher price then needed