Attempts Score1 1 Efficiency inefficiency and equity Charles

Attempts: Score:/1 1. Efficiency, inefficiency, and equity Charles and Dina are 13-year-old twins who are fighting over how to spend a $200 gift certificate they jointly won in a raffle. The gift certificate is for a store that sells MP3 players. There are three kinds of MP3 players available: one that costs $150, one that costs $100, and one that costs $50. Each twin wants his or her own MP3 player. Both twins greatly prefer the $100 player to the $50 player, but they only slightly prefer the $150 player to the $100 player. The gift certificate can be used only once, regardless of whether or not the full $200 value is redeemed. Suppose their mother intervenes and uses the gift certificate to purchase each twin the $50 player. This outcome is because Save & Continue Continue without saving

Solution

1)

Suppose their mother intervenes and uses the gift certificate to purchase each twin the $50 player. This outcome is not efficient because the entire budget has not been used and the utility for each player has not been maximized ($100 player is more preferred).

2)

Correct options:

- Depletion of oil resources causes the price of gas to increase, reducing the consumption of gasoline.

- The entrance price of national parks is increased in an effort to reduce congestion and pollution.

3) One of the three basic coordination tasks an economy has to face is distribution.

Correct option - price mechanism

Region A is the consumer surplus when market price = $245

Region B represents the loss in consumer surplus when the market price rises from $175 to $245

Statements:

1 - False (there are equal number of buyers)

2 - True (Amy\'s willingness to pay is higher than Carlos)

3 - True (self evident from the graph)

In order for Janet to earn consumer surplus of exactly $105 from buying a DVD player, the market price needs to be = 105 - 105 = $ 0