Question 1

The secondary mortgage market is the market

Accepted Answer

A)   designated specifically for prime and other low risk mortgages.
B)   designated specifically for sub-prime and other high risk mortgages.
C)   where mortgages originated by a lender are sold to another financial institution.
D)   where home purchasers borrow funds from mortgage originators. C

Question 2

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

Accepted Answer

A)   The price would be too low, and the output would be too large.
B)   The price would be too high, and the output would be too large.
C)   The price would be too low, and the output would be too small.
D)   The price would be too high, and the output would be too small. A

Question 3

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. D

Question 4

Why is a stable monetary system essential for the smooth operation of a market system? What would an unstable monetary system be like? Why isn't a barter economy just as efficient as an economy with money?

Accepted Answer

The answer of Why is a stable monetary system essential...

Question 5

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.

Question 6

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)   Relative to economic efficiency, output of the good will be too large and the price too low.
B)   Relative to economic efficiency, output of the good will be too large and the price too high.
C)   Relative to economic efficiency, output of the good will be too small and the price too low.
D)   Relative to economic efficiency, output of the good will be too small and the price too high.

Question 7

Economic efficiency indicates that

Accepted Answer

A)   if something is worth doing, you should do it as well as humanly possible.
B)   all pollution should be eliminated.
C)   automobiles should be made as safe as possible
D)   it nearly always makes sense to stop an activity well before perfection is achieved.

Question 8

Figure 5-1 
-In Figure 5-1, S1 and D illustrate the demand and supply for a product if it were produced in a normal competitive market. Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

Accepted Answer

A)   The restricted market supply would be S3, resulting in a lower price and a higher than efficient level of output.
B)   The restricted market supply would be S3, resulting in a higher price and a less than efficient level of output.
C)   The restricted market supply would be S2, resulting in a lower price and a higher than efficient level of output.
D)   The restricted market supply would be S2, resulting in a higher price and a less than efficient level of output.

Question 9

As a general rule, if pollution costs are external, firms will produce

Accepted Answer

A)   too little of a polluting good.
B)   too much of a polluting good.
C)   an optimal amount of a polluting good.
D)   cannot be determined without additional information.

Question 10

Which of the following accurately describes the relationship between mortgage default rates and the 2008 recession?

Accepted Answer

A)   The recession of 2008 triggered the initial increase in the mortgage default rate.
B)   The rise in the mortgage default rate preceded the recession and it was a major cause of the 2008 economic downturn.
C)   Both the increase in the mortgage default rate and the economic recession were the result of the stock market crash of 2008.
D)   The rise in the mortgage default rate and the economic recession were separate issues and there was no relationship between the two.

Question 11

Suppose external costs are present in a market which results in the actual market price of $24 and market output of 325 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)   The efficient outcome would be greater than 325 units.
B)   The efficient outcome would be less than 325 units.
C)   The efficient outcome would also be 325 units.
D)   The efficient price would be less than $24.

Question 12

Manny's Bar-n-Grill is next door to a franchised fast-food restaurant near a busy freeway exit. Essentially, the menus, food quality, atmosphere, and service are equal at the two restaurants. Nevertheless, the nationally franchised restaurant can attract more customers, even though its prices are higher. This situation

Accepted Answer

A)   indicates that people are irrational because it never makes sense to pay a higher price when a product is cheaper elsewhere.
B)   is one in which the national franchise provides uninformed consumers with valuable information that reduces their risk of being unsatisfied with the purchase.
C)   reflects the greater elasticity of supply for food at Manny's Bar-n-Grill relative to the nationally franchised restaurant.
D)   is inconsistent with the basic postulates that underlie the economic way of thinking.

Question 13

The strong demand for housing, rising housing prices, and a construction boom from 2000 to 2005 were a result of

Accepted Answer

A)   market forces that were eventually cut short by the stock market crash of 2008.
B)   policy changes that had positive initial effects, but negative long-term effects.
C)   tightened mortgage lending standards that reduced the risks of obtaining a home mortgage.
D)   the rising interest rates of that period, which increased the demand for housing.

Question 14

Markets may have difficulty providing the proper quantity of a public good because

Accepted Answer

A)   individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.
B)   the good generally has a very large value to consumers relative to its cost of production.
C)   the good is one that tends to benefit a large number of people.
D)   the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders.

Question 15

When external benefits 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 costs are always generated.

Question 16

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

Accepted Answer

The answer of After spending $400,000 to build your dream...

Question 17

A good is considered nonexcludable if

Accepted Answer

A)   many individuals can share in the consumption of the same unit of the good.
B)   the consumption of the good by one individual lowers the amount available for others.
C)   it is impossible or very costly to exclude nonpaying customers from receiving the good.
D)   its production is financed through tax revenue rather than market prices.

Question 18

A free-rider problem exists when a good that has the following characteristic?

Accepted Answer

A)   Rivalry in consumption.
B)   Elastic demand.
C)   Inelastic demand.
D)   Nonexcludable.

Question 19

Sam lives next to The Party Pub and its outdoor "beer garden" that features live music. An economics major, Sam considers this a positive externality. Dave, another economics student, lives next to The Party Pub too, but he considers the music a negative externality. Which student, if either, is correct? Why?

Accepted Answer

The answer of Sam lives next to The Party Pub...

Question 20

If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by

Accepted Answer

A)   raising price and reducing output.
B)   raising price and expanding output.
C)   lowering price and expanding output.
D)   raising price and leaving output unchanged.

Exam 5: Difficult Cases for the Market, and the Role of Government

The secondary mortgage market is the market

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

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

Why is a stable monetary system essential for the smooth operation of a market system? What would an unstable monetary system be like? Why isn't a barter economy just as efficient as an economy with money?

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?

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?

Economic efficiency indicates that

Figure 5-1 -In Figure 5-1, S₁ and D illustrate the demand and supply for a product if it were produced in a normal competitive market. Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

As a general rule, if pollution costs are external, firms will produce

Which of the following accurately describes the relationship between mortgage default rates and the 2008 recession?

Suppose external costs are present in a market which results in the actual market price of $24 and market output of 325 units. How does this outcome compare to the efficient, ideal equilibrium?

The strong demand for housing, rising housing prices, and a construction boom from 2000 to 2005 were a result of

Markets may have difficulty providing the proper quantity of a public good because

When external benefits are present in a market,

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

A good is considered nonexcludable if

A free-rider problem exists when a good that has the following characteristic?

If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by

Exam 5: Difficult Cases for the Market, and the Role of Government

The secondary mortgage market is the market

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

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

Why is a stable monetary system essential for the smooth operation of a market system? What would an unstable monetary system be like? Why isn't a barter economy just as efficient as an economy with money?

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?

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?

Economic efficiency indicates that

Figure 5-1 -In Figure 5-1, S1 and D illustrate the demand and supply for a product if it were produced in a normal competitive market. Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?

As a general rule, if pollution costs are external, firms will produce

Which of the following accurately describes the relationship between mortgage default rates and the 2008 recession?

Suppose external costs are present in a market which results in the actual market price of $24 and market output of 325 units. How does this outcome compare to the efficient, ideal equilibrium?

The strong demand for housing, rising housing prices, and a construction boom from 2000 to 2005 were a result of

Markets may have difficulty providing the proper quantity of a public good because

When external benefits are present in a market,

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

A good is considered nonexcludable if

A free-rider problem exists when a good that has the following characteristic?

If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by

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?

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?

Figure 5-1 -In Figure 5-1, S₁ and D illustrate the demand and supply for a product if it were produced in a normal competitive market. Which of the following would be true if the firms in the industry were instead able to get government licensing restrictions to limit competition in the market?