Deck 8: The Free Market System

Question 1

If the Social Marginal Benefit is greater than the Social Marginal Cost:

A) Society's welfare will fall if another unit is produced.
B) Society's welfare will increase if another unit is produced.
C) Society's welfare will stay the same if another unit is produced.
D) Society's welfare is maximized.

Answer 1

B

Question 2

Community surplus equals:

A) Producer surplus plus marginal utility
B) Consumer surplus plus producer surplus
C) Producer surplus minus consumer surplus
D) Total utility minus marginal utility

Answer 2

B

Question 3

If there is a positive consumption externality, in a free market the product will then:

A) Be too expensive.
B) Be over-provided compared to the socially optimal level.
C) Be under-provided compared to the socially optimal level.
D) Not be provided in the free market.

Answer 3

C

Question 4

The free rider problem occurs:

A) With monopolies
B) With competition
C) With public goods
D) With all goods

Question 5

A merit good:

A) Is one that is available to everyone.
B) Cannot be provided at all in the free market.
C) Is illegal.
D) Is one that society believes has more benefits than individuals themselves think it has.

Question 6

A monopoly occurs when a firm dominates a market; this is likely to lead to a higher price and lower quantity than a perfectly competitive market.

Question 7

With a negative production externality the amount produced in the free market is below the socially optimal level.

Question 8

A demerit good:

A) Is one that is available to everyone.
B) Cannot be provided at all in the free market.
C) Is illegal.
D) Is one that society believes has more costs than individuals themselves think it has.

Question 9

An example of a demerit good is:

A) Education
B) Cigarettes
C) Vaccinations
D) Art gallery

Question 10

The free market assumes that:

A) Consumers are maximising utility and firms are maximising profitability.
B) Consumers are maximising their profitability and firms are minimising utility.
C) Consumers are minimising their utility and firms are minimising profitability.
D) None of the above.

Question 11

The extra satisfaction consumers gain from consuming one more unit of a good or service is known as:

A) Marginal cost
B) Marginal benefit
C) Beneficial margin
D) Gain margin

Question 12

At the socially optimal level of output:

A) Private marginal benefit = social marginal cost
B) Social marginal benefit = social marginal cost
C) Social marginal benefit = private marginal cost
D) None of the above