Question 1

"Government failure" is present when

Accepted Answer

A)  constitutional restrictions block government action that is favored by the majority of voters. 
B)  political decision-makers try to serve the general public rather than their personal interest. 
C)  the structure of incentives encourages political decision-makers to undertake actions that conflict with the efficient allocation of resources. 
D)  the political decision-makers are motivated by something other than good intentions; if they have good intentions, political action will allocate resources efficiently. 
A)  constitutional restrictions block government action that is favored by the majority of voters. 
B)  political decision-makers try to serve the general public rather than their personal interest. 
C)  the structure of incentives encourages political decision-makers to undertake actions that conflict with the efficient allocation of resources. 
D)  the political decision-makers are motivated by something other than good intentions; if they have good intentions, political action will allocate resources efficiently.

Question 2

Market failure will most likely arise from poor information when the product is

Accepted Answer

A)  a repeat-purchase item. 
B)  easily evaluated on inspection. 
C)  often purchased from the same seller. 
D)  unlikely to be purchased from the same seller in the future. 
A)  a repeat-purchase item. 
B)  easily evaluated on inspection. 
C)  often purchased from the same seller. 
D)  unlikely to be purchased from the same seller in the future.

Question 3

When external benefits 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 costs 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 costs are always generated.

Question 4

Which of the following is a true statement regarding why the government produces public goods?

Accepted Answer

A)  Public goods are valued highly by some but not by the majority. 
B)  Because of the electoral system, the public sector tends towards producing those goods that help politicians get elected. 
C)  Some goods should be produced whether they are economically efficient or not. 
D)  Because it is difficult to exclude those who do not pay for public goods. 
A)  Public goods are valued highly by some but not by the majority. 
B)  Because of the electoral system, the public sector tends towards producing those goods that help politicians get elected. 
C)  Some goods should be produced whether they are economically efficient or not. 
D)  Because it is difficult to exclude those who do not pay for public goods.

Question 5

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

Accepted Answer

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

Question 6

Use the figure below to answer the following question(s).
Figure 5-3
 
Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?

Accepted Answer

A)  Relative to economic efficiency, output of the good will be too large and the price too low. 
B)  Relative to economic efficiency, output of the good will be too large and the price too high. 
C)  Relative to economic efficiency, output of the good will be too small and the price too low. 
D)  Relative to economic efficiency, output of the good will be too small and the price too high. 
A)  Relative to economic efficiency, output of the good will be too large and the price too low. 
B)  Relative to economic efficiency, output of the good will be too large and the price too high. 
C)  Relative to economic efficiency, output of the good will be too small and the price too low. 
D)  Relative to economic efficiency, output of the good will be too small and the price too high.

Question 7

Is your economics textbook a public or private good? If you conclude that it is a private good, why do we have copyright laws?

Accepted Answer

To a student, the book seems close to a

Question 8

Suppose external benefits are present in a market which results in the actual market price of $34 and market output of 126 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient outcome would be greater than 126 units. 
B)  The efficient outcome would be less than 126 units. 
C)  The efficient outcome would also be 126 units. 
D)  The efficient price would be less than $34. 
A)  The efficient outcome would be greater than 126 units. 
B)  The efficient outcome would be less than 126 units. 
C)  The efficient outcome would also be 126 units. 
D)  The efficient price would be less than $34.

Question 9

Criteria of ideal economic efficiency requires that (I) all actions generating more social benefit than cost be undertaken and (II) no actions generating more social cost than social benefit be undertaken.

Accepted Answer

A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  II is true; I is false. 
A)  Both I and II are true. 
B)  Both I and II are false. 
C)  I is true; II is false. 
D)  II is true; I is false.

Question 10

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too

Accepted Answer

A)  much of both goods. 
B)  little of both goods. 
C)  much of the good that generates external benefits and too little of the good that generates external cost. 
D)  little of the good that generates external benefits and too much of the good that generates the external cost. 
A)  much of both goods. 
B)  little of both goods. 
C)  much of the good that generates external benefits and too little of the good that generates external cost. 
D)  little of the good that generates external benefits and too much of the good that generates the external cost.

Question 11

A sound legal system that protects individuals and their property,

Accepted Answer

A)  cannot be expected until markets are already working well. 
B)  is vital to the smooth operation of markets. 
C)  is normally found in most economies of the world. 
D)  is helpful for the rich, but harmful to the economic well-being of others. 
A)  cannot be expected until markets are already working well. 
B)  is vital to the smooth operation of markets. 
C)  is normally found in most economies of the world. 
D)  is helpful for the rich, but harmful to the economic well-being of others.

Question 12

If education creates external benefits,

Accepted Answer

A)  actual market outcomes provide less than the efficient quantity of education. 
B)  actual market outcomes provide more than the efficient quantity of education. 
C)  actual market outcomes provide a higher price than the efficient price of education. 
D)  the government should impose a depletion tax. 
A)  actual market outcomes provide less than the efficient quantity of education. 
B)  actual market outcomes provide more than the efficient quantity of education. 
C)  actual market outcomes provide a higher price than the efficient price of education. 
D)  the government should impose a depletion tax.

Question 13

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

Accepted Answer

A)  a rock concert at an indoor arena 
B)  a laptop computer 
C)  a television broadcast signal 
D)  an economics textbook 
A)  a rock concert at an indoor arena 
B)  a laptop computer 
C)  a television broadcast signal 
D)  an economics textbook

Question 14

In a market that lacks sufficient competition,

Accepted Answer

A)  output will generally be less than the output that is ideal from the standpoint of economic efficiency. 
B)  output will generally be greater than the output that is ideal from the standpoint of economic efficiency. 
C)  price will generally be less than the price that would result if the market was competitive. 
D)  profit rates will generally be so low that government subsidies will be necessary to ensure that the firms remain in business. 
A)  output will generally be less than the output that is ideal from the standpoint of economic efficiency. 
B)  output will generally be greater than the output that is ideal from the standpoint of economic efficiency. 
C)  price will generally be less than the price that would result if the market was competitive. 
D)  profit rates will generally be so low that government subsidies will be necessary to ensure that the firms remain in business.

Question 15

A car sells at different prices at different dealerships in a local market. If a consumer has imperfect information about the price of a car at each dealership, he should

Accepted Answer

A)  always gather all available information about prices. 
B)  gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it. 
C)  gather information about prices only if it can be gathered without cost. 
D)  ignore information about prices because it is irrelevant to making an "optimally imperfect" decision. 
A)  always gather all available information about prices. 
B)  gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it. 
C)  gather information about prices only if it can be gathered without cost. 
D)  ignore information about prices because it is irrelevant to making an "optimally imperfect" decision.

Question 16

The government sometimes provides public goods because

Accepted Answer

A)  private markets would not produce any of the goods. 
B)  private markets would not produce the efficient quantity of the goods. 
C)  private markets would charge too high a price for the goods. 
D)  the government produces public goods more efficiently than private markets can. 
A)  private markets would not produce any of the goods. 
B)  private markets would not produce the efficient quantity of the goods. 
C)  private markets would charge too high a price for the goods. 
D)  the government produces public goods more efficiently than private markets can.

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 often an open access, commonly owned resource. 
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 often an open access, commonly owned resource. 
D)  that waterways are subject to the market's normal control procedures.

Question 18

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

Accepted Answer

A)  produce the economically efficient outcome. 
B)  result in a market price that is higher than the efficient one. 
C)  register a price that is lower than the efficient one. 
D)  result in too little of the good being produced compared to the ideal efficient outcome. 
A)  produce the economically efficient outcome. 
B)  result in a market price that is higher than the efficient one. 
C)  register a price that is lower than the efficient one. 
D)  result in too little of the good being produced compared to the ideal efficient outcome.

Question 19

People who receive the benefit of a good without contributing to its costs of production are called

Accepted Answer

A)  contributors in kind. 
B)  free riders. 
C)  frequent flyers. 
D)  cost maximizers. 
A)  contributors in kind. 
B)  free riders. 
C)  frequent flyers. 
D)  cost maximizers.

Question 20

There is substantial agreement among scholars that at least two functions of government are legitimate. These two functions are the

Accepted Answer

A)  protection of the rights of individuals to their person and property and the provision of goods that cannot easily be provided through markets. 
B)  redistribution of income from some individuals to others and the waging of war to expand the nation's territory. 
C)  production of postal services and cable television. 
D)  taxation of goods that are generally considered immoral or bad and the regulation of large corporations. 
A)  protection of the rights of individuals to their person and property and the provision of goods that cannot easily be provided through markets. 
B)  redistribution of income from some individuals to others and the waging of war to expand the nation's territory. 
C)  production of postal services and cable television. 
D)  taxation of goods that are generally considered immoral or bad and the regulation of large corporations.

"Government failure" is present when

Market failure will most likely arise from poor information when the product is

When external benefits are present in a market,

Which of the following is a true statement regarding why the government produces public goods?

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

Use the figure below to answer the following question(s). Figure 5-3 Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?

Is your economics textbook a public or private good? If you conclude that it is a private good, why do we have copyright laws?

Suppose external benefits are present in a market which results in the actual market price of $34 and market output of 126 units. How does this outcome compare to the efficient, ideal equilibrium?

Criteria of ideal economic efficiency requires that (I) all actions generating more social benefit than cost be undertaken and (II) no actions generating more social cost than social benefit be undertaken.

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too

A sound legal system that protects individuals and their property,

If education creates external benefits,

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

In a market that lacks sufficient competition,

A car sells at different prices at different dealerships in a local market. If a consumer has imperfect information about the price of a car at each dealership, he should

The government sometimes provides public goods because

The key explanation for the prevalence of waterway pollution is

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

People who receive the benefit of a good without contributing to its costs of production are called

There is substantial agreement among scholars that at least two functions of government are legitimate. These two functions are the

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

"Government failure" is present when

Market failure will most likely arise from poor information when the product is

When external benefits are present in a market,

Which of the following is a true statement regarding why the government produces public goods?

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

Use the figure below to answer the following question(s). Figure 5-3 Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?

Is your economics textbook a public or private good? If you conclude that it is a private good, why do we have copyright laws?

Suppose external benefits are present in a market which results in the actual market price of $34 and market output of 126 units. How does this outcome compare to the efficient, ideal equilibrium?

Criteria of ideal economic efficiency requires that (I) all actions generating more social benefit than cost be undertaken and (II) no actions generating more social cost than social benefit be undertaken.

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too

A sound legal system that protects individuals and their property,

If education creates external benefits,

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

In a market that lacks sufficient competition,

A car sells at different prices at different dealerships in a local market. If a consumer has imperfect information about the price of a car at each dealership, he should

The government sometimes provides public goods because

The key explanation for the prevalence of waterway pollution is

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

People who receive the benefit of a good without contributing to its costs of production are called

There is substantial agreement among scholars that at least two functions of government are legitimate. These two functions are the

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

Use the figure below to answer the following question(s). Figure 5-3 Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?