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Lecture 13

ECON 1000 Lecture Notes - Lecture 13: Economic Efficiency, Economic Surplus, Marginal Cost

Course Code
ECON 1000
George Georgopoulos

of 3
Lecture Thirteen: Technology and Economic Efficiency
November 10, 2011
Technological Efficiency
Technological efficiency occurs when a firm products a given level of output by
using the least amount of inputs.
There may be different combinations of inputs that are all technologically
efficient, but there is always one that is more so than the others (because it is
also economically efficient).
Economic Efficiency
Economic efficiency occurs when the firm produces a given level of output at
the least cost
The economic efficiency method depends on the relative costs of capital and
The difference is that technological efficiency concerns the quantity of inputs and
economic efficiency concerns the price of the inputs.
An economically efficient production process may be technologically efficient, but
this is not always the case. It is possible to have one without the other.
Practice Exam Questions and Answers
1. When are contests are a good job in resource allocation?
When it is hard to track all the different stages leading up to the final goal, the
final performance is all that is marked.
“When the efforts of the players are hard to monitor and reward directly”
2. A used truck has a sticker price of $21 000. Arthur is willing to pay $19 500. He
only pays $19 250. What is his consumer surplus?
His consumer surplus is how much he is willing to pay minus what he actually
paid, so 250.
3. The principle of increasing marginal cost means that
“As the quantity of a good increases, the opportunity cost of the last unit
produced increases”
4. The efficient quantity of a good i 30 unites per day. What is the producer
surplus from the 100th good?
The producer surplus is the price that they get minus the costs of producing the
Therefore the producer surplus of the 100th unit is the marginal cost of producing
that good.
5. At the efficient quantity of the good,
Marginal social benefit equals marginal social cost.
The sum of the consumer surplus and producer surplus is maximized
Demand equals supply
Resources are used in the activities in which they are most highly valued.
6. The theory of decreasing marginal utility states that
7. Suppose there is a demand, D, for rental housing, and there is a rent ceiling at
150 per room. What is the highest amount that would be expended on search
To find this, locate the demand of the rental apartments at the rent ceiling. The
amount that people are willing to pay minus the rent ceiling is the amount which
people are willing to pay for search activity
8. Which of the follow statements is generally false?
Minimum wage laws increase employment. This is false. Minimum wage laws
often decrease employment and increase unemployment because there is more
people willing to work than are able to be employed.
9. Suppose the demand for gasoline is very inelastic and the supply is elastic. A
sales tax on gas will be paid more heavily on the buyers.
10. A subsidy raises marginal social cost over marginal social benefit
11. At the production quota,
The quota is to the left of the equilibrium point. The point that it meets with the
supply curve is the marginal social cost, and the point that it meets with the
demand curve is the marginal social benefit
Therefore marginal benefit exceeds marginal cost.
14. The budget line is going to move back into its original position. The best
affordable point remains the same. This is because both lines move in
opposite directions in a parallel manner, so there is no actual change.
15. You’re indifferent between bundles on the indifference curve. Your
satisfaction level does not change depending on these bundles.