BU.920.603 Microeconomics & Market Design Midterms Qns & Ans 2026

BU.920.603 Microeconomics & Market Design Midterms (Qns & Ans) 2026

1. Which of the following best describes the concept of "Pareto
Efficiency"?
 - A. A situation where one individual can be made better off
without making anyone else worse off
 - B. A situation where resources are allocated in a way that
maximizes total surplus
 - C. A situation where no individual can be made better off
without making someone else worse off
 - D. A situation where the government intervenes to correct
market failures
 - ANS: C. A situation where no individual can be made better
off without making someone else worse off
 - Rationale: Pareto Efficiency occurs when resources are
allocated in such a way that it is impossible to make any one
individual better off without making at least one individual worse
off.
2. What is the primary purpose of a "Pigovian Tax"?
 - A. To raise government revenue
 - B. To correct negative externalities
 - C. To subsidize positive externalities