Question 1

When a good is nonexcludable,

Accepted Answer

A)  it is impossible or very costly to exclude nonpaying customers from receiving the good. 
B)  individuals will have an incentive to become free riders. 
C)  it will be difficult for a private firm producing the good to generate revenue sufficient to cover the cost of production. 
D)  all of the above are true. 
A)  it is impossible or very costly to exclude nonpaying customers from receiving the good. 
B)  individuals will have an incentive to become free riders. 
C)  it will be difficult for a private firm producing the good to generate revenue sufficient to cover the cost of production. 
D)  all of the above are true.

Question 2

Which of the following are the four major factors that may undermine the ability of the invisible hand to produce market efficiency?

Accepted Answer

A)  externalities, private goods, poorly informed buyers or sellers, lack of competition 
B)  public goods, externalities, lack of competition, poorly informed buyers or sellers 
C)  competition, poorly informed buyers or sellers, externalities, public goods 
D)  public goods, lack of competition, well-informed buyers and sellers, externalities 
A)  externalities, private goods, poorly informed buyers or sellers, lack of competition 
B)  public goods, externalities, lack of competition, poorly informed buyers or sellers 
C)  competition, poorly informed buyers or sellers, externalities, public goods 
D)  public goods, lack of competition, well-informed buyers and sellers, externalities

Question 3

Which of the following is true?

Accepted Answer

A)  Consumption of a public good by one individual reduces the availability of the good for others. 
B)  It is extremely difficult to limit the benefits of a public good to only the people who pay for it. 
C)  Public goods are free to a society when they are produced by the government. 
D)  From an efficiency standpoint, a market will generally supply too much of a public good. 
A)  Consumption of a public good by one individual reduces the availability of the good for others. 
B)  It is extremely difficult to limit the benefits of a public good to only the people who pay for it. 
C)  Public goods are free to a society when they are produced by the government. 
D)  From an efficiency standpoint, a market will generally supply too much of a public good.

Question 4

Which of the following provides an example of an externality?

Accepted Answer

A)  a paper pulp mill releasing pollution into the atmosphere 
B)  persons driving during a busy rush hour 
C)  a drunk driver operating a car on a public highway 
D)  all of the above 
A)  a paper pulp mill releasing pollution into the atmosphere 
B)  persons driving during a busy rush hour 
C)  a drunk driver operating a car on a public highway 
D)  all of the above

Question 5

Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $25 and market output of 1,000 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient price would higher than $25 while the efficient output would be less than 1,000 units. 
B)  The efficient price would be higher than $25 while the efficient output would be greater than 1,000 units. 
C)  The efficient price would be lower than $25 while the efficient output would be less than 1,000 units. 
D)  The efficient price would be lower than $25 while the efficient output would be greater than 1,000 units. 
A)  The efficient price would higher than $25 while the efficient output would be less than 1,000 units. 
B)  The efficient price would be higher than $25 while the efficient output would be greater than 1,000 units. 
C)  The efficient price would be lower than $25 while the efficient output would be less than 1,000 units. 
D)  The efficient price would be lower than $25 while the efficient output would be greater than 1,000 units.

Question 6

When the free-rider problem exists,

Accepted Answer

A)  the market will devote too few resources to the production of the good. 
B)  the cost of the good will always be more than the benefit of the good. 
C)  the good will not be produced. 
D)  entrepreneurs will eventually find a way to make free-riders pay their share. 
A)  the market will devote too few resources to the production of the good. 
B)  the cost of the good will always be more than the benefit of the good. 
C)  the good will not be produced. 
D)  entrepreneurs will eventually find a way to make free-riders pay their share.

Question 7

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a

Accepted Answer

A)  external benefit. 
B)  public good. 
C)  external cost. 
D)  repeat purchase item. 
A)  external benefit. 
B)  public good. 
C)  external cost. 
D)  repeat purchase item.

Question 8

When a firm generates external benefits, a more efficient outcome would result if

Accepted Answer

A)  the firm produced a larger output level. 
B)  the firm reduced its output level. 
C)  a tax were levied on the firm equal to the dollar amount of the externalities. 
D)  price were fixed below the firm's per-unit cost. 
A)  the firm produced a larger output level. 
B)  the firm reduced its output level. 
C)  a tax were levied on the firm equal to the dollar amount of the externalities. 
D)  price were fixed below the firm's per-unit cost.

Question 9

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

Accepted Answer

A)  providing national defense 
B)  undertaking income redistribution 
C)  providing national parks 
D)  monopolizing mail delivery 
A)  providing national defense 
B)  undertaking income redistribution 
C)  providing national parks 
D)  monopolizing mail delivery

Question 10

Because of the free-rider problem,

Accepted Answer

A)  competitive markets will tend to undersupply public goods. 
B)  the federal government spends too much on national defense. 
C)  fireworks displays have become increasingly dangerous. 
D)  poverty has increased. 
A)  competitive markets will tend to undersupply public goods. 
B)  the federal government spends too much on national defense. 
C)  fireworks displays have become increasingly dangerous. 
D)  poverty has increased.

Question 11

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

Accepted Answer

A)  common good problem. 
B)  free rider problem. 
C)  onlooker problem. 
D)  deadweight loss problem. 
A)  common good problem. 
B)  free rider problem. 
C)  onlooker problem. 
D)  deadweight loss problem.

Question 12

Does economic efficiency indicate that all pollution should be eliminated?

Accepted Answer

A)  Yes, pollution is bad; it harms both people and the environment, and therefore, it should be eliminated. 
B)  No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost. 
C)  No, pollution does not harm most people, and therefore, we should not worry about it. 
D)  Partially, pollution caused by business firms should be eliminated, but people should still be allowed to pollute if they want. 
A)  Yes, pollution is bad; it harms both people and the environment, and therefore, it should be eliminated. 
B)  No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost. 
C)  No, pollution does not harm most people, and therefore, we should not worry about it. 
D)  Partially, pollution caused by business firms should be eliminated, but people should still be allowed to pollute if they want.

Question 13

Economic efficiency indicates that

Accepted Answer

A)  if something is worth doing, you should do it as well as humanly possible. 
B)  all pollution should be eliminated. 
C)  automobiles should be made as safe as possible 
D)  it nearly always makes sense to stop an activity well before perfection is achieved. 
A)  if something is worth doing, you should do it as well as humanly possible. 
B)  all pollution should be eliminated. 
C)  automobiles should be made as safe as possible 
D)  it nearly always makes sense to stop an activity well before perfection is achieved.

Question 14

If the construction of a new hospital would create $6 million worth of benefits for citizens and would cost $8 million to construct, then using the criterion of economic efficiency, the hospital

Accepted Answer

A)  should be built. 
B)  should not be built. 
C)  results in a substantial improvement to the welfare of society. 
D)  should be built if it passes by a majority vote. 
A)  should be built. 
B)  should not be built. 
C)  results in a substantial improvement to the welfare of society. 
D)  should be built if it passes by a majority vote.

Question 15

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

Accepted Answer

A)  The equilibrium quantity of MBAs will equal the efficient quantity of MBAs. 
B)  The equilibrium quantity of MBAs will be greater than the efficient quantity of MBAs. 
C)  The equilibrium quantity of MBAs will be less than the efficient quantity of MBAs. 
D)  The tuition paid by the student would be exceed the efficient amount. 
A)  The equilibrium quantity of MBAs will equal the efficient quantity of MBAs. 
B)  The equilibrium quantity of MBAs will be greater than the efficient quantity of MBAs. 
C)  The equilibrium quantity of MBAs will be less than the efficient quantity of MBAs. 
D)  The tuition paid by the student would be exceed the efficient amount.

Question 16

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

Accepted Answer

A)  providing national defense 
B)  welfare programs and income redistribution 
C)  mail delivery 
D)  all of the above 
A)  providing national defense 
B)  welfare programs and income redistribution 
C)  mail delivery 
D)  all of the above

Question 17

How does an additional individual's consumption of a good that is nonrival-in-consumption, such as a radio broadcast, affect the amount of the good available to other consumers?

Accepted Answer

A)  The amount available to others will decline. 
B)  The amount available to others will increase. 
C)  The amount available to others is unaffected. 
D)  The amount available to others is eliminated. 
A)  The amount available to others will decline. 
B)  The amount available to others will increase. 
C)  The amount available to others is unaffected. 
D)  The amount available to others is eliminated.

Question 18

Externalities are due to which of the following?

Accepted Answer

A)  poorly defined or enforced private property rights 
B)  individuals not caring sufficiently about the welfare of others 
C)  the choice of a capitalist, rather than socialist, economy 
D)  poor information on the part of buyers and sellers 
A)  poorly defined or enforced private property rights 
B)  individuals not caring sufficiently about the welfare of others 
C)  the choice of a capitalist, rather than socialist, economy 
D)  poor information on the part of buyers and sellers

Question 19

In economics, a free rider is the term used for a person who

Accepted Answer

A)  receives the benefit of a good without contributing to its costs of production. 
B)  purchases an item during a "buy one, get one free" sale. 
C)  lives in a town in which the city provides free bus service. 
D)  pays for exactly what they receive. 
A)  receives the benefit of a good without contributing to its costs of production. 
B)  purchases an item during a "buy one, get one free" sale. 
C)  lives in a town in which the city provides free bus service. 
D)  pays for exactly what they receive.

Question 20

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Accepted Answer

A)  The equilibrium quantity of MBAs will equal the efficient quantity of MBAs. 
B)  The equilibrium quantity of MBAs will be greater than the efficient quantity of MBAs. 
C)  The equilibrium quantity of MBAs will be less than the efficient quantity of MBAs. 
D)  The equilibrium price of MBAs will be greater than the efficient price of MBAs. 
A)  The equilibrium quantity of MBAs will equal the efficient quantity of MBAs. 
B)  The equilibrium quantity of MBAs will be greater than the efficient quantity of MBAs. 
C)  The equilibrium quantity of MBAs will be less than the efficient quantity of MBAs. 
D)  The equilibrium price of MBAs will be greater than the efficient price of MBAs.

When a good is nonexcludable,

Which of the following are the four major factors that may undermine the ability of the invisible hand to produce market efficiency?

Which of the following is true?

Which of the following provides an example of an externality?

Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $25 and market output of 1,000 units. How does this outcome compare to the efficient, ideal equilibrium?

When the free-rider problem exists,

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a

When a firm generates external benefits, a more efficient outcome would result if

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

Because of the free-rider problem,

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

Does economic efficiency indicate that all pollution should be eliminated?

Economic efficiency indicates that

If the construction of a new hospital would create $6 million worth of benefits for citizens and would cost $8 million to construct, then using the criterion of economic efficiency, the hospital

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

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

How does an additional individual's consumption of a good that is nonrival-in-consumption, such as a radio broadcast, affect the amount of the good available to other consumers?

Externalities are due to which of the following?

In economics, a free rider is the term used for a person who

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

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

When a good is nonexcludable,

Which of the following are the four major factors that may undermine the ability of the invisible hand to produce market efficiency?

Which of the following is true?

Which of the following provides an example of an externality?

Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $25 and market output of 1,000 units. How does this outcome compare to the efficient, ideal equilibrium?

When the free-rider problem exists,

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a

When a firm generates external benefits, a more efficient outcome would result if

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

Because of the free-rider problem,

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

Does economic efficiency indicate that all pollution should be eliminated?

Economic efficiency indicates that

If the construction of a new hospital would create $6 million worth of benefits for citizens and would cost $8 million to construct, then using the criterion of economic efficiency, the hospital

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

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

How does an additional individual's consumption of a good that is nonrival-in-consumption, such as a radio broadcast, affect the amount of the good available to other consumers?

Externalities are due to which of the following?

In economics, a free rider is the term used for a person who

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

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