Question 1

In the allocation of resources between present and future

Accepted Answer

A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies. 
A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies. A

Question 2

Many detrimental externalities occur because

Accepted Answer

A) persons do not pay the full social cost of using a resource. 
B) persons do not pay the full private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the full social cost of using a resource. 
A) persons do not pay the full social cost of using a resource. 
B) persons do not pay the full private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the full social cost of using a resource. A

Question 3

The owner of a garage makes large contributions to a politician who is seeking the office of state governor.If his candidate wins, he will get the contract, which now resides with a competitor, to repair State Police vehicles.This is an example of

Accepted Answer

A) moral hazard. 
B) externality. 
C) rent seeking. 
D) investment. 
A) moral hazard. 
B) externality. 
C) rent seeking. 
D) investment. C

Question 4

Part of the reason why barely used cars sell for much less than new cars is that

Accepted Answer

A) buyers and sellers have symmetric information about cars and both have less information about used cars than about new cars. 
B) buyers and sellers have symmetric information about cars and both have more information about used cars than about new cars. 
C) buyers have more information about used cars than sellers do. 
D) sellers have more information about used cars than buyers do. 
A) buyers and sellers have symmetric information about cars and both have less information about used cars than about new cars. 
B) buyers and sellers have symmetric information about cars and both have more information about used cars than about new cars. 
C) buyers have more information about used cars than sellers do. 
D) sellers have more information about used cars than buyers do.

Question 5

If the interest rate rises, a profit-maximizing firm will tend to

Accepted Answer

A) invest in more projects (such as new plants) with payoffs in the future. 
B) invest in fewer projects with payoffs in the future. 
C) increase both current output and future output. 
D) reduce both current output and future output. 
A) invest in more projects (such as new plants) with payoffs in the future. 
B) invest in fewer projects with payoffs in the future. 
C) increase both current output and future output. 
D) reduce both current output and future output.

Question 6

It is efficient to increase the output of computers if

Accepted Answer

A) society considers the extra computers more valuable than other goods foregone to produce the computers. 
B) the opportunity cost of more computers is greater than their marginal utility. 
C) computer production can be increased only if production of other goods is decreased. 
D) the price of the computers is equal to their average cost. 
A) society considers the extra computers more valuable than other goods foregone to produce the computers. 
B) the opportunity cost of more computers is greater than their marginal utility. 
C) computer production can be increased only if production of other goods is decreased. 
D) the price of the computers is equal to their average cost.

Question 7

An "optimally imperfect" decision is one that

Accepted Answer

A) is vaguely right instead of precisely wrong. 
B) recognizes that the decision could always be better if given more time. 
C) recognizes that the cost of additional information probably exceeds the potential gain from making a better decision. 
D) recognizes that any decision is imperfect because humans have limited intellectual capacities. 
A) is vaguely right instead of precisely wrong. 
B) recognizes that the decision could always be better if given more time. 
C) recognizes that the cost of additional information probably exceeds the potential gain from making a better decision. 
D) recognizes that any decision is imperfect because humans have limited intellectual capacities.

Question 8

Unemployment insurance is often criticized because workers can extend the amount of time they are unemployed and thus increase the cost of the program.This phenomenon is best described as

Accepted Answer

A) rent-seeking behavior. 
B) moral hazard. 
C) free riding. 
A) rent-seeking behavior. 
B) moral hazard. 
C) free riding.

Question 9

The Rand Corporation estimates that the external costs imposed by alcohol consumption (for example, deaths caused by drunk drivers) to be 48 cents per ounce consumed.Taxes on alcohol amount to 23 cents per ounce consumed.This information suggests: (i) alcohol is overconsumed; (ii) alcohol taxes should be raised.Which of these statements is correct?

Accepted Answer

A) i and ii 
B) i not ii 
C) ii not i 
D) neither i nor ii 
A) i and ii 
B) i not ii 
C) ii not i 
D) neither i nor ii

Question 10

Society would be better off with more products that create beneficial externalities.

Accepted Answer

A) True 
 B)False

Question 11

Efficient resource allocation is defined as MC = AC.

Accepted Answer

A) True 
 B)False

Question 12

Rent-seeking behavior refers to

Accepted Answer

A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices. 
A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices.

Question 13

The main shortcoming of the market, in the view of many,

Accepted Answer

A) lies in the arena of justice and injustice. 
B) lies in the area of consumer goods production. 
C) is its inability to stimulate the creation of new products. 
D) is its drag on growth in productivity. 
A) lies in the arena of justice and injustice. 
B) lies in the area of consumer goods production. 
C) is its inability to stimulate the creation of new products. 
D) is its drag on growth in productivity.

Question 14

It has been said that well-educated citizens are necessary for democracy.Discuss this idea in economic terms.What market imperfection might occur and what are the appropriate government policies to correct it?

Accepted Answer

Education provides a beneficial external

Question 15

Some would cite the purchase of defective products and the rising cost of health care as market failures.Argue that these are not true market failures.

Accepted Answer

If one had perfect information, one woul

Question 16

The former communist countries of eastern Europe and the Soviet Union

Accepted Answer

A) have a better track record in environment protection than market economies. 
B) have a dismal environmental record. 
C) epitomize the ability of planned economies to protect the environment. 
D) have no water pollution problems. 
A) have a better track record in environment protection than market economies. 
B) have a dismal environmental record. 
C) epitomize the ability of planned economies to protect the environment. 
D) have no water pollution problems.

Question 17

Examples of public goods include national defense, police, and the U.S.Postal Service.

Accepted Answer

A) True 
 B)False

Question 18

If both a buyer and a seller have the same information, they are said to have symmetric information.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not a public good?

Accepted Answer

A) a coastal lighthouse 
B) national defense 
C) a flood-control levee 
D) the latest Walt Disney movie 
A) a coastal lighthouse 
B) national defense 
C) a flood-control levee 
D) the latest Walt Disney movie

Question 20

Private goods are not excludable.

Accepted Answer

A) True 
 B)False

Exam 15: The Shortcomings of Free Markets

In the allocation of resources between present and future

Many detrimental externalities occur because

The owner of a garage makes large contributions to a politician who is seeking the office of state governor.If his candidate wins, he will get the contract, which now resides with a competitor, to repair State Police vehicles.This is an example of

Part of the reason why barely used cars sell for much less than new cars is that

If the interest rate rises, a profit-maximizing firm will tend to

It is efficient to increase the output of computers if

An "optimally imperfect" decision is one that

Unemployment insurance is often criticized because workers can extend the amount of time they are unemployed and thus increase the cost of the program.This phenomenon is best described as

Society would be better off with more products that create beneficial externalities.

Efficient resource allocation is defined as MC = AC.

Rent-seeking behavior refers to

The main shortcoming of the market, in the view of many,

It has been said that well-educated citizens are necessary for democracy.Discuss this idea in economic terms.What market imperfection might occur and what are the appropriate government policies to correct it?

Some would cite the purchase of defective products and the rising cost of health care as market failures.Argue that these are not true market failures.

The former communist countries of eastern Europe and the Soviet Union

Examples of public goods include national defense, police, and the U.S.Postal Service.

If both a buyer and a seller have the same information, they are said to have symmetric information.

Which of the following is not a public good?

Private goods are not excludable.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand an Initial Look

Consumer Choice Individual and Market Demand

Demand and Elasticity

Production Inputs and Cost Building Blocks for Supply Analysis

Output Price and Profit the Importance of Marginal Analysis

Securities Business Finance and the Economy the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power Regulation and Antitrust

The Case for Free Markets the Price System

Externalities the Environment and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship the Human Inputs

Poverty Inequality and Discrimination

Is Us Economic Leadership Threatened

International Trade and Comparative Advantage

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