Question 1

An externality

Accepted Answer

A) is always either a negative or positive externality. 
B) could be either a negative or positive externality. 
C) can be a negative externality for one group of people and a positive externality for another. 
D) creates market failures only when they are negative. 
A) is always either a negative or positive externality. 
B) could be either a negative or positive externality. 
C) can be a negative externality for one group of people and a positive externality for another. 
D) creates market failures only when they are negative.

Question 2

The total demand for a public good is found by

Accepted Answer

A) horizontally summing all individual demands. 
B) vertically summing all individual demands. 
C) finding the demand from the median voter. 
D) dividing the marginal cost of the good by the number of voters. 
A) horizontally summing all individual demands. 
B) vertically summing all individual demands. 
C) finding the demand from the median voter. 
D) dividing the marginal cost of the good by the number of voters.

Question 3

Mergers are closely scrutinized by the government because

Accepted Answer

A) they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). 
B) they always result in a more efficient market. 
C) they always result in lower joint profits of the firms involved. 
D) all mergers are undesirable. 
A) they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). 
B) they always result in a more efficient market. 
C) they always result in lower joint profits of the firms involved. 
D) all mergers are undesirable.

Question 4

-The above figure shows the market for steel ingots. An externality can be seen because

Accepted Answer

A) the social marginal cost exceeds the private marginal cost. 
B) the private marginal cost exceeds the social marginal cost. 
C) the optimal quantity of steel is zero. 
D) not enough steel gets produced by the competitive market. 
A) the social marginal cost exceeds the private marginal cost. 
B) the private marginal cost exceeds the social marginal cost. 
C) the optimal quantity of steel is zero. 
D) not enough steel gets produced by the competitive market.

Question 5

To alleviate the commons problem, the government can

Accepted Answer

A) apply a tax. 
B) set a quota. 
C) assign property rights. 
D) All of the above. 
A) apply a tax. 
B) set a quota. 
C) assign property rights. 
D) All of the above.

Question 6

Cartels persist despite laws against them because

Accepted Answer

A) international cartels are legal. 
B) firms believe they can avoid detection and the penalties are small anyway. 
C) firms can coordinate without explicitly colluding. 
D) All of the above. 
A) international cartels are legal. 
B) firms believe they can avoid detection and the penalties are small anyway. 
C) firms can coordinate without explicitly colluding. 
D) All of the above.

Question 7

If a monopolist's production process has economies of scale and average cost exceeds marginal cost, then

Accepted Answer

A) the government could set price equal to marginal cost and subsidize the monopoly. 
B) the government should not offer a subsidy, since the monopoly can make a profit setting price equal to marginal costs. 
C) if the government sets price equal to average cost, the monopoly will go out of business. 
D) the government cannot regulate price. 
A) the government could set price equal to marginal cost and subsidize the monopoly. 
B) the government should not offer a subsidy, since the monopoly can make a profit setting price equal to marginal costs. 
C) if the government sets price equal to average cost, the monopoly will go out of business. 
D) the government cannot regulate price.

Question 8

Students who talk loudly with each other in class

Accepted Answer

A) create an externality because other students cannot follow the lecture as well. 
B) disturb nobody. 
C) benefit the other students in class because they engage in conversation. 
D) only create an externality if they talk about something unrelated to class. 
A) create an externality because other students cannot follow the lecture as well. 
B) disturb nobody. 
C) benefit the other students in class because they engage in conversation. 
D) only create an externality if they talk about something unrelated to class.

Question 9

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is

Accepted Answer

A) 0 units. 
B) 50 units. 
C) 100 units. 
D) produced if the market were competitive. 
A) 0 units. 
B) 50 units. 
C) 100 units. 
D) produced if the market were competitive.

Question 10

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is

Accepted Answer

A) a. 
B) b. 
C) c. 
D) zero. 
A) a. 
B) b. 
C) c. 
D) zero.

Question 11

Which of the following statements about private and social costs associated with a negative externality is TRUE?

Accepted Answer

A) Social costs include externalities. 
B) Private cost do not include externalities. 
C) Social costs are never smaller than private costs. 
D) All of the above. 
A) Social costs include externalities. 
B) Private cost do not include externalities. 
C) Social costs are never smaller than private costs. 
D) All of the above.

Question 12

A free rider

Accepted Answer

A) benefits from a positive externality without paying for it. 
B) has a horizontal demand curve. 
C) places no value on the good provided. 
D) All of the above. 
A) benefits from a positive externality without paying for it. 
B) has a horizontal demand curve. 
C) places no value on the good provided. 
D) All of the above.

Question 13

The Commons Problem arises because

Accepted Answer

A) firms don't maximize profits. 
B) social and private incentives are not aligned, and property rights are missing. 
C) social cost equals private cost and property rights are missing. 
D) social benefit equals private benefit and property rights are missing. 
A) firms don't maximize profits. 
B) social and private incentives are not aligned, and property rights are missing. 
C) social cost equals private cost and property rights are missing. 
D) social benefit equals private benefit and property rights are missing.

Question 14

Which of the following goods has the property of rivalry?

Accepted Answer

A) National defense 
B) A highway 
C) Air to breathe 
D) A digital music file 
A) National defense 
B) A highway 
C) Air to breathe 
D) A digital music file

Question 15

Mergers harm society.

Accepted Answer

A) True. Firms merge to avoid antitrust laws and increase their prices. 
B) Maybe. It depends on whether the effect on prices is larger from reducing competition or increasing efficiency. 
C) False. Firms gain economies of scale and pass the price savings on to their customers. 
D) True. Total surplus is reduced when firms merge. 
A) True. Firms merge to avoid antitrust laws and increase their prices. 
B) Maybe. It depends on whether the effect on prices is larger from reducing competition or increasing efficiency. 
C) False. Firms gain economies of scale and pass the price savings on to their customers. 
D) True. Total surplus is reduced when firms merge.

Question 16

If a production process creates pollution, a competitive market produces excessive pollution because

Accepted Answer

A) private marginal cost of pollution exceeds its social marginal cost. 
B) social marginal cost of pollution exceeds its private marginal cost. 
C) the marginal benefit of pollution to the firm is zero. 
D) zero pollution is optimal. 
A) private marginal cost of pollution exceeds its social marginal cost. 
B) social marginal cost of pollution exceeds its private marginal cost. 
C) the marginal benefit of pollution to the firm is zero. 
D) zero pollution is optimal.

Question 17

Rent seeking is

Accepted Answer

A) when consumers search for the lowest possible rent on housing. 
B) illegal in the U.S. 
C) what regulators do to improve their chances of getting jobs in the regulated industry after they leave government service. 
D) where firms expend effort and money to profit from government actions. 
A) when consumers search for the lowest possible rent on housing. 
B) illegal in the U.S. 
C) what regulators do to improve their chances of getting jobs in the regulated industry after they leave government service. 
D) where firms expend effort and money to profit from government actions.

Question 18

What is one reason drunk driving is held in such disrepute?

Accepted Answer

A) Drunk driving imposes high potential costs on non-drunk drivers. 
B) Drunk driving destroys cars and telephone poles, causing disruption in essential services. 
C) Only drunk drivers cause automobile fatalities. 
D) Drunk drivers impose high potential costs on other drunk drivers. 
A) Drunk driving imposes high potential costs on non-drunk drivers. 
B) Drunk driving destroys cars and telephone poles, causing disruption in essential services. 
C) Only drunk drivers cause automobile fatalities. 
D) Drunk drivers impose high potential costs on other drunk drivers.

Question 19

Which of the following statements is TRUE?

Accepted Answer

A) A government policy that eliminates a market failure, but only some people gain while others are kept the same, is not a Pareto improvement. 
B) A government policy that eliminates a market failure, but only some people gain while others are kept the same, is a Pareto improvement. 
C) A government policy that eliminates a market failure and some people gain and some lose only a little, is a Pareto improvement. 
D) A government policy that generates a Pareto improvement eliminates all deadweight loss. 
A) A government policy that eliminates a market failure, but only some people gain while others are kept the same, is not a Pareto improvement. 
B) A government policy that eliminates a market failure, but only some people gain while others are kept the same, is a Pareto improvement. 
C) A government policy that eliminates a market failure and some people gain and some lose only a little, is a Pareto improvement. 
D) A government policy that generates a Pareto improvement eliminates all deadweight loss.

Question 20

Resale price maintenance

Accepted Answer

A) requires a retailer to sell a good no lower than the specified price. 
B) is per se illegal. 
C) is the price of a maintenance contract on a good, such as an extended service contract on a car. 
D) has a net negative impact on competition. 
A) requires a retailer to sell a good no lower than the specified price. 
B) is per se illegal. 
C) is the price of a maintenance contract on a good, such as an extended service contract on a car. 
D) has a net negative impact on competition.

An externality

The total demand for a public good is found by

Mergers are closely scrutinized by the government because

-The above figure shows the market for steel ingots. An externality can be seen because

To alleviate the commons problem, the government can

Cartels persist despite laws against them because

If a monopolist's production process has economies of scale and average cost exceeds marginal cost, then

Students who talk loudly with each other in class

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is

Which of the following statements about private and social costs associated with a negative externality is TRUE?

A free rider

The Commons Problem arises because

Which of the following goods has the property of rivalry?

Mergers harm society.

If a production process creates pollution, a competitive market produces excessive pollution because

Rent seeking is

What is one reason drunk driving is held in such disrepute?

Which of the following statements is TRUE?

Resale price maintenance

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Global Business

Filters

Exam 16: Government and Business

An externality

The total demand for a public good is found by

Mergers are closely scrutinized by the government because

-The above figure shows the market for steel ingots. An externality can be seen because

To alleviate the commons problem, the government can

Cartels persist despite laws against them because

If a monopolist's production process has economies of scale and average cost exceeds marginal cost, then

Students who talk loudly with each other in class

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is

-The above figure shows the market for steel ingots. If the market is competitive, then the deadweight loss to society is

Which of the following statements about private and social costs associated with a negative externality is TRUE?

A free rider

The Commons Problem arises because

Which of the following goods has the property of rivalry?

Mergers harm society.

If a production process creates pollution, a competitive market produces excessive pollution because

Rent seeking is

What is one reason drunk driving is held in such disrepute?

Which of the following statements is TRUE?

Resale price maintenance

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Global Business

Filters