Question 1

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 D

Question 2

Increasing productivity in a society

Accepted Answer

A)  always results in a better quality of life as society views it. 
B)  can never make a nation poorer. 
C)  guarantees that personal services will cost less. 
D)  makes improved personal services available to everyone. 
A)  always results in a better quality of life as society views it. 
B)  can never make a nation poorer. 
C)  guarantees that personal services will cost less. 
D)  makes improved personal services available to everyone. B

Question 3

An increase in wages in the public sector is always accompanied by an increase in labor productivity.

Accepted Answer

A) True 
 B)False  False

Question 4

The supply of public goods must be left to government and nonprofit institutions.Why?

Accepted Answer

Because nonpaying users usually cannot b

Question 5

It is true of externalities that they

Accepted Answer

A)  are always detrimental. 
B)  are always beneficial. 
C)  arise when all costs, social and private, are included in production cost. 
D)  cause the price system to misallocate resources. 
A)  are always detrimental. 
B)  are always beneficial. 
C)  arise when all costs, social and private, are included in production cost. 
D)  cause the price system to misallocate resources.

Question 6

A market transaction causes an externality if someone

Accepted Answer

A)  directly involved in the transaction receives uncompensated benefits or costs from it. 
B)  not directly involved in the transaction receives uncompensated benefits or costs from it. 
C)  directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out. 
D)  not directly involved in the transaction interferes in it by imposing regulations or product standards. 
A)  directly involved in the transaction receives uncompensated benefits or costs from it. 
B)  not directly involved in the transaction receives uncompensated benefits or costs from it. 
C)  directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out. 
D)  not directly involved in the transaction interferes in it by imposing regulations or product standards.

Question 7

An increase in wages in the public sector is caused solely by increased labor productivity in that sector.

Accepted Answer

A) True 
 B)False

Question 8

The economic justification for public subsidies to university research is based on

Accepted Answer

A)  the value of this research to the university. 
B)  the higher salaries graduate students earn as a result of working with professors involved in research. 
C)  the external benefits of research and development to, in particular, high rates of economic growth. 
D)  higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.). 
A)  the value of this research to the university. 
B)  the higher salaries graduate students earn as a result of working with professors involved in research. 
C)  the external benefits of research and development to, in particular, high rates of economic growth. 
D)  higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.).

Question 9

What is the meaning of "a defective telescopic faculty," as described by A.C.Pigou?

Accepted Answer

A)  Persons are unable to plan rationally for consumption. 
B)  Persons zero in on something and cannot consider alternatives. 
C)  Persons seek long-term goals and ignore present problems. 
D)  Persons are unable to give adequate weight to the future. 
A)  Persons are unable to plan rationally for consumption. 
B)  Persons zero in on something and cannot consider alternatives. 
C)  Persons seek long-term goals and ignore present problems. 
D)  Persons are unable to give adequate weight to the future.

Question 10

Suppose that deposit insurance were reduced to a maximum of $50,000 per account (instead of $250,000).This would address the specific market imperfection of

Accepted Answer

A)  externalities. 
B)  imperfect information. 
C)  rent seeking. 
D)  moral hazard. 
A)  externalities. 
B)  imperfect information. 
C)  rent seeking. 
D)  moral hazard.

Question 11

Without government intervention, public goods would

Accepted Answer

A)  be much less expensive. 
B)  not be provided. 
C)  be produced in much larger quantity. 
D)  be priced within the income ability of all individuals to purchase them. 
A)  be much less expensive. 
B)  not be provided. 
C)  be produced in much larger quantity. 
D)  be priced within the income ability of all individuals to purchase them.

Question 12

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 13

The "free rider" problem occurs when a good is

Accepted Answer

A)  not available. 
B)  not excludable. 
C)  not depletable. 
D)  not sold in free markets. 
A)  not available. 
B)  not excludable. 
C)  not depletable. 
D)  not sold in free markets.

Question 14

The concept of "government failure" implies

Accepted Answer

A)  laissez faire is always best. 
B)  government intervention is always justified since government never fails. 
C)  no market failure can be corrected by government intervention. 
D)  government intervention to correct a "market failure" sometimes fails. 
A)  laissez faire is always best. 
B)  government intervention is always justified since government never fails. 
C)  no market failure can be corrected by government intervention. 
D)  government intervention to correct a "market failure" sometimes fails.

Question 15

The classic example of a detrimental externality is

Accepted Answer

A)  education. 
B)  pollution. 
C)  discovery of an AIDS vaccine. 
D)  Mrs.Lewis' prize-winning rose garden. 
A)  education. 
B)  pollution. 
C)  discovery of an AIDS vaccine. 
D)  Mrs.Lewis' prize-winning rose garden.

Question 16

Market economies have air and water pollution, but nonmarket economies

Accepted Answer

A)  have much less pollution. 
B)  have pollution that is much worse than in market economies. 
C)  have about the same amount of pollution as market economies. 
D)  don't generally suffer from external effects of any sort. 
A)  have much less pollution. 
B)  have pollution that is much worse than in market economies. 
C)  have about the same amount of pollution as market economies. 
D)  don't generally suffer from external effects of any sort.

Question 17

The key explanation for the prevalence of waterway pollution is

Accepted Answer

A)  the inclusion in production of all costs involving use of the waterway. 
B)  that there are private costs but no costs to society. 
C)  that waterways are not private property and can be used free of charge. 
D)  that waterways are subject to the market's normal control procedures. 
A)  the inclusion in production of all costs involving use of the waterway. 
B)  that there are private costs but no costs to society. 
C)  that waterways are not private property and can be used free of charge. 
D)  that waterways are subject to the market's normal control procedures.

Question 18

Explain how stock options can ensure compatibility between the interest of stockholders and managers.

Accepted Answer

When the price of the company's stock go

Question 19

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

Accepted Answer

A)  $5. 
B)  $105. 
C)  less than $5 if people suffer from a "defective telescopic faculty." 
D)  more than $5 if people suffer from a "defective telescopic faculty." 
A)  $5. 
B)  $105. 
C)  less than $5 if people suffer from a "defective telescopic faculty." 
D)  more than $5 if people suffer from a "defective telescopic faculty."

Question 20

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.

Exam 15: The Shortcomings of Free Markets

Which of the following is not a public good?

Increasing productivity in a society

An increase in wages in the public sector is always accompanied by an increase in labor productivity.

The supply of public goods must be left to government and nonprofit institutions.Why?

It is true of externalities that they

A market transaction causes an externality if someone

An increase in wages in the public sector is caused solely by increased labor productivity in that sector.

The economic justification for public subsidies to university research is based on

What is the meaning of "a defective telescopic faculty," as described by A.C.Pigou?

Suppose that deposit insurance were reduced to a maximum of $50,000 per account (instead of $250,000).This would address the specific market imperfection of

Without government intervention, public goods would

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

The "free rider" problem occurs when a good is

The concept of "government failure" implies

The classic example of a detrimental externality is

Market economies have air and water pollution, but nonmarket economies

The key explanation for the prevalence of waterway pollution is

Explain how stock options can ensure compatibility between the interest of stockholders and managers.

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

An "optimally imperfect" decision is one that

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 I: The Price System

The Market's Prime Achievement: Innovation and Growth

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

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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