Welfare economics: fundamental theorems and social welfare function. - One Line Questions

1. In the context of welfare economics, what is a 'public good'? — A good that is non-rivalrous and non-excludable.
2. If marginal social benefit (MSB) exceeds marginal private benefit (MPB), it indicates: — A positive externality in consumption.
3. Which scenario represents a market failure that welfare economics seeks to address? — A situation where private costs exceed social costs due to pollution.
4. If marginal social cost (MSC) exceeds marginal private cost (MPC), it indicates: — A negative externality in production.
5. A social welfare function that values equality of outcomes would likely resemble: — A Rawlsian function.
6. A 'contract curve' in a pure exchange economy represents: — All Pareto efficient allocations of goods between two individuals.
7. The Second Fundamental Theorem of Welfare Economics states that, under certain conditions, any Pareto efficient allocation of resources: — Can be decentralized via price mechanisms, provided appropriate lump-sum transfers are made.
8. The social indifference curves in a welfare analysis represent: — Combinations of utility levels for different individuals that yield the same level of social welfare.
9. The concept of 'social rate of discount' in welfare economics is used to: — Compare costs and benefits that occur at different points in time, reflecting societal time preferences.
10. A Pigouvian tax is a tool used in welfare economics to: — Correct for negative externalities by making the polluter pay.
11. Which of the following is a key challenge in constructing a social welfare function? — The impossibility of aggregating diverse individual preferences into a single, consistent societal ranking (Arrow's Impossibility Theorem).
12. What does the 'efficiency' criterion in welfare economics primarily concern? — The optimal use of scarce resources to maximize total output or satisfaction.
13. The problem of 'adverse selection' is a type of market failure related to: — Information asymmetry.
14. Which condition is essential for markets to achieve Pareto efficiency according to the First Fundamental Theorem? — Absence of externalities and perfect competition.
15. The concept of 'consumer surplus' and 'producer surplus' are used in welfare economics to measure: — The net benefits to consumers and producers from market transactions.
16. Which of the following is a limitation of the Coase Theorem in practice? — High transaction costs.
17. What is the 'free-rider problem'? — Individuals benefiting from a good without paying for it, leading to under-provision.
18. If an economy is not at a Pareto efficient allocation, it implies that: — Resources are being wasted, and potential improvements in well-being exist.
19. The Bergson-Samuelson social welfare function is characterized by: — Being a general representation of social welfare that depends on individual utilities.
20. The 'fundamental theorems of welfare economics' link: — Perfect competition and Pareto efficiency.
21. What does the condition of 'no externalities' imply for Pareto efficiency? — Market prices accurately reflect all costs and benefits.
22. What is the primary focus of welfare economics? — Analyzing the allocation of resources and its impact on societal well-being.
23. A Rawlsian social welfare function, based on the 'veil of ignorance', prioritizes: — Ensuring the well-being of the least advantaged individual.
24. A social welfare function (SWF) attempts to: — Aggregate individual preferences into a societal preference ordering.
25. What is a 'Pigouvian subsidy' intended to address? — Positive externalities.
26. Kaldor-Hicks efficiency is achieved when: — A policy change benefits some individuals and harms others, but the gains outweigh the losses, making compensation possible.
27. Moral hazard is a situation where: — One party in a transaction takes on more risk because another party bears the cost of that risk.
28. The concept of 'social cost' in welfare economics includes: — Private costs plus any external costs imposed on society.
29. The concept of 'potential Pareto improvement' is closely related to: — Kaldor-Hicks efficiency.
30. The First Fundamental Theorem of Welfare Economics states that, under certain conditions, a competitive market equilibrium is: — Pareto efficient.
31. Which of the following is NOT a condition typically required for the First Fundamental Theorem of Welfare Economics to hold? — Significant government intervention.
32. The existence of public goods often leads to market failure because of: — The free-rider problem.
33. A situation where a single seller has market power and can influence prices is called: — Monopoly.
34. Which condition is violated when there is significant information asymmetry between buyers and sellers? — Perfect information.
35. The tension between efficiency and equity arises because: — Policies that promote equity may sometimes lead to efficiency losses, and vice-versa.
36. Welfare economics provides a framework for evaluating the desirability of different economic states or policies based on: — Efficiency and equity considerations.
37. Pareto efficiency is achieved when: — No individual can be made better off without making someone else worse off.
38. The Coase Theorem suggests that, under certain conditions (e.g., low transaction costs), private parties can bargain to an efficient solution to externality problems, regardless of: — The initial assignment of property rights.
39. The 'deadweight loss' associated with market power or externalities represents: — The loss of potential gains in welfare that could have been achieved in a perfectly competitive market.
40. The condition 'Independence of Irrelevant Alternatives' means that the social ranking of two options should only depend on: — The preferences of the voters between those two options.
41. The concept of 'social welfare' in welfare economics is generally understood as: — A measure of the overall well-being of society, considering utility and distribution.
42. What role do lump-sum transfers play in the context of the Second Fundamental Theorem of Welfare Economics? — They are essential for achieving any desired distribution while maintaining Pareto efficiency.
43. Monopolies are generally considered inefficient from a welfare economics perspective because: — They produce too little output at too high a price, leading to a deadweight loss.
44. What is the primary goal of applying welfare economics principles to policy decisions? — To identify policies that improve overall societal well-being.
45. Arrow's Impossibility Theorem demonstrates that it is impossible to devise a voting system that satisfies a given set of desirable fairness criteria when aggregating individual preferences into a collective choice, unless certain conditions are met. Which of these is NOT one of Arrow's axioms? — Dictatorship
46. The 'veil of ignorance' concept is associated with which type of social welfare function? — Rawlsian
47. A social welfare function that treats all individuals' utilities symmetrically and aims to maximize the minimum utility level is: — Rawlsian
48. An example of a utilitarian social welfare function is: — W = U1 + U2 + ... + Un
49. The 'equity' criterion in welfare economics concerns: — The fairness of the distribution of resources and well-being.
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