Question 1

A subsidy to correct for an externality should be set equal to the

Accepted Answer

A)  MSC. 
B)  MSB. 
C)  MEB. 
D)  MEC. 
E)  AC. 
A)  MSC. 
B)  MSB. 
C)  MEB. 
D)  MEC. 
E)  AC. C

Question 2

Which formula can be used to calculate total surplus?

Accepted Answer

A)  TCS + TPS 
B)  TU - TVC 
C)  (TU - TR) + (TR - TV
C)  
D)  All of the above 
A)  TCS + TPS 
B)  TU - TVC 
C)  (TU - TR) + (TR - TV
C)  
D)  All of the above D

Question 3

Economists often compare perfect competition and monopoly. They criticise monopolies for producing _________and charging ________.

Accepted Answer

A)  less; less 
B)  more; less 
C)  more; more 
D)  less; more 
A)  less; less 
B)  more; less 
C)  more; more 
D)  less; more D

Question 4

Which of the following is a disadvantage of legal restrictions?

Accepted Answer

A)  For some dangerous activities they can be very difficult to administer. 
B)  They are simple and clear to understand. 
C)  They are a rather blunt instrument. 
D)  They cannot be imposed very quickly if emergency action is required. 
A)  For some dangerous activities they can be very difficult to administer. 
B)  They are simple and clear to understand. 
C)  They are a rather blunt instrument. 
D)  They cannot be imposed very quickly if emergency action is required.

Question 5

Which of the following is a reason why the government may fail to ensure an optimum allocation of resources?

Accepted Answer

A)  Shortages and surpluses 
B)  Lack of market incentives 
C)  Bureaucracy and government inefficiency 
D)  Poor information 
E)  All of the above 
A)  Shortages and surpluses 
B)  Lack of market incentives 
C)  Bureaucracy and government inefficiency 
D)  Poor information 
E)  All of the above

Question 6

The performance of a company adopting a more socially responsible outlook could rise because improved brand perception makes demand more inelastic.

Accepted Answer

A) True 
 B)False

Question 7

The Coase theorem states that some problems involving externalities can be solved by private bargaining and without government intervention.

Accepted Answer

A) True 
 B)False

Question 8

Minimum and maximum price legislation is less likely to create shortages and surpluses than when using taxation and subsidies to correct an externality problem.

Accepted Answer

A) True 
 B)False

Question 9

If someone spends their income to achieve maximum benefit, in economic terms this is an example of

Accepted Answer

A)  productive efficiency. 
B)  allocative efficiency. 
C)  distributional equity. 
D)  hedonism. 
E)  good housekeeping. 
A)  productive efficiency. 
B)  allocative efficiency. 
C)  distributional equity. 
D)  hedonism. 
E)  good housekeeping.

Question 10

Instability and an inability of the economy to achieve social efficiency are not affected by time lags of implementing economic policy actions.

Accepted Answer

A) True 
 B)False

Question 11

What are the advantages and disadvantages of using taxes and subsidies to correct market imperfections?

Accepted Answer

Advantages:
• They internalise externali

Question 12

In the first- best world, where there are no other market distortions, the problem of externalities can be corrected by imposing a tax equal to MSC and a subsidy equal to MSB.

Accepted Answer

A) True 
 B)False

Question 13

The difficulty of getting people to pay for public goods other than by taxation is called

Accepted Answer

A)  the Coase theorem. 
B)  the free- rider problem. 
C)  Arrow's impossibility theorem. 
D)  the fallacy of composition. 
A)  the Coase theorem. 
B)  the free- rider problem. 
C)  Arrow's impossibility theorem. 
D)  the fallacy of composition.

Question 14

If the provision of health care were left to the free market, there would be many reasons why the market would not provide an optimum allocation of health care resources. One such reason would be that uncaring parents may not buy adequate treatment for their children or children may not buy adequate treatment for their elderly parents. Which of the following categories of market failure best match this example?

Accepted Answer

A)  Market power 
B)  Dependants 
C)  Inequality 
D)  Externalities 
E)  Poor economic decision- making by people on their own behalf 
A)  Market power 
B)  Dependants 
C)  Inequality 
D)  Externalities 
E)  Poor economic decision- making by people on their own behalf

Question 15

The 'virtue matrix' generating corporate social responsibility refers to activities that

Accepted Answer

A)  society expects firms to commit to. 
B)  are promoted by the government. 
C)  are not directly in the interest of shareholders. 
D)  A and C 
A)  society expects firms to commit to. 
B)  are promoted by the government. 
C)  are not directly in the interest of shareholders. 
D)  A and C

Question 16

The condition that ensures that the right things are produced is P = MC. This is true

Accepted Answer

A)  only if price is set so that there is no consumer surplus and marginal cost is such that the firm's normal profit is zero. 
B)  only if price is set in a competitive market and marginal cost is a good measure of the actual costs paid by the firm. 
C)  only if price is a good measure of the value of the things that might otherwise be produced with the same resources and marginal cost is a good measure of the costs incurred by the firm in producing the good. 
D)  only if price is a good measure of the value that society places on a good, and only if marginal cost is a good measure of the value of the things that might otherwise be produced with the same resources. 
A)  only if price is set so that there is no consumer surplus and marginal cost is such that the firm's normal profit is zero. 
B)  only if price is set in a competitive market and marginal cost is a good measure of the actual costs paid by the firm. 
C)  only if price is a good measure of the value of the things that might otherwise be produced with the same resources and marginal cost is a good measure of the costs incurred by the firm in producing the good. 
D)  only if price is a good measure of the value that society places on a good, and only if marginal cost is a good measure of the value of the things that might otherwise be produced with the same resources.

Question 17

The social benefit of a decision is the benefit to people other than the decision- maker.

Accepted Answer

A) True 
 B)False

Question 18

Driving tests would be an example of what type of intervention?

Accepted Answer

A)  Price controls 
B)  Regulatory bodies 
C)  Extending property rights 
D)  Direct provision of goods and services 
E)  Legal controls 
A)  Price controls 
B)  Regulatory bodies 
C)  Extending property rights 
D)  Direct provision of goods and services 
E)  Legal controls

Question 19

Explain some of the drawbacks of government intervention.

Accepted Answer

Government intervention in the form of m

Question 20

In which of the following countries would you expect the boundary to be lower between the civil foundation and the frontier?

Accepted Answer

A)  USA 
B)  UK 
C)  China 
D)  Spain 
A)  USA 
B)  UK 
C)  China 
D)  Spain

Exam 20: Reasons for Government Intervention in the Market

A subsidy to correct for an externality should be set equal to the

Which formula can be used to calculate total surplus?

Economists often compare perfect competition and monopoly. They criticise monopolies for producing _________and charging ________.

Which of the following is a disadvantage of legal restrictions?

Which of the following is a reason why the government may fail to ensure an optimum allocation of resources?

The performance of a company adopting a more socially responsible outlook could rise because improved brand perception makes demand more inelastic.

The Coase theorem states that some problems involving externalities can be solved by private bargaining and without government intervention.

Minimum and maximum price legislation is less likely to create shortages and surpluses than when using taxation and subsidies to correct an externality problem.

If someone spends their income to achieve maximum benefit, in economic terms this is an example of

Instability and an inability of the economy to achieve social efficiency are not affected by time lags of implementing economic policy actions.

What are the advantages and disadvantages of using taxes and subsidies to correct market imperfections?

In the first- best world, where there are no other market distortions, the problem of externalities can be corrected by imposing a tax equal to MSC and a subsidy equal to MSB.

The difficulty of getting people to pay for public goods other than by taxation is called

The 'virtue matrix' generating corporate social responsibility refers to activities that

The condition that ensures that the right things are produced is P = MC. This is true

The social benefit of a decision is the benefit to people other than the decision- maker.

Driving tests would be an example of what type of intervention?

Explain some of the drawbacks of government intervention.

In which of the following countries would you expect the boundary to be lower between the civil foundation and the frontier?

The Business Environment and Business Economics

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Economists often compare perfect competition and monopoly. They criticise monopolies for producing _and charging .