Question 1

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

Accepted Answer

A) The pollution will be created by those least willing and able to pay the damages. 
B) The pollution will be created by those most willing and able to pay for the right to pollute. 
C) The funds collected by the government will be enough to compensate any individuals harmed by the pollution. 
D) Pollution will increase from zero to 1,000 units per day. 
E) There will be no incentive for polluters to try to sneak emissions past government monitoring devices.

Question 2

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

Accepted Answer

A) output will be lower and price higher. 
B) output will be higher and price lower. 
C) both output and price will be higher. 
D) both output and price will be lower.

Question 3

People who receive the benefit of a good without contributing to its costs of production are called

Accepted Answer

A) contributors in kind. 
B) free riders. 
C) frequent flyers. 
D) cost maximizers.

Question 4

Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?

Accepted Answer

A) When Noelle cleaned her apartment, she didn't clean under the refrigerator. 
B) Nick is so disorganized that he spends 15 minutes every day trying to find his glasses. 
C) The senator stated, "No price is too high to save a life!" 
D) Ford's new policy is to make every car completely safe.

Question 5

Which of the following is the best example of a public good?

Accepted Answer

A) a government-run health care system 
B) the Walt Disney World amusement park 
C) national defense 
D) long-distance telephone service

Question 6

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

Accepted Answer

A) result in a price that is lower than the efficient price for both goods. 
B) result in a price that is higher than the efficient price for both goods. 
C) result in a price that is lower than the efficient price for the good with an external benefit and a price that is higher than the efficient price for the good with an external cost. 
D) result in a price that is higher than the efficient price for the good with an external benefit and a price that is lower than the efficient price for the good with an external cost.

Question 7

Which of the following would be a protective function of government?

Accepted Answer

A) providing national defense 
B) welfare programs and income redistribution 
C) mail delivery 
D) all of the above

Question 8

Which of the following would be a protective function of government?

Accepted Answer

A) legal enforcement of contracts and rules against fraud 
B) undertaking income redistribution 
C) providing national parks 
D) providing a stable monetary system

Question 9

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A) The efficient price would be higher than $62. 
B) The efficient price would be lower than $62. 
C) The efficient price would also be $62. 
D) The efficient output would be less than 3,000 units.

Question 10

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

Accepted Answer

A) result in output that is lower than the efficient output for both goods. 
B) result in output that is higher than the efficient output for both goods. 
C) result in output that is lower than the efficient output for the good with an external benefit and output that is higher than the efficient output for the good with an external cost. 
D) result in output that is higher than the efficient output for the good with an external benefit and output that is lower than the efficient output for the good with an external cost.

Question 11

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 12

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A) The efficient price would be higher than $84. 
B) The efficient price would be lower than $84. 
C) The efficient price would also be $84. 
D) The efficient output would be greater than 320 units.

Question 13

Suppose external benefits are present in a market which results in the actual market price of $34 and market output of 126 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A) The efficient outcome would be greater than 126 units. 
B) The efficient outcome would be less than 126 units. 
C) The efficient outcome would also be 126 units. 
D) The efficient price would be less than $34.

Question 14

Figure 5-4
 
-Refer to Figure 5-4. The efficient price and quantity are

Accepted Answer

A) $1.90 and 38 units, respectively. 
B) $1.80 and 35 units, respectively. 
C) $1.60 and 42 units, respectively. 
D) $1.35 and 58 units, respectively.

Question 15

In which of the following markets are information problems likely to be most serious?

Accepted Answer

A) used cars 
B) groceries 
C) toothpaste 
D) compact discs

Question 16

A good is considered to be a public good if it

Accepted Answer

A) is a good produced by the government sector. 
B) is both nonrival-in-consumption and nonexcludable. 
C) benefits only a small group of consumers but is very costly to produce. 
D) is a good whose production is financed by tax revenue.

Question 17

The maintenance of a framework of security and order through the establishment and enforcement of rules under which people can interact peacefully with one another and be secure in their person and property is known as the

Accepted Answer

A) productive function of government. 
B) protective function of government. 
C) transfer function of government. 
D) illegitimate function of government.

Question 18

Does economic efficiency indicate that all pollution should be eliminated?

Accepted Answer

A) Yes, pollution is bad; it harms both people and the environment, and therefore, it should be eliminated. 
B) No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost. 
C) No, pollution does not harm most people, and therefore, we should not worry about it. 
D) Partially, pollution caused by business firms should be eliminated, but people should still be allowed to pollute if they want.

Question 19

A public good is defined as a good with which of the following characteristics?

Accepted Answer

A) non-rivalry, rivalry 
B) excludability, rivalry 
C) non-rivalry, non-excludability 
D) rivalry, non-excludability

Question 20

A good that is both nonexcludable and nonrival-in-consumption is called a

Accepted Answer

A) common good. 
B) external good. 
C) public good. 
D) private good.

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

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

People who receive the benefit of a good without contributing to its costs of production are called

Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?

Which of the following is the best example of a public good?

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

Which of the following would be a protective function of government?

Which of the following would be a protective function of government?

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units. How does this outcome compare to the efficient, ideal equilibrium?

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

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?

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

Suppose external benefits are present in a market which results in the actual market price of $34 and market output of 126 units. How does this outcome compare to the efficient, ideal equilibrium?

Figure 5-4 -Refer to Figure 5-4. The efficient price and quantity are

In which of the following markets are information problems likely to be most serious?

A good is considered to be a public good if it

The maintenance of a framework of security and order through the establishment and enforcement of rules under which people can interact peacefully with one another and be secure in their person and property is known as the

Does economic efficiency indicate that all pollution should be eliminated?

A public good is defined as a good with which of the following characteristics?

A good that is both nonexcludable and nonrival-in-consumption is called a