Question

True or False

6. When a market reaches allocation efficiency economic welfare is maintained

7. Given demand and supply, deadweight loss increases as the size of tax gets larger

8. Holding supply curve and rate of tax constant, deadweight loss is smaller when demand is more elastic

9. In production, when marginal product of the fifth worker is larger than the average product of the first four workers (APL) who have already been hired, APL increases as we hire the fifth worker.

Answer 1

6. TRUE: Since definition of efficiency itself says that you can not increase welfare further without hurting someone once it achieved.

7. TRUE: Yes because as the tax increases then quantity of demand and supplies goes down and price goes up then possible transaction in market would decline.

8. TRUE: Yes as the elasticity goes up then increase in prices due to higher taxes would not impact demand to much. Then deadweight loss will be not too large.

9. TRUE: Yes because 5th labor has more MP_L hence it would increase the overall production level by something more that would offset his entry.