Question 1

When external costs are present in a market,

Accepted Answer

A)  less of the good will be produced than the amount consistent with economic efficiency. 
B)  more of the good will be produced than the amount consistent with economic efficiency. 
C)  the amount of the good produced will be equal to the amount consistent with economic efficiency. 
D)  corresponding external benefits are always generated. 
A)  less of the good will be produced than the amount consistent with economic efficiency. 
B)  more of the good will be produced than the amount consistent with economic efficiency. 
C)  the amount of the good produced will be equal to the amount consistent with economic efficiency. 
D)  corresponding external benefits are always generated.

Question 2

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 3

As more and more resources are dedicated to an activity

Accepted Answer

A)  the benefits will increase proportionately. 
B)  the benefits will become smaller and smaller while the costs will rise. 
C)  the demand for that activity will increase. 
D)  the costs will be offset by the benefits received from the activity. 
A)  the benefits will increase proportionately. 
B)  the benefits will become smaller and smaller while the costs will rise. 
C)  the demand for that activity will increase. 
D)  the costs will be offset by the benefits received from the activity.

Question 4

A sound legal system that protects individuals and their property,

Accepted Answer

A)  cannot be expected until markets are already working well. 
B)  is vital to the smooth operation of markets. 
C)  is normally found in most economies of the world. 
D)  is  helpful for the rich, but harmful to the economic well-being of others. 
A)  cannot be expected until markets are already working well. 
B)  is vital to the smooth operation of markets. 
C)  is normally found in most economies of the world. 
D)  is  helpful for the rich, but harmful to the economic well-being of others.

Question 5

What are the two distinguishing characteristics of a public good?

Accepted Answer

A)  nonrivalry in consumption and nonexcludability 
B)  indivisibility in production and excludability of nonpaying customers 
C)  provision by government and funding through taxation 
D)  mass production and comparative advantage 
A)  nonrivalry in consumption and nonexcludability 
B)  indivisibility in production and excludability of nonpaying customers 
C)  provision by government and funding through taxation 
D)  mass production and comparative advantage

Question 6

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper 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

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 8

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 9

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 10

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 11

Markets provide the efficient amount of a good or service when

Accepted Answer

A)  externalities are present. 
B)  monopoly exists. 
C)  public goods are present. 
D)  competition is present and externalities and public goods are absent. 
A)  externalities are present. 
B)  monopoly exists. 
C)  public goods are present. 
D)  competition is present and externalities and public goods are absent.

Question 12

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $30 and market output of 220 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient price would higher than $30 while the efficient output would be less than 220 units. 
B)  The efficient price would be higher than $30 while the efficient output would be greater than 220 units. 
C)  The efficient price would be lower than $30 while the efficient output would be less than 220 units. 
D)  The efficient price would be lower than $30 while the efficient output would be greater than 220 units. 
A)  The efficient price would higher than $30 while the efficient output would be less than 220 units. 
B)  The efficient price would be higher than $30 while the efficient output would be greater than 220 units. 
C)  The efficient price would be lower than $30 while the efficient output would be less than 220 units. 
D)  The efficient price would be lower than $30 while the efficient output would be greater than 220 units.

Question 13

Competitive markets generally give consumers and producers correct incentives when

Accepted Answer

A)  externalities are present in the market. 
B)  property rights are well-defined and enforced. 
C)  the good being produced and consumed is a pure public good. 
D)  there is a substantial lack of information on the part of either buyers or sellers. 
A)  externalities are present in the market. 
B)  property rights are well-defined and enforced. 
C)  the good being produced and consumed is a pure public good. 
D)  there is a substantial lack of information on the part of either buyers or sellers.

Question 14

If education creates external benefits,

Accepted Answer

A)  actual market outcomes provide less than the efficient quantity of education. 
B)  actual market outcomes provide more than the efficient quantity of education. 
C)  actual market outcomes provide a higher price than the efficient price of education. 
D)  the government should impose a depletion tax. 
A)  actual market outcomes provide less than the efficient quantity of education. 
B)  actual market outcomes provide more than the efficient quantity of education. 
C)  actual market outcomes provide a higher price than the efficient price of education. 
D)  the government should impose a depletion tax.

When external costs are present in a market,

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

As more and more resources are dedicated to an activity

A sound legal system that protects individuals and their property,

What are the two distinguishing characteristics of a public good?

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

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

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

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

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?

Markets provide the efficient amount of a good or service when

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $30 and market output of 220 units. How does this outcome compare to the efficient, ideal equilibrium?

Competitive markets generally give consumers and producers correct incentives when

If education creates external benefits,

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

When external costs are present in a market,

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

As more and more resources are dedicated to an activity

A sound legal system that protects individuals and their property,

What are the two distinguishing characteristics of a public good?

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

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

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

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

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?

Markets provide the efficient amount of a good or service when

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $30 and market output of 220 units. How does this outcome compare to the efficient, ideal equilibrium?

Competitive markets generally give consumers and producers correct incentives when

If education creates external benefits,

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

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?