1. Positive economics: a. makes recommendations designed to achieve certain goals. b. establishes cause-and-effect relationships between economic variables. c. is based on value judgments. d. can never be used to make predictions.

2. If the efficient output of a good is produced each week, then the: a. marginal social benefit of the good equals its marginal social cost each week. b. marginal social benefit of the good is at a maximum. c. total social benefit of the good is at a maximum. d. total social benefit of the good equals its total social cost.

3. If the marginal social benefit of a good exceeds the marginal social cost at the current monthly output, then: a. it will be possible to make buyers of the good better off without harming sellers of the good.

b. it will be possible to make sellers of the good better off without harming buyers of the good. c. either (a) or (b) d. a reduction in monthly output will be required for efficiency.

4. The marginal social cost of bread exceeds the marginal social benefit at the current weekly output. Therefore, a. the marginal net benefit of bread is positive. b. the output of bread is efficient. c. a reduction in weekly output of bread is necessary to achieve efficiency. d. an increase in weekly output of bread is necessary to achieve efficiency.

5. The total social benefit of automobiles equals the total social cost at current annual output. Then it follows that: a. the annual output of automobiles is efficient. b. the annual output of automobiles exceeds the efficient amount. c. less than the efficient annual output of automobiles is produced. d. it is not possible to make buyers of automobiles better off without harming sellers. e. both (a) and (d)

6. Eggs are sold in a perfectly competitive market. No persons other than the buyers and sellers of eggs are affected in any way when eggs are traded in the market. Then it follows that: a. the price of eggs equals the marginal social cost of eggs. b. the price of eggs equals the marginal social benefit of eggs. c. the price of eggs exceeds the marginal social benefit of eggs. d. both (a) and (b)

7. Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that: a. the marginal social benefit of diamonds exceeds its marginal social cost. b. the marginal social cost of diamonds exceeds its marginal social benefit. c. the price of diamonds equals its marginal social cost. d. the price of diamonds exceeds its marginal social benefit. e. both (c) and (d)

8. Points on a utility possibility curve represent: a. a given distribution of well-being between two persons. b. an efficient allocation of resources. c. the maximum well-being of any one person, given the resources available and the well-being of another person. d. all of the above

9. If efficiency has been attained, a. it will be possible to make any one person better off without harming another. b. it will not be possible to make any one person better off without harming another. c. perfect competition must exist. d. the opportunity cost of any change in resource use must be zero.

10. A move from an inefficient resource allocation to an efficient one: a. will always be unanimously approved, even if gainers do not compensate losers.

b. will be unanimously opposed. c. will be unanimously approved if gainers compensate losers. d. can never result in losers.

11. Which of the following is a normative statement? a. When interest rates rise, the quantity of loanable funds demanded for new mortgages will decline. b. To achieve efficiency, governments should prevent monopoly in markets. c. Unemployment increases during a recession. d. When governments increase income tax rates, people work less.

12. Normative economics: a. is not based on underlying value judgments. b. makes recommendations to achieve efficient outcomes. c. establishes cause-and-effect relationships between economic variables. d. makes ifthen type statements and checks them against the facts.

13. The extra benefit on one more unit of a good or service is its: a. marginal cost. b. marginal benefit. c. total benefit. d. total cost.

14. If the efficient output of computers is achieved this year, then market price of computers is equal to: a. the marginal social benefit of computers. b. the marginal social cost of computers. c. the total social cost of computers. d. the total social benefit of computers. e. both (a) and (b)

15. Suppose the efficient output currently prevails in the market for ice cream. A tax on ice cream consumption will: a. allow efficiency to continue to prevail in the market. b. result in more than the efficient output in the market. c. result in less than the efficient output in the market. d. cause the marginal social cost of ice cream to exceed its marginal social benefit at the market equilibrium output.

16. Positive economics is: a. an equity based approach in which income should be redistributed. b. an objective approach without a particular goal based on underlying values. c. a goal oriented approach based on desired policy outcomes. d. a belief that governments can implement economic policies for the greater good of society.

17. Normative economics is: a. completely free of any value system. b. completely objective. c. based on a a conscious effort to implement a particular social goal. d. an approach that determines the effect of particular actions without judgment of the result being good or bad.

18. An efficient level of output means: a. the total social benefit less the total social cost is maximized. b. the total social benefit is below the total social cost. c. the total social cost equals the total social benefit. d. the total social benefit less the total social cost can be improved.

19. If a government desires to increase production beyond the current competitively determined efficient level, the government should: a. tax the good. b. subsidize the good at a price higher than its current price. c. set the price below its current price. d. impose a fixed fee whenever the good is purchased.

20. Pareto efficiency between two consumers is achieved: a. only when the individual marginal rates of substitution are equal to the marginal rate of transformation. b. only when the individual marginal rates of substitution are less than one, but not necessarily equal. c. only when the individual marginal rates of substitution are greater than one and equal. d. only when the individual marginal rates of substitution are equal.