Question 1

Which one of the following would reduce the efficiency of the market process?

Accepted Answer

A)  promoting competitive markets 
B)  protecting persons from fraud and theft 
C)  providing a stable monetary environment 
D)  protecting consumers by imposing legally mandated price ceilings 
A)  promoting competitive markets 
B)  protecting persons from fraud and theft 
C)  providing a stable monetary environment 
D)  protecting consumers by imposing legally mandated price ceilings

Question 2

If the construction of a new elementary school would create $5 million worth of benefits for citizens and cost $7 million to construct, then using the criterion of economic efficiency, the school

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 3

Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad breath and dull teeth. Is there a role for the public sector in this situation?

Accepted Answer

The market should be able to handle the

Question 4

If production of a good creates external benefits, a competitive market will likely produce

Accepted Answer

A)  less output than would maximize profit. 
B)  more output than would maximize profit. 
C)  less output than is efficient. 
D)  more output than is efficient. 
A)  less output than would maximize profit. 
B)  more output than would maximize profit. 
C)  less output than is efficient. 
D)  more output than is efficient.

Question 5

If the construction of a new roadway would create $10 billion worth of benefits for citizens and would cost $8 billion to construct, then using the criterion of economic efficiency, the roadway

Accepted Answer

A)  should be built. 
B)  should not be built. 
C)  results in no net improvement to the welfare of society. 
D)  should be built only if it passes by a majority vote. 
A)  should be built. 
B)  should not be built. 
C)  results in no net improvement to the welfare of society. 
D)  should be built only if it passes by a majority vote.

Question 6

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income. 
A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

Question 7

Which of the following "goods" is the best example of a pure public good?

Accepted Answer

A)  highways 
B)  national defense 
C)  mail delivery 
D)  welfare programs 
A)  highways 
B)  national defense 
C)  mail delivery 
D)  welfare programs

Question 8

Compared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too

Accepted Answer

A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low. 
A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low.

Question 9

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

Accepted Answer

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

Question 10

Is education a public good? Focus on whether it meets the two criteria for being a public good.

Accepted Answer

First, consider the nonrivalry-in-consum

Question 11

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

Accepted Answer

A)  automotive repair service 
B)  magazines 
C)  toothpaste 
D)  pencils 
A)  automotive repair service 
B)  magazines 
C)  toothpaste 
D)  pencils

Question 12

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

Accepted Answer

A)  a government-run health care system 
B)  the Walt Disney World amusement park 
C)  national defense 
D)  long-distance telephone service 
A)  a government-run health care system 
B)  the Walt Disney World amusement park 
C)  national defense 
D)  long-distance telephone service

Question 13

Brand names such as "Nabisco" or "Sony"

Accepted Answer

A)  raise the cost of goods because they require advertising to make consumers aware of the brand name and, therefore, generally increase the price of products to consumers without producing any benefit to them. 
B)  generally convey little information about a product to consumers. 
C)  benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about. 
D)  provide the most value to consumers for goods that are repeat-purchase items. 
A)  raise the cost of goods because they require advertising to make consumers aware of the brand name and, therefore, generally increase the price of products to consumers without producing any benefit to them. 
B)  generally convey little information about a product to consumers. 
C)  benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about. 
D)  provide the most value to consumers for goods that are repeat-purchase items.

Question 14

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

Accepted Answer

A)  When Noelle cleaned her apartment, she didn't clean under the refrigerator. 
B)  Nick is so disorganized that he spends 15 minutes every day trying to find his glasses. 
C)  The senator stated, "No price is too high to save a life!" 
D)  Ford's new policy is to make every car completely safe. 
A)  When Noelle cleaned her apartment, she didn't clean under the refrigerator. 
B)  Nick is so disorganized that he spends 15 minutes every day trying to find his glasses. 
C)  The senator stated, "No price is too high to save a life!" 
D)  Ford's new policy is to make every car completely safe.

Question 15

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

Accepted Answer

A)  result in a price that is lower than the efficient price for both goods. 
B)  result in a price that is higher than the efficient price for both goods. 
C)  result in a price that is lower than the efficient price for the good with an external benefit and a price that is higher than the efficient price for the good with an external cost. 
D)  result in a price that is higher than the efficient price for the good with an external benefit and a price that is lower than the efficient price for the good with an external cost. 
A)  result in a price that is lower than the efficient price for both goods. 
B)  result in a price that is higher than the efficient price for both goods. 
C)  result in a price that is lower than the efficient price for the good with an external benefit and a price that is higher than the efficient price for the good with an external cost. 
D)  result in a price that is higher than the efficient price for the good with an external benefit and a price that is lower than the efficient price for the good with an external cost.

Question 16

A public good is defined as a good with which of the following characteristics?

Accepted Answer

A)  non-rivalry, rivalry 
B)  excludability, rivalry 
C)  non-rivalry, non-excludability 
D)  rivalry, non-excludability 
A)  non-rivalry, rivalry 
B)  excludability, rivalry 
C)  non-rivalry, non-excludability 
D)  rivalry, non-excludability

Question 17

Sellers have a strong incentive to lobby government for legal restrictions that would reduce the intensity of competition in their market because

Accepted Answer

A)  the firms wish to be more efficient than competition will permit. 
B)  competition tends to result in lower prices and lower profits. 
C)  legal restrictions that lessen competition in a market generally benefit consumers. 
D)  the firms fear that intense competition will lead to higher profits that will attract additional rivals into the market. 
A)  the firms wish to be more efficient than competition will permit. 
B)  competition tends to result in lower prices and lower profits. 
C)  legal restrictions that lessen competition in a market generally benefit consumers. 
D)  the firms fear that intense competition will lead to higher profits that will attract additional rivals into the market.

Question 18

Economic efficiency requires that

Accepted Answer

A)  individuals produce at their maximum level. 
B)  only long-lasting, high-quality products be produced without regard to cost. 
C)  income be distributed equally among consumers. 
D)  all economic activity generating more benefits than costs be undertaken. 
A)  individuals produce at their maximum level. 
B)  only long-lasting, high-quality products be produced without regard to cost. 
C)  income be distributed equally among consumers. 
D)  all economic activity generating more benefits than costs be undertaken.

Question 19

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)  Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency. 
B)  Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency. 
C)  The competitive private market outcome is consistent with the conditions for economic efficiency. 
D)  The good will tend to be undersupplied relative to the conditions for economic efficiency. 
A)  Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency. 
B)  Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency. 
C)  The competitive private market outcome is consistent with the conditions for economic efficiency. 
D)  The good will tend to be undersupplied relative to the conditions for economic efficiency.

Question 20

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

Accepted Answer

A)  output will be lower and price higher. 
B)  output will be higher and price lower. 
C)  both output and price will be higher. 
D)  both output and price will be lower. 
A)  output will be lower and price higher. 
B)  output will be higher and price lower. 
C)  both output and price will be higher. 
D)  both output and price will be lower.

Which one of the following would reduce the efficiency of the market process?

If the construction of a new elementary school would create $5 million worth of benefits for citizens and cost $7 million to construct, then using the criterion of economic efficiency, the school

Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad breath and dull teeth. Is there a role for the public sector in this situation?

If production of a good creates external benefits, a competitive market will likely produce

If the construction of a new roadway would create $10 billion worth of benefits for citizens and would cost $8 billion to construct, then using the criterion of economic efficiency, the roadway

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Which of the following "goods" is the best example of a pure public good?

Compared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too

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

Is education a public good? Focus on whether it meets the two criteria for being a public good.

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

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

Brand names such as "Nabisco" or "Sony"

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

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

A public good is defined as a good with which of the following characteristics?

Sellers have a strong incentive to lobby government for legal restrictions that would reduce the intensity of competition in their market because

Economic efficiency requires that

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?

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

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

Which one of the following would reduce the efficiency of the market process?

If the construction of a new elementary school would create $5 million worth of benefits for citizens and cost $7 million to construct, then using the criterion of economic efficiency, the school

Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad breath and dull teeth. Is there a role for the public sector in this situation?

If production of a good creates external benefits, a competitive market will likely produce

If the construction of a new roadway would create $10 billion worth of benefits for citizens and would cost $8 billion to construct, then using the criterion of economic efficiency, the roadway

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Which of the following "goods" is the best example of a pure public good?

Compared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too

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

Is education a public good? Focus on whether it meets the two criteria for being a public good.

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

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

Brand names such as "Nabisco" or "Sony"

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

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

A public good is defined as a good with which of the following characteristics?

Sellers have a strong incentive to lobby government for legal restrictions that would reduce the intensity of competition in their market because

Economic efficiency requires that

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?

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

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?