Question 1

If an economic action generates more costs than benefits, the action

Accepted Answer

A)  by definition increases the nation's economic welfare. 
B)  should not be undertaken from an efficiency standpoint. 
C)  should be subsidized by the government in order to make sure that it is undertaken. 
D)  is desirable from a public welfare standpoint even though many individuals will be harmed. 
A)  by definition increases the nation's economic welfare. 
B)  should not be undertaken from an efficiency standpoint. 
C)  should be subsidized by the government in order to make sure that it is undertaken. 
D)  is desirable from a public welfare standpoint even though many individuals will be harmed.

Question 2

A good is considered nonexcludable if

Accepted Answer

A)  many individuals can share in the consumption of the same unit of the good. 
B)  the consumption of the good by one individual lowers the amount available for others. 
C)  it is impossible or very costly to exclude nonpaying customers from receiving the good. 
D)  its production is financed through tax revenue rather than market prices. 
A)  many individuals can share in the consumption of the same unit of the good. 
B)  the consumption of the good by one individual lowers the amount available for others. 
C)  it is impossible or very costly to exclude nonpaying customers from receiving the good. 
D)  its production is financed through tax revenue rather than market prices.

Question 3

When production of a good generates external costs, the

Accepted Answer

A)  demand curve for the good will overstate the true social benefits from consumption of the good. 
B)  demand curve for the good will understate the true social benefits from consumption of the good. 
C)  supply curve for the good will overstate the true social cost of producing the good. 
D)  supply curve for the good will understate the true social cost of producing the good. 
A)  demand curve for the good will overstate the true social benefits from consumption of the good. 
B)  demand curve for the good will understate the true social benefits from consumption of the good. 
C)  supply curve for the good will overstate the true social cost of producing the good. 
D)  supply curve for the good will understate the true social cost of producing the good.

Question 4

When external costs are present in a market,

Accepted Answer

A)  less of the good will be produced than the amount consistent with economic efficiency. 
B)  more of the good will be produced than the amount consistent with economic efficiency. 
C)  the amount of the good produced will be equal to the amount consistent with economic efficiency. 
D)  corresponding external benefits are always generated. 
A)  less of the good will be produced than the amount consistent with economic efficiency. 
B)  more of the good will be produced than the amount consistent with economic efficiency. 
C)  the amount of the good produced will be equal to the amount consistent with economic efficiency. 
D)  corresponding external benefits are always generated.

Question 5

The major distinction between private and public goods is that

Accepted Answer

A)  private goods are goods produced by private firms whereas public goods are goods produced by government--the public sector. 
B)  unlike private goods, public goods are nonexcludable--it is difficult or impossible to prevent nonpaying customers from receiving the good. 
C)  unlike private goods, public goods are nonrival in consumption--the consumption of a unit by one person does not detract from the amount available to others. 
D)  both b and c are correct. 
A)  private goods are goods produced by private firms whereas public goods are goods produced by government--the public sector. 
B)  unlike private goods, public goods are nonexcludable--it is difficult or impossible to prevent nonpaying customers from receiving the good. 
C)  unlike private goods, public goods are nonrival in consumption--the consumption of a unit by one person does not detract from the amount available to others. 
D)  both b and c are correct.

Question 6

When production of a good generates external benefits, the

Accepted Answer

A)  demand curve for the good will overstate the true social benefits from consumption of the good. 
B)  demand curve for the good will understate the true social benefits from consumption of the good. 
C)  supply curve for the good will overstate the true social cost of producing the good. 
D)  supply curve for the good will understate the true social cost of producing the good. 
A)  demand curve for the good will overstate the true social benefits from consumption of the good. 
B)  demand curve for the good will understate the true social benefits from consumption of the good. 
C)  supply curve for the good will overstate the true social cost of producing the good. 
D)  supply curve for the good will understate the true social cost of producing the good.

Question 7

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

Accepted Answer

A)  The price would be too low, and the output would be too large. 
B)  The price would be too high, and the output would be too large. 
C)  The price would be too low, and the output would be too small. 
D)  The price would be too high, and the output would be too small. 
A)  The price would be too low, and the output would be too large. 
B)  The price would be too high, and the output would be too large. 
C)  The price would be too low, and the output would be too small. 
D)  The price would be too high, and the output would be too small.

Question 8

Which of the following would be a protective function of government?

Accepted Answer

A)  legal enforcement of contracts and rules against fraud 
B)  undertaking income redistribution 
C)  providing national parks 
D)  providing a stable monetary system 
A)  legal enforcement of contracts and rules against fraud 
B)  undertaking income redistribution 
C)  providing national parks 
D)  providing a stable monetary system

Question 9

Which of the following are ways in which the private market provides consumers with valuable information to help them make better decisions?

Accepted Answer

A)  brand names 
B)  franchising 
C)  private sector certification firms and consumer report magazines 
D)  all of the above 
A)  brand names 
B)  franchising 
C)  private sector certification firms and consumer report magazines 
D)  all of the above

Question 10

Suppose external costs are present in a market which results in the actual market price of $50 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient outcome would be greater than 800 units. 
B)  The efficient outcome would be less than 800 units. 
C)  The efficient outcome would also be 800 units. 
D)  The efficient price would be less than $50. 
A)  The efficient outcome would be greater than 800 units. 
B)  The efficient outcome would be less than 800 units. 
C)  The efficient outcome would also be 800 units. 
D)  The efficient price would be less than $50.

Question 11

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

Accepted Answer

A)  firm's cost of producing electricity will be higher than the community's true opportunity cost. 
B)  firm will tend to produce too little electricity from the viewpoint of economic efficiency. 
C)  community generally receives an external benefit from the production of electricity. 
D)  firm's cost of producing electricity will be lower than the community's true opportunity cost. 
A)  firm's cost of producing electricity will be higher than the community's true opportunity cost. 
B)  firm will tend to produce too little electricity from the viewpoint of economic efficiency. 
C)  community generally receives an external benefit from the production of electricity. 
D)  firm's cost of producing electricity will be lower than the community's true opportunity cost.

Question 12

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $15 and market output of 614 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient price would higher than $15 while the efficient output would be less than 614 units. 
B)  The efficient price would be higher than $15 while the efficient output would be greater than 614 units. 
C)  The efficient price would be lower than $15 while the efficient output would be less than 614 units. 
D)  The efficient price would be lower than $15 while the efficient output would be greater than 614 units. 
A)  The efficient price would higher than $15 while the efficient output would be less than 614 units. 
B)  The efficient price would be higher than $15 while the efficient output would be greater than 614 units. 
C)  The efficient price would be lower than $15 while the efficient output would be less than 614 units. 
D)  The efficient price would be lower than $15 while the efficient output would be greater than 614 units.

Question 13

Which of these activities will most likely result in an external benefit?

Accepted Answer

A)  A college student buys a deck of cards to play solitaire in her dorm room. 
B)  An elderly woman plants a flower garden on the vacant lot next to her house. 
C)  An executive purchases a book to read on a business trip. 
D)  A ten-year-old uses his allowance to buy new Nike shoes. 
A)  A college student buys a deck of cards to play solitaire in her dorm room. 
B)  An elderly woman plants a flower garden on the vacant lot next to her house. 
C)  An executive purchases a book to read on a business trip. 
D)  A ten-year-old uses his allowance to buy new Nike shoes.

Question 14

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

Accepted Answer

A)  the curse of advertising. 
B)  the imperfect information problem. 
C)  the brand name problem. 
D)  an open-access resource. 
A)  the curse of advertising. 
B)  the imperfect information problem. 
C)  the brand name problem. 
D)  an open-access resource.

Question 15

A hilly, public golf course is often used by sledders in the winter. One of the sledders was quoted as saying, "This is public property, so we have just as much a right to be on these hills as anyone else. Besides, when it snows, golfers can't use the course anyway. Sledding doesn't harm anything." Is he correct? Why or why not?

Accepted Answer

Sledding can inflict external costs to g

Question 16

New products provide a classic case of the consumer information problem. However, in some cases consumers partially solve the problem by trusting the "brand name" of the producer of the new product. Because firms spend millions of dollars advertising and maintaining their brand names, the likelihood of a "brand name" firm intentionally selling a dangerous or shoddy new product is

Accepted Answer

A)  high because big firms are always after a quick dollar. 
B)  high because their brand name is a communal property right. 
C)  low because big firms do not make mistakes. 
D)  low because the firm with a brand name has a lot to lose if word spreads about bad consumer experiences. 
A)  high because big firms are always after a quick dollar. 
B)  high because their brand name is a communal property right. 
C)  low because big firms do not make mistakes. 
D)  low because the firm with a brand name has a lot to lose if word spreads about bad consumer experiences.

Question 17

When there is reason to think that the existing structure of incentives will cause individuals in the market to act in ways that are inconsistent with ideal economic efficiency, economists say that

Accepted Answer

A)  market failure is present. 
B)  democratic political decision-making will lead to the ideal efficient outcome. 
C)  government action, however well intended, cannot improve the situation. 
D)  government failure is present. 
A)  market failure is present. 
B)  democratic political decision-making will lead to the ideal efficient outcome. 
C)  government action, however well intended, cannot improve the situation. 
D)  government failure is present.

Question 18

Figure 5-1  
In Figure 5-1, S1 and D illustrate the demand and supply for a product if it were produced in a normal competitive market . Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

Accepted Answer

A)  The restricted market supply would be S3, resulting in a lower price and a higher than efficient level of output. 
B)  The restricted market supply would be S3, resulting in a higher price and a less than efficient level of output. 
C)  The restricted market supply would be S2, resulting in a lower price and a higher than efficient level of output. 
D)  The restricted market supply would be S2, resulting in a higher price and a less than efficient level of output. 
A)  The restricted market supply would be S3, resulting in a lower price and a higher than efficient level of output. 
B)  The restricted market supply would be S3, resulting in a higher price and a less than efficient level of output. 
C)  The restricted market supply would be S2, resulting in a lower price and a higher than efficient level of output. 
D)  The restricted market supply would be S2, resulting in a higher price and a less than efficient level of output.

Question 19

Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?

Accepted Answer

A)  We should eliminate all pollution. 
B)  Automobiles should be made completely safe. 
C)  When cleaning house, people only generally clean the most visible areas. 
D)  A price cannot be put on human life. 
A)  We should eliminate all pollution. 
B)  Automobiles should be made completely safe. 
C)  When cleaning house, people only generally clean the most visible areas. 
D)  A price cannot be put on human life.

Question 20

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

Accepted Answer

There would certainly appear to be since

If an economic action generates more costs than benefits, the action

A good is considered nonexcludable if

When production of a good generates external costs, the

When external costs are present in a market,

The major distinction between private and public goods is that

When production of a good generates external benefits, the

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

Which of the following would be a protective function of government?

Which of the following are ways in which the private market provides consumers with valuable information to help them make better decisions?

Suppose external costs are present in a market which results in the actual market price of $50 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $15 and market output of 614 units. How does this outcome compare to the efficient, ideal equilibrium?

Which of these activities will most likely result in an external benefit?

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

When there is reason to think that the existing structure of incentives will cause individuals in the market to act in ways that are inconsistent with ideal economic efficiency, economists say that

Figure 5-1 In Figure 5-1, S₁ and D illustrate the demand and supply for a product if it were produced in a normal competitive market . Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

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

If an economic action generates more costs than benefits, the action

A good is considered nonexcludable if

When production of a good generates external costs, the

When external costs are present in a market,

The major distinction between private and public goods is that

When production of a good generates external benefits, the

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

Which of the following would be a protective function of government?

Which of the following are ways in which the private market provides consumers with valuable information to help them make better decisions?

Suppose external costs are present in a market which results in the actual market price of $50 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $15 and market output of 614 units. How does this outcome compare to the efficient, ideal equilibrium?

Which of these activities will most likely result in an external benefit?

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

When there is reason to think that the existing structure of incentives will cause individuals in the market to act in ways that are inconsistent with ideal economic efficiency, economists say that

Figure 5-1 In Figure 5-1, S1 and D illustrate the demand and supply for a product if it were produced in a normal competitive market . Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

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

Figure 5-1 In Figure 5-1, S₁ and D illustrate the demand and supply for a product if it were produced in a normal competitive market . Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?