Question 1

When market failure is present,

Accepted Answer

A)  democratic political decision-making can be counted on to improve the efficiency of resource allocation. 
B)  market allocation will achieve idealized economic efficiency. 
C)  the conditions implied by idealized efficient allocation of resources will be absent, but it does not follow that political action will improve the situation. 
D)  democratic political decision-making will never be able to improve the efficiency of resource allocation. 
A)  democratic political decision-making can be counted on to improve the efficiency of resource allocation. 
B)  market allocation will achieve idealized economic efficiency. 
C)  the conditions implied by idealized efficient allocation of resources will be absent, but it does not follow that political action will improve the situation. 
D)  democratic political decision-making will never be able to improve the efficiency of resource allocation.

Question 2

Driving your automobile in Los Angeles during the rush hour causes externalities because

Accepted Answer

A)  it adds congestion and pollution from auto exhaust, reducing the welfare of others. 
B)  gasoline is scarce and you must pay for it. 
C)  gasoline is a public good. 
D)  your actions will benefit others even though you will be unable to charge them for the service. 
A)  it adds congestion and pollution from auto exhaust, reducing the welfare of others. 
B)  gasoline is scarce and you must pay for it. 
C)  gasoline is a public good. 
D)  your actions will benefit others even though you will be unable to charge them for the service.

Question 3

When production of a good provides external benefits, there will be

Accepted Answer

A)  too few resources devoted to its production. 
B)  too many resources devoted to its production. 
C)  the optimal amount of resources devoted to its production. 
D)  abnormally high profits earned by producers of the good. 
A)  too few resources devoted to its production. 
B)  too many resources devoted to its production. 
C)  the optimal amount of resources devoted to its production. 
D)  abnormally high profits earned by producers of the good.

Question 4

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

Accepted Answer

The text defines economic efficiency con

Question 5

Anne has just purchased a new house in a lovely neighborhood. Her neighbors are friendly and even brought her house-warming gifts. Anne, however, has a problem. Her neighbors have cats, and Anne hates cats. Even though the city has a law requiring all outdoor pets to be on a leash, her neighbors ignore it, and the cats roam all over Anne's property. How would an economist describe this situation? Is there anything Anne can do?

Accepted Answer

An economist would say negative external

Question 6

Suppose that the producers of copper are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of copper products 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 7

An item purchased often by the same buyer is known as a

Accepted Answer

A)  frequent transaction good. 
B)  repeat-purchase item. 
C)  free rider good. 
D)  public good. 
A)  frequent transaction good. 
B)  repeat-purchase item. 
C)  free rider good. 
D)  public good.

Question 8

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

Accepted Answer

A)  pollution is not a serious problem in this industry. 
B)  the consumers of steel are unwilling to bear the costs of pollution generated from steel production. 
C)  pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution. 
D)  pollution creates an external benefit rather than an external cost in this case. 
A)  pollution is not a serious problem in this industry. 
B)  the consumers of steel are unwilling to bear the costs of pollution generated from steel production. 
C)  pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution. 
D)  pollution creates an external benefit rather than an external cost in this case.

Question 9

If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

Accepted Answer

A)  durable. 
B)  nonrival-in-consumption. 
C)  a common good. 
D)  a natural resource. 
A)  durable. 
B)  nonrival-in-consumption. 
C)  a common good. 
D)  a natural resource.

Question 10

Sam lives next to The Party Pub and its outdoor "beer garden" that features live music. An economics major, Sam considers this a positive externality. Dave, another economics student, lives next to The Party Pub too, but he considers the music a negative externality. Which student, if either, is correct? Why?

Accepted Answer

Both students are correct if they are ac

Question 11

Use the figure below to answer the following question(s).
Figure 5-2
 
Figure 5-2 illustrates the market for a product that generates an external cost. S1 is the private market supply curve, while S2 is the supply curve including the external cost. 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 12

A market transaction causes an externality if someone

Accepted Answer

A)  directly involved in the transaction receives uncompensated benefits or costs from it. 
B)  not directly involved in the transaction receives uncompensated benefits or costs from it. 
C)  directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out. 
D)  not directly involved in the transaction interferes in it by imposing regulations or product standards. 
A)  directly involved in the transaction receives uncompensated benefits or costs from it. 
B)  not directly involved in the transaction receives uncompensated benefits or costs from it. 
C)  directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out. 
D)  not directly involved in the transaction interferes in it by imposing regulations or product standards.

Question 13

Externalities are fundamentally the result of

Accepted Answer

A)  the absence of competition in a market. 
B)  the lack of well-defined or enforced property rights. 
C)  poor information on the part of consumers. 
D)  the presence of significant comparative advantages in production. 
A)  the absence of competition in a market. 
B)  the lack of well-defined or enforced property rights. 
C)  poor information on the part of consumers. 
D)  the presence of significant comparative advantages in production.

Question 14

Markets may have difficulty providing the proper quantity of a public good because

Accepted Answer

A)  individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good. 
B)  the good generally has a very large value to consumers relative to its cost of production. 
C)  the good is one that tends to benefit a large number of people. 
D)  the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders. 
A)  individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good. 
B)  the good generally has a very large value to consumers relative to its cost of production. 
C)  the good is one that tends to benefit a large number of people. 
D)  the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders.

Question 15

The maintenance of a framework of security and order through the establishment and enforcement of rules under which people can interact peacefully with one another and be secure in their person and property is known as the

Accepted Answer

A)  productive function of government. 
B)  protective function of government. 
C)  transfer function of government. 
D)  illegitimate function of government. 
A)  productive function of government. 
B)  protective function of government. 
C)  transfer function of government. 
D)  illegitimate function of government.

Question 16

A good that is both nonexcludable and nonrival-in-consumption is called a

Accepted Answer

A)  common good. 
B)  external good. 
C)  public good. 
D)  private good. 
A)  common good. 
B)  external good. 
C)  public good. 
D)  private good.

Question 17

General agreement exists that the legitimate economic functions of government include

Accepted Answer

A)  protection against invasions from a foreign power. 
B)  provision of goods that cannot easily be provided through markets. 
C)  the maintenance of a framework of rules within which people can interact peacefully with one another. 
D)  all of the above. 
A)  protection against invasions from a foreign power. 
B)  provision of goods that cannot easily be provided through markets. 
C)  the maintenance of a framework of rules within which people can interact peacefully with one another. 
D)  all of the above.

Question 18

If it is impossible or very costly to exclude nonpaying customers from receiving a good, the good is considered to be

Accepted Answer

A)  freeware. 
B)  nonexcludable. 
C)  a common good. 
D)  a receiving good. 
A)  freeware. 
B)  nonexcludable. 
C)  a common good. 
D)  a receiving good.

Question 19

When competitive forces in an industry are weak,

Accepted Answer

A)  the absence of competition generally leads to overproduction. 
B)  prices may exceed the amount consumers are willing to pay. 
C)  the operational efficiency of private firms will be enhanced. 
D)  higher prices and less than optimal production may result. 
A)  the absence of competition generally leads to overproduction. 
B)  prices may exceed the amount consumers are willing to pay. 
C)  the operational efficiency of private firms will be enhanced. 
D)  higher prices and less than optimal production may result.

Question 20

Government provision of goods and services that cannot easily be provided through markets because it is difficult to establish a one-to-one link between payment and consumption of the good is referred to as the

Accepted Answer

A)  productive function of government. 
B)  protective function of government. 
C)  construction function of government. 
D)  income redistribution function of government. 
A)  productive function of government. 
B)  protective function of government. 
C)  construction function of government. 
D)  income redistribution function of government.

When market failure is present,

Driving your automobile in Los Angeles during the rush hour causes externalities because

When production of a good provides external benefits, there will be

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

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

An item purchased often by the same buyer is known as a

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

Use the figure below to answer the following question(s). Figure 5-2 Figure 5-2 illustrates the market for a product that generates an external cost. S₁ is the private market supply curve, while S₂ is the supply curve including the external cost. Which of the following is true?

A market transaction causes an externality if someone

Externalities are fundamentally the result of

Markets may have difficulty providing the proper quantity of a public good because

The maintenance of a framework of security and order through the establishment and enforcement of rules under which people can interact peacefully with one another and be secure in their person and property is known as the

A good that is both nonexcludable and nonrival-in-consumption is called a

General agreement exists that the legitimate economic functions of government include

If it is impossible or very costly to exclude nonpaying customers from receiving a good, the good is considered to be

When competitive forces in an industry are weak,

Government provision of goods and services that cannot easily be provided through markets because it is difficult to establish a one-to-one link between payment and consumption of the good is referred to as 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

When market failure is present,

Driving your automobile in Los Angeles during the rush hour causes externalities because

When production of a good provides external benefits, there will be

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

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

An item purchased often by the same buyer is known as a

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

Use the figure below to answer the following question(s). Figure 5-2 Figure 5-2 illustrates the market for a product that generates an external cost. S1 is the private market supply curve, while S2 is the supply curve including the external cost. Which of the following is true?

A market transaction causes an externality if someone

Externalities are fundamentally the result of

Markets may have difficulty providing the proper quantity of a public good because

The maintenance of a framework of security and order through the establishment and enforcement of rules under which people can interact peacefully with one another and be secure in their person and property is known as the

A good that is both nonexcludable and nonrival-in-consumption is called a

General agreement exists that the legitimate economic functions of government include

If it is impossible or very costly to exclude nonpaying customers from receiving a good, the good is considered to be

When competitive forces in an industry are weak,

Government provision of goods and services that cannot easily be provided through markets because it is difficult to establish a one-to-one link between payment and consumption of the good is referred to as 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 5-2 Figure 5-2 illustrates the market for a product that generates an external cost. S₁ is the private market supply curve, while S₂ is the supply curve including the external cost. Which of the following is true?