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Welfare economics
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) Vilfredo Pareto
B) Milton Friedman
C) John Maynard Keynes
D) Adam Smith
  • 2. Which approach in welfare economics focuses on improving social welfare by maximizing utility?
A) Keynesian economics
B) Laissez-faire
C) Monetarism
D) Utilitarianism
  • 3. What does the term 'market failure' refer to in welfare economics?
A) Excessive government regulation in the market
B) Successful coordination of supply and demand
C) When markets do not allocate resources efficiently
D) Economic prosperity reached through competition
  • 4. What distinguishes positive externalities in welfare economics?
A) Direct financial gains from market exchanges
B) Benefits received by individuals not directly involved in a market transaction
C) Costs borne by those who did not benefit from a transaction
D) Negative impacts on market efficiency
  • 5. Which of the following is an example of a regressive tax?
A) Sales tax
B) Progressive tax
C) Value-added tax
D) Income tax
  • 6. What does the term 'consumer surplus' represent in welfare economics?
A) Tax revenue generated from consumer spending
B) The difference between what consumers are willing to pay for a good/service and what they actually pay
C) Total cost of production for a given product
D) Profit margin for producers
  • 7. What is the basis of utilitarianism in welfare economics?
A) Promoting individual rights and liberties
B) Maximizing overall happiness or utility in society
C) Minimizing government intervention in economic activities
D) Encouraging competition for market efficiency
  • 8. Which of the following is an example of a public good in welfare economics?
A) Fast food
B) Designer clothing
C) National defense
D) Luxury cars
  • 9. Which economic school of thought emphasizes the importance of consumer surplus in welfare economics?
A) Marxist economics
B) Austrian economics
C) Keynesian economics
D) Neoclassical economics
  • 10. Which of the following is not a reason for market failure according to welfare economics?
A) Externalities
B) Public goods
C) Information asymmetry
D) Perfect competition
  • 11. What is the Gini coefficient used to measure in the context of welfare economics?
A) Labor force participation
B) Market demand
C) Inflation rate
D) Income inequality
  • 12. What is meant by the term 'Pareto improvement' in welfare economics?
A) Government intervention to redistribute wealth
B) A change that benefits at least one person without making anyone else worse off
C) Any policy change that reduces taxes
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) Market failure
B) Regulatory capture
C) Pareto efficiency
D) Monopoly pricing
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