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Welfare economics - Exam
Contributed by: O'Reilly
  • 1. Welfare economics is a branch of economics that focuses on the optimal allocation of resources and goods to maximize social welfare. It seeks to evaluate and improve the well-being of individuals and society as a whole by analyzing market outcomes and policies. Welfare economists study how various factors such as income distribution, externalities, public goods, and market failures impact overall social welfare. Their aim is to design efficient and equitable policies that enhance societal welfare and promote economic prosperity while considering trade-offs and ethical considerations.

    Who introduced the concept of Pareto efficiency in welfare economics?
A) Adam Smith
B) Milton Friedman
C) John Maynard Keynes
D) Vilfredo Pareto
  • 2. Which approach in welfare economics focuses on improving social welfare by maximizing utility?
A) Monetarism
B) Keynesian economics
C) Laissez-faire
D) Utilitarianism
  • 3. What does the term 'market failure' refer to in welfare economics?
A) Excessive government regulation in the market
B) When markets do not allocate resources efficiently
C) Successful coordination of supply and demand
D) Economic prosperity reached through competition
  • 4. What distinguishes positive externalities in welfare economics?
A) Benefits received by individuals not directly involved in a market transaction
B) Costs borne by those who did not benefit from a transaction
C) Direct financial gains from market exchanges
D) Negative impacts on market efficiency
  • 5. Which of the following is an example of a regressive tax?
A) Value-added tax
B) Progressive tax
C) Sales tax
D) Income tax
  • 6. What does the term 'consumer surplus' represent in welfare economics?
A) Profit margin for producers
B) Tax revenue generated from consumer spending
C) Total cost of production for a given product
D) The difference between what consumers are willing to pay for a good/service and what they actually pay
  • 7. What is the basis of utilitarianism in welfare economics?
A) Maximizing overall happiness or utility in society
B) Minimizing government intervention in economic activities
C) Promoting individual rights and liberties
D) Encouraging competition for market efficiency
  • 8. Which of the following is an example of a public good in welfare economics?
A) National defense
B) Fast food
C) Designer clothing
D) Luxury cars
  • 9. Which economic school of thought emphasizes the importance of consumer surplus in welfare economics?
A) Keynesian economics
B) Marxist economics
C) Neoclassical economics
D) Austrian economics
  • 10. Which of the following is not a reason for market failure according to welfare economics?
A) Perfect competition
B) Public goods
C) Information asymmetry
D) Externalities
  • 11. What is the Gini coefficient used to measure in the context of welfare economics?
A) Inflation rate
B) Income inequality
C) Labor force participation
D) Market demand
  • 12. What is meant by the term 'Pareto improvement' in welfare economics?
A) A change that benefits at least one person without making anyone else worse off
B) Any policy change that reduces taxes
C) Government intervention to redistribute wealth
D) A strategy to increase overall market competition
  • 13. If a market is perfectly competitive and there are no externalities, which outcome is most likely to result according to welfare economics?
A) Regulatory capture
B) Pareto efficiency
C) Monopoly pricing
D) Market failure
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