1. An overallocation of resources in an industry means that for the last unit produced,

a. the marginal cost of production is falling.

b. society places a higher value on the resources required to produce the last unit than the value society places on consuming the last unit.

c. economic profit is negative but rising.

d. the demand price for the last unit exceeds the marginal cost of producing the last unit.

2. In long-run perfectly competitive equilibrium, economic efficiency is achieved because

I. price equals long-run marginal cost for every firm in the industry.

II. price equals average fixed cost for every firm in the industry.

III. price equals minimum long-run average cost for every firm in the industry.

a. both I. and III.

b. III. only

c. both II. and III.

d. II. Only

3. The desire to have government intervene to correct market failure and establish economic efficiency overlooks the fact that

a. market failure largely does not occur anymore in modern economies; thus, intervention is unnecessary.

b. the market failure may be so severe that even government intervention cannot correct it.

c. lawmakers and regulators usually have incentives to seek other goals besides economic efficiency per se.

d. government taxation will reduce a company's cost curves so much that it cannot profitably produce the product.

4. Deadweight loss arises because

a. demanders who value the product below the firm's marginal cost are not able to enjoy consumer surplus.

b. firms do not produce at the minimum of average total cost.

c. firms with market power set price above marginal cost.

d. there is an overallocation of resources toward producing the good.