Grade 12 - Assignment 3

GRD -12 –ECO-ASSGN3 – 16-APR-21
Total Marks : 25
A. Multiple Choice Questions: (12)
1. Suppose a country uses its resources in a Pareto-efficient way. Which of the following
statements is true?
a. There might be inefficiency in production.
b. There might be inefficiency in consumption.
c. It might be possible to make one person better off without making another person worse
off.
d. There might be considerable inequality of income among the country’s citizens.
2. Dynamic efficiency relates to
a. Low prices as a result of low barriers to entry
b. When extensive economies of scale exist in an industry
c. The efficiency associated with perfect competition
d. The use of new technology and innovation
3. What type of products are made using the principles of allocative efficiency?
a. Those demanded by society
b. Those not wanted by society
c. Those firms think are best for the society
d. Those that are large in size
4. Which of the following is a type of market failure ?

a. Increased airfares during busy public holidays
b. Increased travel times due to traffic congestion
c. Increase in food prices due to bad weather
d. Falling sales due to a change in consumer tastes
5. Which one of the following statements is a correct definition of market failure?
a. It means that the market will fail to secure economic efficiency.
b. It means that the market will fail to secure Pareto efficiency.
c. It means that the market will fail to secure productive efficiency.
d. It means that the market will fail to secure technical efficiency.
6. An explosion on the Deepwater Horizon Oil platform in the Gulf of Mexico caused an oil
spill and many people were badly affected. What type of market failure did they
experience?
a. Underprovision of public goods
b. Tax distortions
c. Negative externalities
d. Anti-competitive behaviour by a monopoly
7. If an economy produces its most wanted goods but uses out dated production methods,
it is
a. Achieving productive efficiency, but not allocative efficiency
b. Achieving allocative efficiency, but not productive efficiency
c. Achieving productive efficiency and allocative efficiency
d. Achieving neither productive efficiency nor allocative efficiency

8. Maximising the net benefits that can be generated by resource allocation across time
leads to
a. Static efficiency
b. Pareto efficiency
c. Dynamic efficiency
d. Efficiency
9. Suppose Mary and John are siblings who are given $110 to split. Given this information,
which of the following is not an example of Pareto efficiency?
a. Mary and John each take $55
b. Mary is older so they decide that Mary should get a bigger share. Mary gets $70 while
John gets $40.
c. Mary gets $110 so John gets nothing
d. Mary takes $40 and John takes $30, leaving $40 leftover
10. The necessary condition for allocative efficiency is that each commodity be produced in
an amount that makes the marginal benefit to society of the last unit produced equal to the
marginal cost to society of that last unit. The satisfaction of this condition in a market
economy relies on the assumptions of
a. utility maximisation, profit maximisation and perfect competition
b. utility maximisation, profit maximisation but not perfect competition
c. profit maximisation and perfect competition but not utility maximisation
d. utility maximisation and perfect competition but not profit maximisation
11. Economic efficiency ignores
a. Average cost
b. Marginal costs
c. Customer satisfaction
d. Opportunity costs
12. Which of the following is not a way to correct market failure?
a. Regulation of monopolies
b. Enactment of rules and regulations
c. Indirect Taxes
d. Underprovision of merit goods
B. Answer the questions below using the information shown by the PPC curve.
1. What type of efficiency is explained by the PPC curve above ? (1)
2. Explain why is production point A in the diagram above ‘Pareto inefficient’? Which other
production points in the diagram could be classed the same (3)
3. Which production points in the diagram are ‘unattainable’? Explain why (2)
4. “Points D, E and F are Pareto efficient”.
Do you agree with this statement? Explain why? (3)
C. Identify the type of market failure and explain whether government intervention to
correct the market failure is justified. (4)
1. A large powerful firm uses its market power to overcharge consumers in order to earn
excessive profits. It supplies an essential product with a few close substitutes, therefore
consumers are forced to pay the high price for the product. To prevent this, the
government has imposed a maximum price on the product that is less than the equilibrium
price.
2. The Congressmen in the Philippines have demanded an explanation from the

government when taxation rates were increased significantly than the last fiscal year. The
revenue department explained that funds were needed for road maintenance, road safety
and pollution control.

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GRD -12 –ECO-ASSGN3 – 16-APR-21

A. Multiple Choice Questions: (12)

a. There might be inefficiency in production.

b. There might be inefficiency in consumption.

d. There might be considerable inequality of income among the country’s citizens.

2. Dynamic efficiency relates to

a. Low prices as a result of low barriers to entry

b. When extensive economies of scale exist in an industry

c. The efficiency associated with perfect competition

d. The use of new technology and innovation

a. Those demanded by society

b. Those not wanted by society

c. Those firms think are best for the society

d. Those that are large in size

4. Which of the following is a type of market failure ?

b. Increased travel times due to traffic congestion

c. Increase in food prices due to bad weather

d. Falling sales due to a change in consumer tastes

5. Which one of the following statements is a correct definition of market failure?

a. It means that the market will fail to secure economic efficiency.

b. It means that the market will fail to secure Pareto efficiency.

c. It means that the market will fail to secure productive efficiency.

d. It means that the market will fail to secure technical efficiency.

a. Underprovision of public goods

d. Anti-competitive behaviour by a monopoly

a. Achieving productive efficiency, but not allocative efficiency

b. Achieving allocative efficiency, but not productive efficiency

c. Achieving productive efficiency and allocative efficiency

d. Achieving neither productive efficiency nor allocative efficiency

a. Mary and John each take $55

c. Mary gets $110 so John gets nothing

a. utility maximisation, profit maximisation and perfect competition

b. utility maximisation, profit maximisation but not perfect competition

c. profit maximisation and perfect competition but not utility maximisation

d. utility maximisation and perfect competition but not profit maximisation

11. Economic efficiency ignores

12. Which of the following is not a way to correct market failure?

b. Enactment of rules and regulations

d. Underprovision of merit goods

4. “Points D, E and F are Pareto efficient”.

Do you agree with this statement? Explain why? (3)

2. The Congressmen in the Philippines have demanded an explanation from the

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