Question 1

As a general rule, if pollution costs are external, firms will produce

Accepted Answer

A)  too little of a polluting good. 
B)  too much of a polluting good. 
C)  an optimal amount of a polluting good. 
D)  cannot be determined without additional information. 
A)  too little of a polluting good. 
B)  too much of a polluting good. 
C)  an optimal amount of a polluting good. 
D)  cannot be determined without additional information. B

Question 2

If consumption of education creates an external benefit, then in order to increase efficiency relative to the outcome determined by private decisions,

Accepted Answer

A)  more education must be produced. 
B)  the same amount of education must be produced, and the price should be lower. 
C)  less education must be produced, and the price should be higher. 
D)  less education must be produced, and the price should be lower. 
E)  less education must be produced at the same price. 
A)  more education must be produced. 
B)  the same amount of education must be produced, and the price should be lower. 
C)  less education must be produced, and the price should be higher. 
D)  less education must be produced, and the price should be lower. 
E)  less education must be produced at the same price. A

Question 3

A market is unlikely to provide an efficient quantity of public goods because

Accepted Answer

A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though they could be produced efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders. 
A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though they could be produced efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders. B

Question 4

From the standpoint of economic efficiency, markets tend to provide

Accepted Answer

A)  less of a public good than would be efficient. 
B)  more of a public good than would be efficient. 
C)  exactly the amount of a public good that is efficient. 
D)  none of the above. 
A)  less of a public good than would be efficient. 
B)  more of a public good than would be efficient. 
C)  exactly the amount of a public good that is efficient. 
D)  none of the above.

Question 5

Which of the following is the best example of a public good?

Accepted Answer

A)  long distance telephone service 
B)  national defense 
C)  an amusement park 
D)  the electric service of a public utility 
A)  long distance telephone service 
B)  national defense 
C)  an amusement park 
D)  the electric service of a public utility

Question 6

The economic way of thinking indicates that government action will

Accepted Answer

A)  never improve on the allocation of resources through markets. 
B)  always improve on the results of markets if the political process is democratic. 
C)  reflect the actions of political decision-makers seeking to advance the public interest, rather than their own personal interests. 
D)  can either improve the well-being of the general public, or harm it, depending on the circumstances. 
A)  never improve on the allocation of resources through markets. 
B)  always improve on the results of markets if the political process is democratic. 
C)  reflect the actions of political decision-makers seeking to advance the public interest, rather than their own personal interests. 
D)  can either improve the well-being of the general public, or harm it, depending on the circumstances.

Question 7

A free-rider problem exists when a good that has the following characteristic?

Accepted Answer

A)  Rivalry in consumption. 
B)  Elastic demand. 
C)  Inelastic demand. 
D)  Nonexcludable. 
A)  Rivalry in consumption. 
B)  Elastic demand. 
C)  Inelastic demand. 
D)  Nonexcludable.

Question 8

The spillover effects of actions that affect the well-being of nonconsenting third parties are called

Accepted Answer

A)  side components. 
B)  externalities. 
C)  free riders. 
D)  internalizations. 
A)  side components. 
B)  externalities. 
C)  free riders. 
D)  internalizations.

Question 9

Which of the following best explains why making air travel completely safe is not efficient?

Accepted Answer

A)  After some level of safety is reached, making airplanes even safer is not worth the opportunity cost that would be incurred. 
B)  Because one can't put a price on human life, airplane safety generally doesn't matter economically. 
C)  The benefit from additional airplane safety will generally rise as airplanes are made safer, more than offsetting the opportunity cost involved. 
D)  The question is misleading--making airplanes safer is always efficient. 
A)  After some level of safety is reached, making airplanes even safer is not worth the opportunity cost that would be incurred. 
B)  Because one can't put a price on human life, airplane safety generally doesn't matter economically. 
C)  The benefit from additional airplane safety will generally rise as airplanes are made safer, more than offsetting the opportunity cost involved. 
D)  The question is misleading--making airplanes safer is always efficient.

Question 10

Externalities

Accepted Answer

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

Question 11

National defense is considered a public good because there appears to be no limits to the nonrivalry-in-consumption characteristic, and exclusion of nonpayers is impossible. Are there any other goods that so perfectly meet both public goods criteria?

Accepted Answer

Perhaps. Beaches, parks, and public swim

Question 12

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will likely result in an output that is too

Accepted Answer

A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low. 
A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low.

Question 13

Figure 5-4  
Refer to Figure 5-4. The efficient price and quantity are

Accepted Answer

A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively. 
A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively.

Question 14

From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to

Accepted Answer

A)  an output of the product that exceeds the amount consistent with ideal economic efficiency. 
B)  an output of the product that is less than the amount consistent with ideal economic efficiency. 
C)  an output of the product that equals the amount consistent with ideal economic efficiency. 
D)  product prices that are below the cost of production. 
A)  an output of the product that exceeds the amount consistent with ideal economic efficiency. 
B)  an output of the product that is less than the amount consistent with ideal economic efficiency. 
C)  an output of the product that equals the amount consistent with ideal economic efficiency. 
D)  product prices that are below the cost of production.

Question 15

When externalities are present,

Accepted Answer

A)  suppliers will refuse to produce desired goods and services. 
B)  this indicates that property rights are well-defined and enforced. 
C)  competitive market outcomes may be inconsistent with ideal economic efficiency. 
D)  competitive markets will generally achieve ideal economic efficiency. 
A)  suppliers will refuse to produce desired goods and services. 
B)  this indicates that property rights are well-defined and enforced. 
C)  competitive market outcomes may be inconsistent with ideal economic efficiency. 
D)  competitive markets will generally achieve ideal economic efficiency.

Question 16

Which of the following is a valid reason for government provision rather than market provision of certain economic goods and services?

Accepted Answer

A)  When the government provides economic goods, they are free; costs are only incurred when such goods are provided by private firms. 
B)  Voters tend to be better informed than market consumers. 
C)  Decision makers in the market are motivated by self-interest, whereas, political decision makers are primarily motivated by the desire to help others. 
D)  Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers, while the government can use taxes to overcome this problem. 
A)  When the government provides economic goods, they are free; costs are only incurred when such goods are provided by private firms. 
B)  Voters tend to be better informed than market consumers. 
C)  Decision makers in the market are motivated by self-interest, whereas, political decision makers are primarily motivated by the desire to help others. 
D)  Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers, while the government can use taxes to overcome this problem.

Question 17

Many external costs occur because

Accepted Answer

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

Question 18

Which of the following is the most fundamental function of government?

Accepted Answer

A)  protection of individuals and their property 
B)  imposing progressive taxes to fund income-transfer programs 
C)  regulating prices and wages 
D)  provision of postal services and garbage collection 
A)  protection of individuals and their property 
B)  imposing progressive taxes to fund income-transfer programs 
C)  regulating prices and wages 
D)  provision of postal services and garbage collection

Question 19

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

Accepted Answer

A)  result in output that is lower than the efficient output for both goods. 
B)  result in output that is higher than the efficient output for both goods. 
C)  result in output that is lower than the efficient output for the good with an external benefit and output that is higher than the efficient output for the good with an external cost. 
D)  result in output that is higher than the efficient output for the good with an external benefit and output that is lower than the efficient output for the good with an external cost. 
A)  result in output that is lower than the efficient output for both goods. 
B)  result in output that is higher than the efficient output for both goods. 
C)  result in output that is lower than the efficient output for the good with an external benefit and output that is higher than the efficient output for the good with an external cost. 
D)  result in output that is higher than the efficient output for the good with an external benefit and output that is lower than the efficient output for the good with an external cost.

Question 20

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient price would be higher than $84. 
B)  The efficient price would be lower than $84. 
C)  The efficient price would also be $84. 
D)  The efficient output would be greater than 320 units. 
A)  The efficient price would be higher than $84. 
B)  The efficient price would be lower than $84. 
C)  The efficient price would also be $84. 
D)  The efficient output would be greater than 320 units.

As a general rule, if pollution costs are external, firms will produce

If consumption of education creates an external benefit, then in order to increase efficiency relative to the outcome determined by private decisions,

A market is unlikely to provide an efficient quantity of public goods because

From the standpoint of economic efficiency, markets tend to provide

Which of the following is the best example of a public good?

The economic way of thinking indicates that government action will

A free-rider problem exists when a good that has the following characteristic?

The spillover effects of actions that affect the well-being of nonconsenting third parties are called

Which of the following best explains why making air travel completely safe is not efficient?

Externalities

National defense is considered a public good because there appears to be no limits to the nonrivalry-in-consumption characteristic, and exclusion of nonpayers is impossible. Are there any other goods that so perfectly meet both public goods criteria?

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will likely result in an output that is too

Figure 5-4 Refer to Figure 5-4. The efficient price and quantity are

From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to

When externalities are present,

Which of the following is a valid reason for government provision rather than market provision of certain economic goods and services?

Many external costs occur because

Which of the following is the most fundamental function of government?

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 5: Difficult Cases for the Market, and the Role of Government

As a general rule, if pollution costs are external, firms will produce

If consumption of education creates an external benefit, then in order to increase efficiency relative to the outcome determined by private decisions,

A market is unlikely to provide an efficient quantity of public goods because

From the standpoint of economic efficiency, markets tend to provide

Which of the following is the best example of a public good?

The economic way of thinking indicates that government action will

A free-rider problem exists when a good that has the following characteristic?

The spillover effects of actions that affect the well-being of nonconsenting third parties are called

Which of the following best explains why making air travel completely safe is not efficient?

Externalities

National defense is considered a public good because there appears to be no limits to the nonrivalry-in-consumption characteristic, and exclusion of nonpayers is impossible. Are there any other goods that so perfectly meet both public goods criteria?

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will likely result in an output that is too

Figure 5-4 Refer to Figure 5-4. The efficient price and quantity are

From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to

When externalities are present,

Which of the following is a valid reason for government provision rather than market provision of certain economic goods and services?

Many external costs occur because

Which of the following is the most fundamental function of government?

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters