Question 1

Basic research is more likely to be funded by the federal than by state and local government because basic research:

Accepted Answer

A) is usually conducted by oligopoly, the market structure that is most conducive to preliminary research. 
B) has negative externalities that are passed on to those who live outside the state. 
C) is largely a public good; benefits flow to the whole world, not just the state. 
D) has informational problems that cause adverse selection. 
A) is usually conducted by oligopoly, the market structure that is most conducive to preliminary research. 
B) has negative externalities that are passed on to those who live outside the state. 
C) is largely a public good; benefits flow to the whole world, not just the state. 
D) has informational problems that cause adverse selection.

Question 2

Public television periodically runs pledge drives to raise money. Only a small percentage of the people who benefit from public television are willing to pay. This low percentage of people willing to contribute illustrates a difficulty with:

Accepted Answer

A) government regulation. 
B) voluntary programs. 
C) tax incentive policies. 
D) market incentive programs. 
A) government regulation. 
B) voluntary programs. 
C) tax incentive policies. 
D) market incentive programs.

Question 3

Economists tend to believe that market incentive plans are generally more efficient than direct regulation.

Accepted Answer

A) True 
 B)False

Question 4

Real-world markets:

Accepted Answer

A) often involve deception, cheating, and inaccurate information. 
B) ensure that sellers will always be honest and provide accurate information because those who are dishonest or provide inaccurate information go out of business. 
C) can operate efficiently only if government takes steps to correct informational problems. 
D) provide no mechanism for solving informational problems. 
A) often involve deception, cheating, and inaccurate information. 
B) ensure that sellers will always be honest and provide accurate information because those who are dishonest or provide inaccurate information go out of business. 
C) can operate efficiently only if government takes steps to correct informational problems. 
D) provide no mechanism for solving informational problems.

Question 5

The reason the Federal Trade Commission regulates advertising to prevent false and misleading claims is:

Accepted Answer

A) that firms that make false and misleading claims would earn lower profit, resulting in many firms being forced to shut down and many workers losing their jobs. 
B) to create a market for information. 
C) to prevent a market failure caused by inaccurate information. 
D) to eliminate persuasive advertising. 
A) that firms that make false and misleading claims would earn lower profit, resulting in many firms being forced to shut down and many workers losing their jobs. 
B) to create a market for information. 
C) to prevent a market failure caused by inaccurate information. 
D) to eliminate persuasive advertising.

Question 6

Do economists tend to favor a system in which power plants buy and sell the right to pollute in the form of emission credits?

Accepted Answer

A) No; these programs are ineffective because they encourage major polluters to free ride on the efforts of others. 
B) No; it is possible for some firms to do nothing if they simply buy enough credits. 
C) Yes; they encourage all firms to cut pollution by the same percentage. 
D) Yes; they believe that such a proposal would achieve a level of pollution reduction with the lowest cost to society. 
A) No; these programs are ineffective because they encourage major polluters to free ride on the efforts of others. 
B) No; it is possible for some firms to do nothing if they simply buy enough credits. 
C) Yes; they encourage all firms to cut pollution by the same percentage. 
D) Yes; they believe that such a proposal would achieve a level of pollution reduction with the lowest cost to society.

Question 7

A market for information is more likely to develop even in the absence of government regulation of information as long as the marginal:

Accepted Answer

A) cost of information is zero. 
B) benefit of information is zero. 
C) cost of information exceeds the marginal benefit. 
D) benefit of information exceeds the marginal cost. 
A) cost of information is zero. 
B) benefit of information is zero. 
C) cost of information exceeds the marginal benefit. 
D) benefit of information exceeds the marginal cost.

Question 8

A firm with a highly inelastic demand for coal will:

Accepted Answer

A) cut consumption more than a firm with a highly elastic demand when price goes up. 
B) cut consumption less than a firm with a highly elastic demand when price goes up. 
C) refuse to cut consumption for any reason. 
D) stop using coal entirely if a tax is imposed. 
A) cut consumption more than a firm with a highly elastic demand when price goes up. 
B) cut consumption less than a firm with a highly elastic demand when price goes up. 
C) refuse to cut consumption for any reason. 
D) stop using coal entirely if a tax is imposed.

Question 9

Which of the following is not a question raised by critics of medical licensure?

Accepted Answer

A) Why, if licensed medical treatment is so great, do we even need formal restrictions to keep other types of medicine from being practiced? 
B) Whom do these restrictions benefit: the general public or the doctors who practice mainstream medicine? 
C) What have the long-run effects of licensure been? 
D) Why does the public need to have accurate information about a doctor's competency? 
A) Why, if licensed medical treatment is so great, do we even need formal restrictions to keep other types of medicine from being practiced? 
B) Whom do these restrictions benefit: the general public or the doctors who practice mainstream medicine? 
C) What have the long-run effects of licensure been? 
D) Why does the public need to have accurate information about a doctor's competency?

Question 10

In economic terminology, a free rider is someone who:

Accepted Answer

A) does not pay for his or her own consumption of a public good. 
B) chooses not to consume a public good. 
C) is earning economic profit. 
D) raises his or her prices because all other prices are rising. 
A) does not pay for his or her own consumption of a public good. 
B) chooses not to consume a public good. 
C) is earning economic profit. 
D) raises his or her prices because all other prices are rising.

Question 11

If a consumer is willing to pay $5,000 for a used car that is a free of mechanical problems and $1,000 for a used car that will require extensive repairs, the consumer will offer:

Accepted Answer

A) $1,000 for a used car if the probability that it is free of mechanical problems is 50 percent. 
B) $3,000 for a used car if the probability that it is free of mechanical problems is 50 percent. 
C) $5,000 for a used car if the probability that it is free of mechanical problems is 50 percent. 
D) $6,000 for a used car if the probability that it is free of mechanical problems is 50 percent. 
A) $1,000 for a used car if the probability that it is free of mechanical problems is 50 percent. 
B) $3,000 for a used car if the probability that it is free of mechanical problems is 50 percent. 
C) $5,000 for a used car if the probability that it is free of mechanical problems is 50 percent. 
D) $6,000 for a used car if the probability that it is free of mechanical problems is 50 percent.

Question 12

Big Construction Company wants to create a new housing development near Big City.Animal rights activists are adamantly opposed to the housing development since the proposed site would destroy the natural habitat of a rare spotted duck family.How would an economist analyze this situation and what would he suggest to rectify it? Illustrate your answer with a supply and demand diagram.What would be the most difficult part of implementing your plan?

Accepted Answer

An economist would point out that an ext

Question 13

A lawyer who drives a beat-up car and wears frumpy clothes may have a hard time getting clients. Potential clients may conclude from his appearance that he is poor, and if he is poor, he probably is not very good. If this is true for a lawyer, dressing in expensive and stylish clothing is a way of:

Accepted Answer

A) internalizing externalities. 
B) changing a nonrival good into a rival good. 
C) screening. 
D) signaling quality. 
A) internalizing externalities. 
B) changing a nonrival good into a rival good. 
C) screening. 
D) signaling quality.

Question 14

Under the Texas law known as "rule of capture," land owners "get to pump as much of the water under it as they want. . .. 'This means whoever sucks it out first, it's their water'-even if that means there isn't enough left for others." Under this law, pumping large amounts of water:

Accepted Answer

A) imposes a negative externality on others. 
B) imposes a positive externality on others. 
C) imposes the free rider effect on others. 
D) is a private decision with no effects on others. 
A) imposes a negative externality on others. 
B) imposes a positive externality on others. 
C) imposes the free rider effect on others. 
D) is a private decision with no effects on others.

Question 15

The existence of negative externalities:

Accepted Answer

A) prevents the market from working efficiently. 
B) prevents government from intervening in the marketplace. 
C) causes the market to work more effectively. 
D) necessarily means that government must intervene in the marketplace. 
A) prevents the market from working efficiently. 
B) prevents government from intervening in the marketplace. 
C) causes the market to work more effectively. 
D) necessarily means that government must intervene in the marketplace.

Question 16

What is an optimal policy? If a policy is not optimal,what does it imply in terms of utilization of resources?

Accepted Answer

An optimal policy is a policy in which t

Question 17

The diagram below illustrates a negative externality.S is the marginal private cost and S1 is the marginal social cost.   Referencing this diagram,describe how a government can use direct regulation to eliminate the problem caused by the negative externality.What is a potential problem with this approach?

Accepted Answer

The problem caused by the marginal socia

Question 18

Refer to the graph shown. The free market equilibrium in the graph is at a price and quantity of:

Accepted Answer

A) $5.00 and 2,600 units. 
B) $3.50 and 2,000 units. 
C) $2.50 and 2,600 units. 
D) $3.50 and 3,100 units. 
A) $5.00 and 2,600 units. 
B) $3.50 and 2,000 units. 
C) $2.50 and 2,600 units. 
D) $3.50 and 3,100 units.

Question 19

Government failure occurs when:

Accepted Answer

A) government fails to implement policy designed to correct a market failure. 
B) government intervention in the market to improve a market failure succeeds. 
C) government intervention in the market to correct a market failure makes things worse. 
D) there is no need for government intervention into the market because there is no market failure. 
A) government fails to implement policy designed to correct a market failure. 
B) government intervention in the market to improve a market failure succeeds. 
C) government intervention in the market to correct a market failure makes things worse. 
D) there is no need for government intervention into the market because there is no market failure.

Question 20

The cost of running an electrical utility includes costs for fuel, labor, and capital. In addition, there are sometimes costs associated with pollution from the utility, such an increased health care costs for people living near the utility. To an economist, the costs associated with the pollution resulting from additional electricity are:

Accepted Answer

A) marginal private costs. 
B) marginal social costs. 
C) the difference between marginal social costs and marginal private costs. 
D) the sum of marginal social costs and marginal private costs. 
A) marginal private costs. 
B) marginal social costs. 
C) the difference between marginal social costs and marginal private costs. 
D) the sum of marginal social costs and marginal private costs.

Exam 8: Market Failure Versus Government Failure

Basic research is more likely to be funded by the federal than by state and local government because basic research:

Public television periodically runs pledge drives to raise money. Only a small percentage of the people who benefit from public television are willing to pay. This low percentage of people willing to contribute illustrates a difficulty with:

Economists tend to believe that market incentive plans are generally more efficient than direct regulation.

Real-world markets:

The reason the Federal Trade Commission regulates advertising to prevent false and misleading claims is:

Do economists tend to favor a system in which power plants buy and sell the right to pollute in the form of emission credits?

A market for information is more likely to develop even in the absence of government regulation of information as long as the marginal:

A firm with a highly inelastic demand for coal will:

Which of the following is not a question raised by critics of medical licensure?

In economic terminology, a free rider is someone who:

If a consumer is willing to pay $5,000 for a used car that is a free of mechanical problems and $1,000 for a used car that will require extensive repairs, the consumer will offer:

A lawyer who drives a beat-up car and wears frumpy clothes may have a hard time getting clients. Potential clients may conclude from his appearance that he is poor, and if he is poor, he probably is not very good. If this is true for a lawyer, dressing in expensive and stylish clothing is a way of:

Under the Texas law known as "rule of capture," land owners "get to pump as much of the water under it as they want. . .. 'This means whoever sucks it out first, it's their water'-even if that means there isn't enough left for others." Under this law, pumping large amounts of water:

The existence of negative externalities:

What is an optimal policy? If a policy is not optimal,what does it imply in terms of utilization of resources?

Refer to the graph shown. The free market equilibrium in the graph is at a price and quantity of:

Government failure occurs when:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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