Question 1

A market is unlikely to provide an efficient quantity of public goods because

Accepted Answer

A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though they could be produced efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders. 
A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though they could be produced efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders. B

Question 2

The "free rider problem" occurs in connection with

Accepted Answer

A)  private goods. 
B)  both public and private goods. 
C)  goods that are not scarce. 
D)  public goods. 
A)  private goods. 
B)  both public and private goods. 
C)  goods that are not scarce. 
D)  public goods. D

Question 3

From the standpoint of economic efficiency, markets tend to provide

Accepted Answer

A)  less of a public good than would be efficient. 
B)  more of a public good than would be efficient. 
C)  exactly the amount of a public good that is efficient. 
D)  none of the above. 
A)  less of a public good than would be efficient. 
B)  more of a public good than would be efficient. 
C)  exactly the amount of a public good that is efficient. 
D)  none of the above. A

Question 4

Brand names such as "Coca Cola" or "Nike"

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 5

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 6

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 7

Markets fail when externalities are present

Accepted Answer

A)  because all of the costs and benefits of producing a good are reflected in the market price. 
B)  because some of the costs and benefits of producing a good are not reflected in the market price. 
C)  only if they are negative; positive externalities are not market failures. 
D)  because profits are not maximized. 
E)  if the positive externalities are less than the negative externalities. 
A)  because all of the costs and benefits of producing a good are reflected in the market price. 
B)  because some of the costs and benefits of producing a good are not reflected in the market price. 
C)  only if they are negative; positive externalities are not market failures. 
D)  because profits are not maximized. 
E)  if the positive externalities are less than the negative externalities.

Question 8

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 9

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 10

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 11

Suppose external benefits are present in a market which results in the actual market price of $49 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient price would be higher than $49. 
B)  The efficient price would be lower than $49. 
C)  The efficient price would also be $49. 
D)  The efficient output would be less than 800 units. 
A)  The efficient price would be higher than $49. 
B)  The efficient price would be lower than $49. 
C)  The efficient price would also be $49. 
D)  The efficient output would be less than 800 units.

Question 12

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 13

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 14

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 15

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 16

As a general rule, if pollution costs are external, firms will produce

Accepted Answer

A)  too little of a polluting good. 
B)  too much of a polluting good. 
C)  an optimal amount of a polluting good. 
D)  cannot be determined without additional information. 
A)  too little of a polluting good. 
B)  too much of a polluting good. 
C)  an optimal amount of a polluting good. 
D)  cannot be determined without additional information.

Question 17

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 18

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 19

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

Accepted Answer

There would certainly appear to be since

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.

A market is unlikely to provide an efficient quantity of public goods because

The "free rider problem" occurs in connection with

From the standpoint of economic efficiency, markets tend to provide

Brand names such as "Coca Cola" or "Nike"

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

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

Markets fail when externalities are present

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

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

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

Suppose external benefits are present in a market which results in the actual market price of $49 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

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

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

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?

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

As a general rule, if pollution costs are external, firms will produce

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?

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

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

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 5: Difficult Cases for the Market, and the Role of Government

A market is unlikely to provide an efficient quantity of public goods because

The "free rider problem" occurs in connection with

From the standpoint of economic efficiency, markets tend to provide

Brand names such as "Coca Cola" or "Nike"

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

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

Markets fail when externalities are present

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

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

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

Suppose external benefits are present in a market which results in the actual market price of $49 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

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

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

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?

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

As a general rule, if pollution costs are external, firms will produce

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?

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

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

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters