Question 1

The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of

Accepted Answer

A) economic efficiency. 
B) public welfare maximization. 
C) marginal comparative advantage. 
D) monetary construction of values. 
A) economic efficiency. 
B) public welfare maximization. 
C) marginal comparative advantage. 
D) monetary construction of values.

Question 2

A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a

Accepted Answer

A) public good. 
B) joint good. 
C) excludable good. 
D) national good. 
A) public good. 
B) joint good. 
C) excludable good. 
D) national good.

Question 3

Many external costs occur because

Accepted Answer

A) people do not pay the true cost of using a resource. 
B) people do not pay the private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the true cost of using a resource. 
A) people do not pay the true cost of using a resource. 
B) people do not pay the private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the true cost of using a resource.

Question 4

Sellers will tend to be most concerned with customer satisfaction when

Accepted Answer

A) it is difficult for the customer to evaluate product quality. 
B) they depend on repeat customers for most of their business. 
C) they sell primarily to tourists. 
D) they are a monopoly protected from competition by government licensing. 
A) it is difficult for the customer to evaluate product quality. 
B) they depend on repeat customers for most of their business. 
C) they sell primarily to tourists. 
D) they are a monopoly protected from competition by government licensing.

Question 5

Because the benefits derived from an activity decline as it is expanded, it is generally

Accepted Answer

A) wise to undertake all actions that generate benefits. 
B) efficient to stop well before perfection is achieved. 
C) best to continue as long as it is possible to derive some additional benefits. 
D) unwise to engage in activities for which the benefits decline as you do more of it. 
A) wise to undertake all actions that generate benefits. 
B) efficient to stop well before perfection is achieved. 
C) best to continue as long as it is possible to derive some additional benefits. 
D) unwise to engage in activities for which the benefits decline as you do more of it.

Question 6

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. 
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 7

As more and more resources are dedicated to an activity

Accepted Answer

A) the benefits will increase proportionately. 
B) the benefits will become smaller and smaller while the costs will rise. 
C) the demand for that activity will increase. 
D) the costs will be offset by the benefits received from the activity. 
A) the benefits will increase proportionately. 
B) the benefits will become smaller and smaller while the costs will rise. 
C) the demand for that activity will increase. 
D) the costs will be offset by the benefits received from the activity.

Question 8

If production of a good creates external benefits, a competitive market will likely produce

Accepted Answer

A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is efficient. 
D) more output than is efficient. 
A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is efficient. 
D) more output than is efficient.

Question 9

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

Accepted Answer

A) common good problem. 
B) free rider problem. 
C) onlooker problem. 
D) deadweight loss problem. 
A) common good problem. 
B) free rider problem. 
C) onlooker problem. 
D) deadweight loss problem.

Question 10

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. 
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 11

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

Accepted Answer

A) firm's cost of producing electricity will be higher than the community's true opportunity cost. 
B) firm will tend to produce too little electricity from the viewpoint of economic efficiency. 
C) community generally receives an external benefit from the production of electricity. 
D) firm's cost of producing electricity will be lower than the community's true opportunity cost. 
A) firm's cost of producing electricity will be higher than the community's true opportunity cost. 
B) firm will tend to produce too little electricity from the viewpoint of economic efficiency. 
C) community generally receives an external benefit from the production of electricity. 
D) firm's cost of producing electricity will be lower than the community's true opportunity cost.

Question 12

Figure 5-4  
-Refer to Figure 5-4. The inefficient equilibrium 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. 
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 13

When externalities are present,

Accepted Answer

A) suppliers will refuse to produce desired goods and services. 
B) this indicates that property rights are well-defined and enforced. 
C) competitive market outcomes may be inconsistent with ideal economic efficiency. 
D) competitive markets will generally achieve ideal economic efficiency. 
A) suppliers will refuse to produce desired goods and services. 
B) this indicates that property rights are well-defined and enforced. 
C) competitive market outcomes may be inconsistent with ideal economic efficiency. 
D) competitive markets will generally achieve ideal economic efficiency.

Question 14

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. 
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 15

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

Accepted Answer

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

Question 16

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

Accepted Answer

A) produce the economically efficient outcome. 
B) result in a market price that is higher than the efficient one. 
C) register a price that is lower than the efficient one. 
D) result in too little of the good being produced compared to the ideal efficient outcome. 
A) produce the economically efficient outcome. 
B) result in a market price that is higher than the efficient one. 
C) register a price that is lower than the efficient one. 
D) result in too little of the good being produced compared to the ideal efficient outcome.

Question 17

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

Accepted Answer

A) After some level of safety is reached, making cars even safer will not be worth the additional cost. 
B) Because human life is priceless, automobile safety generally doesn't matter. 
C) The benefit from additional automobile safety will generally rise as automobiles are made safer, more than offsetting the opportunity cost involved. 
D) Economic efficiency suggests that automobiles should be made as safe as humanly possible. 
A) After some level of safety is reached, making cars even safer will not be worth the additional cost. 
B) Because human life is priceless, automobile safety generally doesn't matter. 
C) The benefit from additional automobile safety will generally rise as automobiles are made safer, more than offsetting the opportunity cost involved. 
D) Economic efficiency suggests that automobiles should be made as safe as humanly possible.

Question 18

In economics, a free rider is the term used for a person who

Accepted Answer

A) receives the benefit of a good without contributing to its costs of production. 
B) purchases an item during a "buy one, get one free" sale. 
C) lives in a town in which the city provides free bus service. 
D) pays for exactly what they receive. 
A) receives the benefit of a good without contributing to its costs of production. 
B) purchases an item during a "buy one, get one free" sale. 
C) lives in a town in which the city provides free bus service. 
D) pays for exactly what they receive.

Question 19

Competitive markets generally give consumers and producers correct incentives when

Accepted Answer

A) externalities are present in the market. 
B) property rights are well-defined and enforced. 
C) the good being produced and consumed is a pure public good. 
D) there is a substantial lack of information on the part of either buyers or sellers. 
A) externalities are present in the market. 
B) property rights are well-defined and enforced. 
C) the good being produced and consumed is a pure public good. 
D) there is a substantial lack of information on the part of either buyers or sellers.

Question 20

When production of a good generates external costs, the

Accepted Answer

A) demand curve for the good will overstate the true social benefits from consumption of the good. 
B) demand curve for the good will understate the true social benefits from consumption of the good. 
C) supply curve for the good will overstate the true social cost of producing the good. 
D) supply curve for the good will understate the true social cost of producing the good. 
A) demand curve for the good will overstate the true social benefits from consumption of the good. 
B) demand curve for the good will understate the true social benefits from consumption of the good. 
C) supply curve for the good will overstate the true social cost of producing the good. 
D) supply curve for the good will understate the true social cost of producing the good.

The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of

A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a

Many external costs occur because

Sellers will tend to be most concerned with customer satisfaction when

Because the benefits derived from an activity decline as it is expanded, it is generally

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 more and more resources are dedicated to an activity

If production of a good creates external benefits, a competitive market will likely produce

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

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

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

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

When externalities are present,

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

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

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

In economics, a free rider is the term used for a person who

Competitive markets generally give consumers and producers correct incentives when

When production of a good generates external costs, the

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

The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of

A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a

Many external costs occur because

Sellers will tend to be most concerned with customer satisfaction when

Because the benefits derived from an activity decline as it is expanded, it is generally

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 more and more resources are dedicated to an activity

If production of a good creates external benefits, a competitive market will likely produce

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

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

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

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

When externalities are present,

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

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

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

In economics, a free rider is the term used for a person who

Competitive markets generally give consumers and producers correct incentives when

When production of a good generates external costs, the

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

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?