Question 1

Economic efficiency in a competitive market is achieved when

Accepted Answer

A) economic surplus is equal to consumer surplus. 
B) consumers and producers are satisfied. 
C) the marginal benefit equals the marginal cost from the last unit sold. 
D) producer surplus equals the total amount firms receive from consumers minus the cost of production. 
A) economic surplus is equal to consumer surplus. 
B) consumers and producers are satisfied. 
C) the marginal benefit equals the marginal cost from the last unit sold. 
D) producer surplus equals the total amount firms receive from consumers minus the cost of production.

Question 2

Which of the following is not an advantage to an insurance company insuring a large group of people for health insurance?

Accepted Answer

A) The characteristics of a large group are likely to reflect those of the entire population. 
B) It is easier to accurately predict the number of claims for a group than for an individual. 
C) When all group members pay the premium,the problem of moral hazard is reduced. 
D) When all group members pay the premium,the problem of adverse selection is reduced. 
A) The characteristics of a large group are likely to reflect those of the entire population. 
B) It is easier to accurately predict the number of claims for a group than for an individual. 
C) When all group members pay the premium,the problem of moral hazard is reduced. 
D) When all group members pay the premium,the problem of adverse selection is reduced.

Question 3

Consider a used car market in which half the cars are good and half are bad (lemons).If buyers are rational,the prices being offered for used cars will result in

Accepted Answer

A) an equal proportion of a good cars and lemons being sold in an efficient market. 
B) a larger proportion of good cars being sold and consequently,consumer surplus is increased. 
C) a larger proportion of lemons being sold and consequently,producer surplus is increased. 
D) an equal proportion of good cars and lemons being sold in an inefficient market. 
A) an equal proportion of a good cars and lemons being sold in an efficient market. 
B) a larger proportion of good cars being sold and consequently,consumer surplus is increased. 
C) a larger proportion of lemons being sold and consequently,producer surplus is increased. 
D) an equal proportion of good cars and lemons being sold in an inefficient market.

Question 4

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

Accepted Answer

A) True 
 B)False

Question 5

The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as asymmetric information.

Accepted Answer

A) True 
 B)False

Question 6

For which of the following firms is patent protection of vital importance?

Accepted Answer

A) furniture producers 
B) software firms 
C) pharmaceutical firms 
D) auto makers 
A) furniture producers 
B) software firms 
C) pharmaceutical firms 
D) auto makers

Question 7

Which of the following is a disadvantage of trademarking a firm's product?

Accepted Answer

A) A trademark differentiates a firm's product. 
B) A trademark conveys information about the product to the public. 
C) A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name. 
D) A trademark does not affect demand for the firm's product. 
A) A trademark differentiates a firm's product. 
B) A trademark conveys information about the product to the public. 
C) A trademark may become so widely used to denote a particular type of product that the trademark may no longer be a legally protected brand name. 
D) A trademark does not affect demand for the firm's product.

Question 8

An insurance company is likely to attract customers like Clancy,who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

Accepted Answer

A) moral hazard 
B) adverse selection 
C) asymmetric information 
D) economic irrationality 
A) moral hazard 
B) adverse selection 
C) asymmetric information 
D) economic irrationality

Question 9

Health insurance companies impose deductibles on policies and co-payments on claims

Accepted Answer

A) to increase sales. 
B) to reduce moral hazard problems. 
C) to reduce sunk costs. 
D) to increase prices. 
A) to increase sales. 
B) to reduce moral hazard problems. 
C) to reduce sunk costs. 
D) to increase prices.

Question 10

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

A) There is no difference;in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference;in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price,but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good,but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. 
A) There is no difference;in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B) There is no difference;in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price,but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good,but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Question 11

What is adverse selection?

Accepted Answer

A) It refers to the private,self-interested actions that people pursue,which,when taken collectively,lead to a loss in economic surplus. 
B) It refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. 
C) It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. 
D) It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction. 
A) It refers to the private,self-interested actions that people pursue,which,when taken collectively,lead to a loss in economic surplus. 
B) It refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. 
C) It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. 
D) It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.

Question 12

Which of the following is true of trademarks?

Accepted Answer

A) A successful trademark is one that becomes a generic name for a product,for example,'Xerox' has become a generic term for making photocopies. 
B) A successful trademark is one that allows consumers to immediately identify the source or producer of the product. 
C) If a firm is granted a trademark,then no other firms can legally produce similar products for a given period of time. 
D) If a firm is granted a trademark,then no other firms can legally sell in the same geographic area for a given period of time. 
A) A successful trademark is one that becomes a generic name for a product,for example,'Xerox' has become a generic term for making photocopies. 
B) A successful trademark is one that allows consumers to immediately identify the source or producer of the product. 
C) If a firm is granted a trademark,then no other firms can legally produce similar products for a given period of time. 
D) If a firm is granted a trademark,then no other firms can legally sell in the same geographic area for a given period of time.

Question 13

What is the relationship between market failure and government failure?

Accepted Answer

Market failure is a case where the marke

Question 14

If marginal benefit is greater than marginal cost,output is inefficiently high.

Accepted Answer

A) True 
 B)False

Question 15

An important difference between the demand for a private good and the demand for a public good is that

Accepted Answer

A) individuals reveal their preferences for a public good,but they do not have to reveal their preferences a private good. 
B) the resources used to provide public goods are common resources or government owned;the resources used to produce private goods are all privately owned. 
C) individuals reveal their preferences for a private good,but they do not have to reveal their preferences for a public good. 
D) the demand for a private good produces consumption externalities;the demand for a public good produces production externalities. 
A) individuals reveal their preferences for a public good,but they do not have to reveal their preferences a private good. 
B) the resources used to provide public goods are common resources or government owned;the resources used to produce private goods are all privately owned. 
C) individuals reveal their preferences for a private good,but they do not have to reveal their preferences for a public good. 
D) the demand for a private good produces consumption externalities;the demand for a public good produces production externalities.

Question 16

The tragedy of the commons was avoided in the Middle Ages by

Accepted Answer

A) selling common grounds to individuals. 
B) the local police who monitored entry into the commons. 
C) social pressure to uphold traditionally accepted limits on family use of the commons. 
D) the government which imposed a tax for the use of the commons. 
A) selling common grounds to individuals. 
B) the local police who monitored entry into the commons. 
C) social pressure to uphold traditionally accepted limits on family use of the commons. 
D) the government which imposed a tax for the use of the commons.

Question 17

The 'tragedy of the commons' refers to the phenomenon where

Accepted Answer

A) individuals are free riders. 
B) people overuse a common resource. 
C) people do not internalise an externality. 
D) there is rivalry in consumption. 
A) individuals are free riders. 
B) people overuse a common resource. 
C) people do not internalise an externality. 
D) there is rivalry in consumption.

Question 18

One difference between the demand for a private good and that for a public good is that

Accepted Answer

A) with a private good,each consumer chooses the quantity she wants to consume but with a public good,each consumer chooses the price she is willing to pay for a fixed quantity. 
B) with a private good,each consumer chooses the quantity she wants to consume but with a public good,everyone consumes the same quantity. 
C) with a private good,each consumer receives different amounts of benefit from consuming the product but with a public good,every consumer realises the same amount of benefit from consuming the product. 
D) the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the former. 
A) with a private good,each consumer chooses the quantity she wants to consume but with a public good,each consumer chooses the price she is willing to pay for a fixed quantity. 
B) with a private good,each consumer chooses the quantity she wants to consume but with a public good,everyone consumes the same quantity. 
C) with a private good,each consumer receives different amounts of benefit from consuming the product but with a public good,every consumer realises the same amount of benefit from consuming the product. 
D) the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the former.

Question 19

Rent-seeking behaviour,unlike profit maximising behaviour in competitive markets,wastes society's scarce resources.

Accepted Answer

A) True 
 B)False

Question 20

Figure 14-1  
-Refer to Figure 14-1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

Accepted Answer

A) If the price of pecans is $3,the output will be economically efficient but there will be a deadweight loss. 
B) If the price of pecans is $9,consumers will purchase more than the economically efficient output. 
C) Both 4000 pounds and 12 000 pounds are economically inefficient rates of output. 
D) If the price of pecans is $3,producers will sell 12 000 pounds of pecans but this output will be economically inefficient. 
A) If the price of pecans is $3,the output will be economically efficient but there will be a deadweight loss. 
B) If the price of pecans is $9,consumers will purchase more than the economically efficient output. 
C) Both 4000 pounds and 12 000 pounds are economically inefficient rates of output. 
D) If the price of pecans is $3,producers will sell 12 000 pounds of pecans but this output will be economically inefficient.

Economic efficiency in a competitive market is achieved when

Which of the following is not an advantage to an insurance company insuring a large group of people for health insurance?

Consider a used car market in which half the cars are good and half are bad (lemons).If buyers are rational,the prices being offered for used cars will result in

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as asymmetric information.

For which of the following firms is patent protection of vital importance?

Which of the following is a disadvantage of trademarking a firm's product?

An insurance company is likely to attract customers like Clancy,who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

Health insurance companies impose deductibles on policies and co-payments on claims

How does the construction of a market demand curve for a private good differ from that for a public good?

What is adverse selection?

Which of the following is true of trademarks?

What is the relationship between market failure and government failure?

If marginal benefit is greater than marginal cost,output is inefficiently high.

An important difference between the demand for a private good and the demand for a public good is that

The tragedy of the commons was avoided in the Middle Ages by

The 'tragedy of the commons' refers to the phenomenon where

One difference between the demand for a private good and that for a public good is that

Rent-seeking behaviour,unlike profit maximising behaviour in competitive markets,wastes society's scarce resources.

Figure 14-1 -Refer to Figure 14-1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 14: Government Intervention in the Market

Economic efficiency in a competitive market is achieved when

Which of the following is not an advantage to an insurance company insuring a large group of people for health insurance?

Consider a used car market in which half the cars are good and half are bad (lemons).If buyers are rational,the prices being offered for used cars will result in

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as asymmetric information.

For which of the following firms is patent protection of vital importance?

Which of the following is a disadvantage of trademarking a firm's product?

An insurance company is likely to attract customers like Clancy,who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

Health insurance companies impose deductibles on policies and co-payments on claims

How does the construction of a market demand curve for a private good differ from that for a public good?

What is adverse selection?

Which of the following is true of trademarks?

What is the relationship between market failure and government failure?

If marginal benefit is greater than marginal cost,output is inefficiently high.

An important difference between the demand for a private good and the demand for a public good is that

The tragedy of the commons was avoided in the Middle Ages by

The 'tragedy of the commons' refers to the phenomenon where

One difference between the demand for a private good and that for a public good is that

Rent-seeking behaviour,unlike profit maximising behaviour in competitive markets,wastes society's scarce resources.

Figure 14-1 -Refer to Figure 14-1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters