Question 1

Is education a public good? Focus on whether it meets the two criteria for being a public good.

Accepted Answer

First, consider the nonrivalry-in-consum

Question 2

Sellers have a strong incentive to lobby government for legal restrictions that would reduce the intensity of competition in their market because

Accepted Answer

A) the firms wish to be more efficient than competition will permit. 
B) competition tends to result in lower prices and lower profits. 
C) legal restrictions that lessen competition in a market generally benefit consumers. 
D) the firms fear that intense competition will lead to higher profits that will attract additional rivals into the market. 
A) the firms wish to be more efficient than competition will permit. 
B) competition tends to result in lower prices and lower profits. 
C) legal restrictions that lessen competition in a market generally benefit consumers. 
D) the firms fear that intense competition will lead to higher profits that will attract additional rivals into the market.

Question 3

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A) The efficient outcome would be greater than 150 units. 
B) The efficient outcome would be less than 150 units. 
C) The efficient outcome would also be 150 units. 
D) The efficient price would be less than $14. 
A) The efficient outcome would be greater than 150 units. 
B) The efficient outcome would be less than 150 units. 
C) The efficient outcome would also be 150 units. 
D) The efficient price would be less than $14.

Question 4

If consumption of education creates an external benefit, then in order to increase efficiency relative to the outcome determined by private decisions,

Accepted Answer

A) more education must be produced. 
B) the same amount of education must be produced, and the price should be lower. 
C) less education must be produced, and the price should be higher. 
D) less education must be produced, and the price should be lower. 
E) less education must be produced at the same price. 
A) more education must be produced. 
B) the same amount of education must be produced, and the price should be lower. 
C) less education must be produced, and the price should be higher. 
D) less education must be produced, and the price should be lower. 
E) less education must be produced at the same price.

Question 5

If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,

Accepted Answer

A) not enough of the product is being produced. 
B) the price charged for the good is too high. 
C) the good produces a positive externality. 
D) the good produces a negative externality. 
E) the government should produce the good. 
A) not enough of the product is being produced. 
B) the price charged for the good is too high. 
C) the good produces a positive externality. 
D) the good produces a negative externality. 
E) the government should produce the good.

Question 6

Markets provide the efficient amount of a good or service when

Accepted Answer

A) externalities are present. 
B) monopoly exists. 
C) public goods are present. 
D) competition is present and externalities and public goods are absent. 
A) externalities are present. 
B) monopoly exists. 
C) public goods are present. 
D) competition is present and externalities and public goods are absent.

Question 7

When a good is nonexcludable,

Accepted Answer

A) it is impossible or very costly to exclude nonpaying customers from receiving the good. 
B) individuals will have an incentive to become free riders. 
C) it will be difficult for a private firm producing the good to generate revenue sufficient to cover the cost of production. 
D) all of the above are true. 
A) it is impossible or very costly to exclude nonpaying customers from receiving the good. 
B) individuals will have an incentive to become free riders. 
C) it will be difficult for a private firm producing the good to generate revenue sufficient to cover the cost of production. 
D) all of the above are true.

Question 8

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. 
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 9

Which of the following provides an example of an externality?

Accepted Answer

A) a paper pulp mill releasing pollution into the atmosphere 
B) persons driving during a busy rush hour 
C) a drunk driver operating a car on a public highway 
D) all of the above 
A) a paper pulp mill releasing pollution into the atmosphere 
B) persons driving during a busy rush hour 
C) a drunk driver operating a car on a public highway 
D) all of the above

Question 10

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. 
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.

Question 11

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

Accepted Answer

The text defines economic efficiency con

Question 12

Economic efficiency requires that

Accepted Answer

A) individuals produce at their maximum level. 
B) only long-lasting, high-quality products be produced without regard to cost. 
C) income be distributed equally among consumers. 
D) all economic activity generating more benefits than costs be undertaken. 
A) individuals produce at their maximum level. 
B) only long-lasting, high-quality products be produced without regard to cost. 
C) income be distributed equally among consumers. 
D) all economic activity generating more benefits than costs be undertaken.

Question 13

A sound legal system that protects individuals and their property,

Accepted Answer

A) cannot be expected until markets are already working well. 
B) is vital to the smooth operation of markets. 
C) is normally found in most economies of the world. 
D) is helpful for the rich, but harmful to the economic well-being of others. 
A) cannot be expected until markets are already working well. 
B) is vital to the smooth operation of markets. 
C) is normally found in most economies of the world. 
D) is helpful for the rich, but harmful to the economic well-being of others.

Question 14

When competitive forces in an industry are weak,

Accepted Answer

A) the absence of competition generally leads to overproduction. 
B) prices may exceed the amount consumers are willing to pay. 
C) the operational efficiency of private firms will be enhanced. 
D) higher prices and less than optimal production may result. 
A) the absence of competition generally leads to overproduction. 
B) prices may exceed the amount consumers are willing to pay. 
C) the operational efficiency of private firms will be enhanced. 
D) higher prices and less than optimal production may result.

Question 15

Which of the following best explains why making air travel completely safe is not efficient?

Accepted Answer

A) After some level of safety is reached, making airplanes even safer is not worth the opportunity cost that would be incurred. 
B) Because one can't put a price on human life, airplane safety generally doesn't matter economically. 
C) The benefit from additional airplane safety will generally rise as airplanes are made safer, more than offsetting the opportunity cost involved. 
D) The question is misleading--making airplanes safer is always efficient. 
A) After some level of safety is reached, making airplanes even safer is not worth the opportunity cost that would be incurred. 
B) Because one can't put a price on human life, airplane safety generally doesn't matter economically. 
C) The benefit from additional airplane safety will generally rise as airplanes are made safer, more than offsetting the opportunity cost involved. 
D) The question is misleading--making airplanes safer is always efficient.

Question 16

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

Accepted Answer

A) pollution is not a serious problem in this industry. 
B) the consumers of steel are unwilling to bear the costs of pollution generated from steel production. 
C) pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution. 
D) pollution creates an external benefit rather than an external cost in this case. 
A) pollution is not a serious problem in this industry. 
B) the consumers of steel are unwilling to bear the costs of pollution generated from steel production. 
C) pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution. 
D) pollution creates an external benefit rather than an external cost in this case.

Question 17

When production of a good provides external benefits, there will be

Accepted Answer

A) too few resources devoted to its production. 
B) too many resources devoted to its production. 
C) the optimal amount of resources devoted to its production. 
D) abnormally high profits earned by producers of the good. 
A) too few resources devoted to its production. 
B) too many resources devoted to its production. 
C) the optimal amount of resources devoted to its production. 
D) abnormally high profits earned by producers of the good.

Question 18

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

Accepted Answer

A) too much of both goods. 
B) too little of both goods. 
C) too much of the good that generates external benefits and too little of the good that generates external costs. 
D) too little of the good that generates external benefits and too much of the good that generates external costs. 
A) too much of both goods. 
B) too little of both goods. 
C) too much of the good that generates external benefits and too little of the good that generates external costs. 
D) too little of the good that generates external benefits and too much of the good that generates external costs.

Question 19

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

Question 20

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. 
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.

Is education a public good? Focus on whether it meets the two criteria for being a public good.

Sellers have a strong incentive to lobby government for legal restrictions that would reduce the intensity of competition in their market because

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

If consumption of education creates an external benefit, then in order to increase efficiency relative to the outcome determined by private decisions,

If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,

Markets provide the efficient amount of a good or service when

When a good is nonexcludable,

A good is considered to be a public good if it

Which of the following provides an example of an externality?

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

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

Economic efficiency requires that

A sound legal system that protects individuals and their property,

When competitive forces in an industry are weak,

Which of the following best explains why making air travel completely safe is not efficient?

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

When production of a good provides external benefits, there will be

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

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

A good is considered nonexcludable if

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

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

Is education a public good? Focus on whether it meets the two criteria for being a public good.

Sellers have a strong incentive to lobby government for legal restrictions that would reduce the intensity of competition in their market because

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

If consumption of education creates an external benefit, then in order to increase efficiency relative to the outcome determined by private decisions,

If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,

Markets provide the efficient amount of a good or service when

When a good is nonexcludable,

A good is considered to be a public good if it

Which of the following provides an example of an externality?

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

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

Economic efficiency requires that

A sound legal system that protects individuals and their property,

When competitive forces in an industry are weak,

Which of the following best explains why making air travel completely safe is not efficient?

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

When production of a good provides external benefits, there will be

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

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

A good is considered nonexcludable if

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters