Deck 9: Government Intervention

Question 1

Which of the following is most likely a private good?

A) Flood control
B) Military protection
C) Food
D) Bridges

Answer 1

C

Question 2

In a market economy,producers will produce the goods and services that:

A) Are least expensive to produce.
B) Consumers need the most.
C) Consumers demand.
D) The government finds most beneficial.

Answer 2

C

Question 3

A public good is a good that:

A) Can be jointly consumed.
B) Can be consumed by just one person.
C) Is financed by the public sector,not the private sector.
D) affects a third party.

Answer 3

A

Question 4

If market prices and sales are used to signal desired output,then the optimal mix of output is determined by:

A) The market mechanism.
B) The political process.
C) The Federal Reserve System.
D) Government intervention.

Question 5

A private good is a good that:

A) Is financed by private dollars instead of taxes.
B) Can be jointly consumed.
C) Can be denied to those who do not pay for it.
D) Consumers use privately in their homes.

Question 6

In economics,a public good:

A) Is any good produced by the government.
B) Has social costs that are lower than private costs.
C) Is provided in an optimal amount by the market.
D) Cannot be denied to consumers who do not pay.

Question 7

A private good is unique because:

A) Nonpayers can be prevented from consuming it.
B) It can be enjoyed exclusively by free riders.
C) The market is likely to produce too little of it.
D) It is provided most efficiently by government.

Question 8

Which of the following is most likely a private good?

A) Police protection
B) Cars
C) Highways
D) Parks

Question 9

Market failure establishes a basis for:

A) Market power.
B) Externalities.
C) Government intervention.
D) Private goods.

Question 10

The optimal mix of output is:

A) the most desirable combination of output attainable with existing resources,technology and social values.
B) an attempt to compare the real worth rather than the market values to various goods and services.
C) an exercise to determine if is better to reduce government expenditures or reduce taxes.
D) the most desirable level of the distribution of income.

Question 11

Which of the following is not an example of market failure?

A) Public goods.
B) Government intervention.
C) Market power.
D) Externalities.

Question 12

Market failure means that the economy is definitely producing:

A) A suboptimal mix of output.
B) At a point beyond the production possibilities curve.
C) At a point inside the production possibilities curve.
D) Zero output.

Question 13

The most desirable combination of output attainable with available resources,technology and social values is known as the:

A) Economic choice of output.
B) Efficient choice of production.
C) Preferred output choice.
D) Optimal mix of output.

Question 14

Market failure implies that a policy of laissez-faire:

A) Leads the economy to a point beyond the production possibilities curve.
B) Leads the economy to an undesirable point on the production possibilities curve.
C) Is superior to government intervention.
D) Causes government failure.

Question 15

Market failure occurs when:

A) Market prices signal producers to produce the optimal mix of output.
B) The economy produces at a point on the production possibilities curve.
C) Producers supply the goods that earn the greatest profit.
D) An imperfection in the market mechanism prevents an optimal outcome.

Question 16

In economics,a public good:

A) Is any good produced by the government.
B) Always causes government failure.
C) Is provided in an optimal amount by the market.
D) Allows free riders to benefit from the gooD.

Question 17

Sources of microeconomic failure that may require government intervention include all of the following except:

A) The abuse of market power.
B) The need for private goods.
C) The need for public goods.
D) Inequities in the distribution of goods and services.

Question 18

Which of the following does not explain why the market sometimes fails to produce the optimal mix of output?

A) Some producers have market power.
B) Public goods can have free-riders.
C) Private goods cannot be consumed jointly.
D) There are externalities associated with production.

Question 19

Which of the following is an economic justification for a policy of laissez-faire?

A) The existence of externalities.
B) The free-rider dilemma.
C) The efficiency of the market mechanism.
D) Public goods.

Question 20

The tendency for the market to under produce public goods and overproduce private goods results from:

A) the law of diminishing returns.
B) the fact that people are reluctant to buy what they can get free.
C) public goods are not as important as private goods.
D) the law of conservation of matter and energy.

Question 21

An individual firm will not normally have any Incentive to internalize external costs because to do so would;

A) make it subject to government regulation.
B) cause its MC curve to shift to the right.
C) put it at a competitive disadvantage to rival producers.
D) not give it much public relations help with the public.

Question 22

The free-rider problem arises because those who:

A) Do not pay cannot be excluded.
B) Pay are not willing to share.
C) Demand the goods are excluded.
D) Supply the goods are greedy.

Question 23

The communal nature of a highway means that no one individual is motivated to pay for it because even those who do not pay will still benefit from using it.This is an example of:

A) The free-rider dilemma.
B) Government failure.
C) Inequity.
D) A natural monopoly.

Question 24

The problem with public goods is that those who do not pay receive:

A) None of the good.
B) The same amount of the good as those who pay.
C) Some of the good but less than those who pay.
D) More of the good than those who pay.

Question 25

When public goods are marketed like private goods:

A) Too many goods are produced.
B) Many consumers want to buy the goods.
C) Too few goods are produced.
D) Government failure results.

Question 26

The term externalities refers to:

A) The inequitable distribution of output.
B) All costs and benefits of a market activity borne by a third party.
C) The impact that imported goods have on domestic markets.
D) Free-riders who benefit but do not pay.

Question 27

Externalities are a type of market failure because:

A) Buyers do not have complete information about the product.
B) Producers have too much power.
C) Third parties bears the costs or benefits of a market activity.
D) Goods and services are not distributed fairly.

Question 28

The free-rider dilemma is associated with:

A) Private goods.
B) Public goods.
C) Externalities.
D) Market power.

Question 29

A public good is:

A) Any good produced by a unit of government.
B) Priced in the market like private goods.
C) The source of the free-rider dilemma.
D) Only consumed by the purchaser.

Question 30

Which of the following is most likely a public good?

A) A park
B) Electricity
C) A computer
D) Social Security payments

Question 31

The market produces too few public goods because:

A) The link between payment and consumption is broken.
B) They must be paid for by wealthy individuals.
C) Only the government can produce public goods.
D) The market distributes goods to those with the most money.

Question 32

Public goods:

A) Can be consumed by more than one person at the same time.
B) Include most goods and services that the market produces.
C) Lead to the pay-as-you-go problem.
D) By definition,must be produced by the government.

Question 33

The distinction between public goods and private goods is based on:

A) Government regulation.
B) Who produces the goods.
C) How much the goods cost.
D) The link between payment and consumption.

Question 34

The federal government's role in protecting the environment is justified by considerations of:

A) Externalities.
B) Equity issues.
C) Market power.
D) Public goods.

Question 35

The market under produces public goods because:

A) The government is mandated to produce public goods.
B) People do not want public goods as much as private goods.
C) People are less willing to pay for public goods than for private goods.
D) Of concerns about equity.

Question 36

If the economy relies entirely on markets to answer the WHAT question,it tends to:

A) Overproduce private goods and overproduce public goods.
B) Overproduce private goods and under produce public goods.
C) Under produce private goods and overproduce public goods.
D) Under produce private goods and under produce public goods.

Question 37

Externalities are the:

A) Domestic economic impact of foreign events.
B) Difference between social and private costs or benefits.
C) Outside costs that producers absorb.
D) Effects of government actions on the private sector.

Question 38

Since those who do not pay for the goods still get to benefit,_____ goods have _____.

A) Private;joint-consumers
B) Private;free-payers
C) Public;minimal costs
D) Public;free-riders

Question 39

The free-rider problem arises because:

A) Private goods are not available.
B) Most public goods involve illegal activity.
C) People prefer private goods.
D) Public goods can be jointly consumeD.

Question 40

Firms in Colorado dump waste into the Colorado River and as a result the people in California and Mexico cannot use the water.What type of market failure is most likely involved?

A) Inequity.
B) Public goods.
C) Externalities.
D) Market power.

Question 41

Private costs are identified as:

A) Costs borne by a third party as a result of polluting activities by producers.
B) The difference between the social and public costs of a market activity.
C) The costs of an economic activity borne directly by the immediate producer or consumer.
D) Being greater,in general,than social costs.

Question 42

If the economy relies entirely on markets to answer the WHAT question,it tends to _____ goods with external benefits and _____ goods with external costs.

A) Overproduce;overproduce
B) Overproduce;under produce
C) Under produce;overproduce
D) Under produce;under produce

Question 43

The market will:

A) Always provide the optimal mix of output.
B) Overproduce goods that yield external benefits.
C) Produce an optimal amount of goods that generate external costs.
D) Under produce goods that generate external benefits.

Question 44

The most important motivation for producers is the desire to:

A) Minimize external costs.
B) Minimize social costs above private costs.
C) Maximize economic profits.
D) Maximize social benefits and private revenues at the same time.

Question 45

Noise generated by an airport best illustrates:

A) An inequity.
B) An externality.
C) Market power.
D) Overproduction of private goods.

Question 46

If a good generates an external cost,the market will produce:

A) Some of the good but not enough.
B) Too much of the good.
C) An optimal amount of the good.
D) None of the gooD.

Question 47

If external benefits occur when a good is consumed,then the government should:

A) Tax the producers of the good.
B) Make transfer payments to those who incur the externalities.
C) Subsidize the consumption or production of the good.
D) Enforce antitrust laws against producers of the gooD.

Question 48

Whenever external benefits exist:

A) Market demand will exceed social demand.
B) Social demand will exceed market demand.
C) Market demand and social demand will be equal.
D) Market demand overstates the social benefits.

Question 49

Other things being equal,if a perfectly competitive firm is forced to switch to a more expensive,nonpolluting production process:

A) The average cost curve will shift downward.
B) The profit-maximizing level of output will be increased.
C) The marginal cost curve will shift downward.
D) Total profits will decrease.

Question 50

Social demand exceeds market demand whenever:

A) Private costs exist.
B) External costs exist.
C) Private benefits exist.
D) External benefits exist.

Question 51

Whenever external costs exist:

A) Social demand is less than market demand.
B) Market demand is less than social demand.
C) Market demand and social demand are equal.
D) Market demand understates the social benefits.

Question 52

External costs arise when:

A) Private costs are too low.
B) Private costs are greater than social costs.
C) Social costs are greater than private costs.
D) Social costs are too low.

Question 53

External costs are partly caused by:

A) the law of diminishing returns.
B) economic incentives which prompt firms to use recycled inputs.
C) increase government regulation.
D) the growth of a modern economy.

Question 54

Whenever net external benefits exist then:

A) economic profits are zero.
B) the social demand exceeds the market demand.
C) the benefits associated with a product fall short of those accruing to the market.
D) product differentiation increases the variety of products available to consumers.

Question 55

Social costs are:

A) The full resource costs of an economic activity.
B) Usually less than private costs.
C) The costs of an economic activity borne by the producer.
D) Always less than private costs.

Question 56

Social costs:

A) Are less than private costs.
B) Include private costs.
C) Are unrelated to private costs.
D) Do not affect society.

Question 57

External costs are equal to the difference between:

A) Social costs and private costs.
B) Marginal benefits and marginal costs.
C) Average benefits and average costs.
D) Marginal social benefits and marginal social costs.

Question 58

Social demand is equal to market:

A) Demand plus externalities.
B) Supply plus market demand.
C) Demand minus externalities.
D) Demand multiplied by externalities.

Question 59

If external benefits exist:

A) The market will overproduce the good.
B) Private demand will exceed social demand.
C) Market demand will understate social demand.
D) The market will generate the optimal outcome.

Question 60

Which of the following is most likely to have social demand greater than market demand?

A) Health services
B) Cars
C) Housing
D) Cigarettes

Question 61

Whenever there is a divergence between social costs and market costs,the result is:

A) Market power.
B) Market failure.
C) Maximized social welfare.
D) A higher minimum wage.

Question 62

An emission charge can be used to:

A) Reduce the difference between social and private costs.
B) Encourage firms to externalize pollution costs.
C) Encourage the equitable distribution of goods.
D) Reduce the abuses of market power.

Question 63

The costs of lead contamination have been estimated to be $1 billion for medical care of those sickened by lead,plumbing repairs,and reduced earnings of those affected by lead.This $1 billion can best be classified as:

A) The benefits of government intervention.
B) The costs of government intervention.
C) Social costs of market failure.
D) Social costs of government failure.

Question 64

A completely successful emission fee:

A) Results in zero pollution.
B) Shifts the private MC curve to the same position as the social MC curve.
C) Shifts the social MC curve to the same position as the private MC curve.
D) Does not affect the private or social MC curve.

Question 65

An emission charge is a:

A) Tax on the consumption of goods that are produced by pollution-causing firms.
B) Fee imposed on polluters based on the quantity of pollution they impose on society.
C) Tax levied on the third parties involved in externalities.
D) Fee imposed on free-riders for the use of a good or service.

Question 66

A firm that incurs an emissions charge for polluting will install more pollution control equipment only if the:

A) Equipment cost is less than the marginal cost of production.
B) Equipment will reduce pollution.
C) Emissions charge exceeds the increased cost of installing the equipment.
D) Emissions charge falls.

Question 67

In order to reduce pollution,the government can use all of the following except:

A) Income transfers.
B) Emissions charges.
C) Forced recycling.
D) Regulatory standards.

Question 68

When firms have the ability to change the market price of a good or service,the market failure involved is:

A) Market power.
B) Public goods.
C) Externalities.
D) Inequities.

Question 69

In order to maximize society's welfare,a firm should produce where:

A) Price equals social marginal revenue.
B) All pollution is entirely eliminated.
C) Marginal revenue equals price.
D) Social marginal cost equals marginal revenue.

Question 70

Which of the following is not considered to be a source of market power for a firm?

A) Externalities.
B) Patents.
C) Restrictive production agreements.
D) Economies of scale.

Question 71

Which of the following is not considered to be a source of market power for a firm?

A) A copyright.
B) Control of resources.
C) Efficiencies of large-scale production.
D) Antitrust laws.

Question 72

If a system of emission charges forces firms to internalize all external costs:

A) Relative prices of polluting activities will rise.
B) The elimination of externalities will fully compensate for any excessive market power.
C) The elimination of externalities will allow greater production of all goods and services.
D) Pollution will increase.

Question 73

Market power is considered to be a market failure because firms with market power:

A) Do not respond to consumer demand.
B) Tend to ignore external costs.
C) Produce less output than is socially optimal.
D) Charge a lower price than is socially optimal.

Question 74

The market overproduces goods that have external costs because producers:

A) Do not experience the full costs of production for these goods.
B) Must bear higher costs than society experiences for these goods.
C) Expect the government to subsidize these goods.
D) Cannot compete with the government in producing these goods.

Question 75

Which of the following is a form of government intervention designed to correct market failures?

A) Externalities.
B) Laissez faire.
C) Public goods.
D) Antitrust laws.

Question 76

Which of the following leads to market failure?

A) Regulation.
B) Market power.
C) Antitrust laws.
D) Government planning.

Question 77

When there are external costs,then the maximum social welfare occurs where marginal revenue equals:

A) Private marginal cost.
B) Social marginal cost.
C) The minimum of the average cost curve.
D) Social marginal benefit.

Question 78

The use of emission charges to control pollution can impact all of the following except a firm's:

A) Production decision.
B) Profitability.
C) Lease payment.
D) Long-run plans.

Question 79

In order to reduce pollution,the government can use all of the following except:

A) Income transfers.
B) Emissions charges.
C) Forced recycling.
D) Regulatory standards.

Question 80

Market power is a form of market failure because:

A) Competition is restricted,output is reduced,and the price is higher.
B) It involves externalities.
C) Monopolies produce more output than is optimal.
D) Administrative costs of compliance are high.