Question 1

Figure 5-4  
Refer to Figure 5-4. The figure illustrates an industry that generates

Accepted Answer

A)  external benefits. 
B)  external costs. 
C)  no externalities. 
D)  economies of scale. 
A)  external benefits. 
B)  external costs. 
C)  no externalities. 
D)  economies of scale.

Question 2

If government taxes a firm which pollutes this will

Accepted Answer

A)  increase the demand for the good produced. 
B)  decrease the supply of the good produced. 
C)  increase the equilibrium quantity of the good produced in the market. 
D)  decrease the equilibrium price of the good produced in the market. 
E)  all of the above. 
A)  increase the demand for the good produced. 
B)  decrease the supply of the good produced. 
C)  increase the equilibrium quantity of the good produced in the market. 
D)  decrease the equilibrium price of the good produced in the market. 
E)  all of the above.

Question 3

Externalities cause the market mechanism to allocate goods and resources inefficiently because

Accepted Answer

A)  nonconsenting third parties are generally not hurt by externalities. 
B)  producers and consumers ignore signals given by the competitive market. 
C)  prices are always higher than they should be. 
D)  competitive markets fail to give producers and consumers correct price signals. 
A)  nonconsenting third parties are generally not hurt by externalities. 
B)  producers and consumers ignore signals given by the competitive market. 
C)  prices are always higher than they should be. 
D)  competitive markets fail to give producers and consumers correct price signals.

Question 4

A good is considered nonrival-in-consumption 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)  even nonpaying customers can receive the full benefit from 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)  even nonpaying customers can receive the full benefit from the good. 
D)  its production is financed through tax revenue rather than market prices.

Question 5

The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of

Accepted Answer

A)  economic efficiency. 
B)  public welfare maximization. 
C)  marginal comparative advantage. 
D)  monetary construction of values. 
A)  economic efficiency. 
B)  public welfare maximization. 
C)  marginal comparative advantage. 
D)  monetary construction of values.

Question 6

Figure 5-4  
Refer to Figure 5-4. If the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

Accepted Answer

A)  $1.90 
B)  $1.80 
C)  $1.60 
D)  $0.30 
A)  $1.90 
B)  $1.80 
C)  $1.60 
D)  $0.30

Question 7

Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers?

Accepted Answer

A)  The franchiser has a monopoly on the sale of products in his industry. 
B)  If quality is not maintained, the franchiser will be limited in his ability to sell other franchises and collect franchise fees. 
C)  If quality is not maintained, the government will prohibit future sales of the franchises. 
D)  Franchisers do not gain financially by maintaining quality, but they generally maintain quality anyway because they are consumers as well as producers. 
A)  The franchiser has a monopoly on the sale of products in his industry. 
B)  If quality is not maintained, the franchiser will be limited in his ability to sell other franchises and collect franchise fees. 
C)  If quality is not maintained, the government will prohibit future sales of the franchises. 
D)  Franchisers do not gain financially by maintaining quality, but they generally maintain quality anyway because they are consumers as well as producers.

Question 8

In which of the following markets are information problems likely to be most serious?

Accepted Answer

A)  used cars 
B)  groceries 
C)  toothpaste 
D)  compact discs 
A)  used cars 
B)  groceries 
C)  toothpaste 
D)  compact discs

Question 9

The government sometimes provides public goods because

Accepted Answer

A)  private markets are incapable of producing public goods. 
B)  free-riders make it difficult for private markets to supply the efficient quantity. 
C)  markets are always better off with some government oversight. 
D)  external benefits will accrue to private producers. 
A)  private markets are incapable of producing public goods. 
B)  free-riders make it difficult for private markets to supply the efficient quantity. 
C)  markets are always better off with some government oversight. 
D)  external benefits will accrue to private producers.

Question 10

If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,

Accepted Answer

A)  not enough of the product is being produced. 
B)  the price charged for the good is too high. 
C)  the good produces a positive externality. 
D)  the good produces a negative externality. 
E)  the government should produce the good. 
A)  not enough of the product is being produced. 
B)  the price charged for the good is too high. 
C)  the good produces a positive externality. 
D)  the good produces a negative externality. 
E)  the government should produce the good.

Question 11

The absence of well-defined and enforceable private property rights often

Accepted Answer

A)  causes people to work together for the common good. 
B)  improves society because it avoids the selfish actions of private property owners. 
C)  causes difficulties for society due to externalities. 
D)  brings about efficiency by providing incentives to conserve resources. 
A)  causes people to work together for the common good. 
B)  improves society because it avoids the selfish actions of private property owners. 
C)  causes difficulties for society due to externalities. 
D)  brings about efficiency by providing incentives to conserve resources.

Question 12

Which of the following activities is least likely to give rise to external costs or benefits?

Accepted Answer

A)  spraying to control mosquitos in your backyard 
B)  driving one's car during rush hour 
C)  inoculating your children during a flu epidemic 
D)  buying a hamburger and eating it for lunch 
A)  spraying to control mosquitos in your backyard 
B)  driving one's car during rush hour 
C)  inoculating your children during a flu epidemic 
D)  buying a hamburger and eating it for lunch

Question 13

Which of the following is true of public goods?

Accepted Answer

A)  They can only be supplied by the government. 
B)  They will tend to be supplied efficiently by the private sector when markets are competitive. 
C)  It is difficult to establish a one-to-one link between payment and receipt of such goods. 
D)  From an efficiency standpoint, private markets will tend to supply an excessively large amount of public goods. 
A)  They can only be supplied by the government. 
B)  They will tend to be supplied efficiently by the private sector when markets are competitive. 
C)  It is difficult to establish a one-to-one link between payment and receipt of such goods. 
D)  From an efficiency standpoint, private markets will tend to supply an excessively large amount of public goods.

Question 14

When the consumption of a good generates an external benefit,

Accepted Answer

A)  the private benefit consumers receive from the good will be higher than the true social benefit. 
B)  too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C)  the community generally suffers an exactly offsetting external cost from the production of the good. 
D)  the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed. 
A)  the private benefit consumers receive from the good will be higher than the true social benefit. 
B)  too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C)  the community generally suffers an exactly offsetting external cost from the production of the good. 
D)  the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.

Question 15

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

Accepted Answer

A)  After some level of safety is reached, making cars even safer will not be worth the additional cost. 
B)  Because human life is priceless, automobile safety generally doesn't matter. 
C)  The benefit from additional automobile safety will generally rise as automobiles are made safer, more than offsetting the opportunity cost involved. 
D)  Economic efficiency suggests that automobiles should be made as safe as humanly possible. 
A)  After some level of safety is reached, making cars even safer will not be worth the additional cost. 
B)  Because human life is priceless, automobile safety generally doesn't matter. 
C)  The benefit from additional automobile safety will generally rise as automobiles are made safer, more than offsetting the opportunity cost involved. 
D)  Economic efficiency suggests that automobiles should be made as safe as humanly possible.

Question 16

It is difficult for the market process to provide public goods because

Accepted Answer

A)  private firms generally cannot undertake large-scale projects. 
B)  it will be difficult to get potential consumers to pay for such goods because there is not a direct link between payment for and receipt of the good. 
C)  consumers do not really want public goods, even though such goods are best for them. 
D)  individuals are generally made worse off by the production of public goods. 
A)  private firms generally cannot undertake large-scale projects. 
B)  it will be difficult to get potential consumers to pay for such goods because there is not a direct link between payment for and receipt of the good. 
C)  consumers do not really want public goods, even though such goods are best for them. 
D)  individuals are generally made worse off by the production of public goods.

Question 17

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient price would be higher than $62. 
B)  The efficient price would be lower than $62. 
C)  The efficient price would also be $62. 
D)  The efficient output would be less than 3,000 units. 
A)  The efficient price would be higher than $62. 
B)  The efficient price would be lower than $62. 
C)  The efficient price would also be $62. 
D)  The efficient output would be less than 3,000 units.

Question 18

In a competitive market, if the production process involves an external benefit, 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)  result in a market price that is lower than the efficient one. 
D)  result in too much 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)  result in a market price that is lower than the efficient one. 
D)  result in too much of the good being produced compared to the ideal efficient outcome.

Question 19

The standard economists use to assess whether an activity should be undertaken is

Accepted Answer

A)  majority vote 
B)  the marginal benefit assessment. 
C)  the gold standard 
D)  economic efficiency. 
A)  majority vote 
B)  the marginal benefit assessment. 
C)  the gold standard 
D)  economic efficiency.

Question 20

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

Accepted Answer

A)  The pollution will be created by those least willing and able to pay the damages. 
B)  The pollution will be created by those most willing and able to pay for the right to pollute. 
C)  The funds collected by the government will be enough to compensate any individuals harmed by the pollution. 
D)  Pollution will increase from zero to 1,000 units per day. 
E)  There will be no incentive for polluters to try to sneak emissions past government monitoring devices. 
A)  The pollution will be created by those least willing and able to pay the damages. 
B)  The pollution will be created by those most willing and able to pay for the right to pollute. 
C)  The funds collected by the government will be enough to compensate any individuals harmed by the pollution. 
D)  Pollution will increase from zero to 1,000 units per day. 
E)  There will be no incentive for polluters to try to sneak emissions past government monitoring devices.

Figure 5-4 Refer to Figure 5-4. The figure illustrates an industry that generates

If government taxes a firm which pollutes this will

Externalities cause the market mechanism to allocate goods and resources inefficiently because

A good is considered nonrival-in-consumption if

The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of

Figure 5-4 Refer to Figure 5-4. If the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers?

In which of the following markets are information problems likely to be most serious?

The government sometimes provides public goods because

If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,

The absence of well-defined and enforceable private property rights often

Which of the following activities is least likely to give rise to external costs or benefits?

Which of the following is true of public goods?

When the consumption of a good generates an external benefit,

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

It is difficult for the market process to provide public goods because

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units. How does this outcome compare to the efficient, ideal equilibrium?

In a competitive market, if the production process involves an external benefit, the market will

The standard economists use to assess whether an activity should be undertaken is

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

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

Figure 5-4 Refer to Figure 5-4. The figure illustrates an industry that generates

If government taxes a firm which pollutes this will

Externalities cause the market mechanism to allocate goods and resources inefficiently because

A good is considered nonrival-in-consumption if

The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of

Figure 5-4 Refer to Figure 5-4. If the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers?

In which of the following markets are information problems likely to be most serious?

The government sometimes provides public goods because

If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,

The absence of well-defined and enforceable private property rights often

Which of the following activities is least likely to give rise to external costs or benefits?

Which of the following is true of public goods?

When the consumption of a good generates an external benefit,

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

It is difficult for the market process to provide public goods because

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units. How does this outcome compare to the efficient, ideal equilibrium?

In a competitive market, if the production process involves an external benefit, the market will

The standard economists use to assess whether an activity should be undertaken is

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

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