Question 1

Markets will always create more efficient outcomes without government intervention.

Accepted Answer

A) True 
 B)False

Question 2

Explain why government, rather than private firms, is required for efficient mosquito eradication programs.

Accepted Answer

Mosquito eradication is a public good.It

Question 3

The market's contribution to the general welfare has been its

Accepted Answer

A)  stimulation of growth in productivity. 
B)  yield of an abundance of consumers' goods. 
C)  contribution to human longevity. 
D)  All of the above are correct. 
A)  stimulation of growth in productivity. 
B)  yield of an abundance of consumers' goods. 
C)  contribution to human longevity. 
D)  All of the above are correct.

Question 4

The former communist countries of eastern Europe and the Soviet Union

Accepted Answer

A)  have a better track record in environment protection than market economies. 
B)  have a dismal environmental record. 
C)  epitomize the ability of planned economies to protect the environment. 
D)  have no water pollution problems. 
A)  have a better track record in environment protection than market economies. 
B)  have a dismal environmental record. 
C)  epitomize the ability of planned economies to protect the environment. 
D)  have no water pollution problems.

Question 5

Conscious manipulation of the interest rate causes it to become a less effective tool in allocating resources among time periods.

Accepted Answer

A) True 
 B)False

Question 6

As productivity in the manufacturing sector increases, the service sector must keep pace or it will become more expensive in the long run.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following observations is true?

Accepted Answer

A)  A market produced with allocative efficiency if a monopoly exists. 
B)  A market can provide "public goods." 
C)  A market makes public and personal services inexpensive. 
D)  A market distributes income equally. 
A)  A market produced with allocative efficiency if a monopoly exists. 
B)  A market can provide "public goods." 
C)  A market makes public and personal services inexpensive. 
D)  A market distributes income equally.

Question 8

As long as the market sets prices above marginal costs, production will be efficient.

Accepted Answer

A) True 
 B)False

Question 9

If interest rates fall, the opportunity cost of spending money today rather than tomorrow

Accepted Answer

A)  rises. 
B)  falls. 
C)  rises only if the prices of goods today rise. 
D)  falls only if the prices of goods today fall. 
A)  rises. 
B)  falls. 
C)  rises only if the prices of goods today rise. 
D)  falls only if the prices of goods today fall.

Question 10

Because smoking causes illness and disability to smokers, society must maintain more health-service capacity than it would need in the absence of smoking.Since the cost of maintaining this capacity is covered to a substantial degree by health insurance, even nonsmokers must pay higher premiums.Also, smokers hurt nonsmokers as a result of "passive smoke." The Rand Corporation estimates these costs to be 29 cents per pack of cigarettes.Cigarette taxes average 37 cents per pack.Based on the economist's definition of efficiency, it follows that

Accepted Answer

A)  cigarette taxes are too high, and cigarette production is lower than the efficient amount. 
B)  cigarette taxes should be increased until external costs are zero. 
C)  since the tax exceeds the marginal cost, we have a better than efficient outcome. 
D)  we are overconsuming cigarettes. 
A)  cigarette taxes are too high, and cigarette production is lower than the efficient amount. 
B)  cigarette taxes should be increased until external costs are zero. 
C)  since the tax exceeds the marginal cost, we have a better than efficient outcome. 
D)  we are overconsuming cigarettes.

Question 11

On balance, markets do some things very well, and some things poorly.

Accepted Answer

A) True 
 B)False

Question 12

Government gives subsidies to encourage production of products with beneficial externalities.

Accepted Answer

A) True 
 B)False

Question 13

As wages for manufacturing workers rise, wages for service workers will stay the same.

Accepted Answer

A) True 
 B)False

Question 14

Often when consumers enter the used car market to make a purchase,

Accepted Answer

A)  they know little about what they are purchasing. 
B)  the motto "let the buyer beware" applies. 
C)  the information they gain may not be perfect, but may be what economists call "optimally imperfect." 
D)  All of the above are correct. 
A)  they know little about what they are purchasing. 
B)  the motto "let the buyer beware" applies. 
C)  the information they gain may not be perfect, but may be what economists call "optimally imperfect." 
D)  All of the above are correct.

Question 15

Most Americans would voluntarily support defense without required taxation.

Accepted Answer

A) True 
 B)False

Question 16

An efficient allocation of resources requires each product's price to equal its marginal cost.

Accepted Answer

A) True 
 B)False

Question 17

The cost disease of personal services causes

Accepted Answer

A)  the cost of health care to rise faster than the economy's rate of inflation. 
B)  legislators to blame declining standards of quality at public hospitals on greedy doctors or administrators. 
C)  legislators to propose price controls on insurance. 
D)  All of the above are correct. 
A)  the cost of health care to rise faster than the economy's rate of inflation. 
B)  legislators to blame declining standards of quality at public hospitals on greedy doctors or administrators. 
C)  legislators to propose price controls on insurance. 
D)  All of the above are correct.

Question 18

Markets are primarily responsible for the rapid rise in productivity during the twentieth century.

Accepted Answer

A) True 
 B)False

Question 19

An economy is operating with optimum efficiency if

Accepted Answer

A)  the price of the product is greater than marginal cost. 
B)  the production of more of commodity A entails the production of less of commodity B. 
C)  marginal cost of output is greater than marginal utility of output. 
D)  an increase in output would result in a decrease in average cost per unit. 
A)  the price of the product is greater than marginal cost. 
B)  the production of more of commodity A entails the production of less of commodity B. 
C)  marginal cost of output is greater than marginal utility of output. 
D)  an increase in output would result in a decrease in average cost per unit.

Question 20

Figure 15-1
  
-Figure 15-1 describes conditions in the monopolized weezil industry.In the absence of government intervention, the monopolist will produce an output equal to

Accepted Answer

A)  W. 
B)  X. 
C)  Y. 
D)  Z. 
A)  W. 
B)  X. 
C)  Y. 
D)  Z.

Exam 15: The Shortcomings of Free Markets

Markets will always create more efficient outcomes without government intervention.

Explain why government, rather than private firms, is required for efficient mosquito eradication programs.

The market's contribution to the general welfare has been its

The former communist countries of eastern Europe and the Soviet Union

Conscious manipulation of the interest rate causes it to become a less effective tool in allocating resources among time periods.

As productivity in the manufacturing sector increases, the service sector must keep pace or it will become more expensive in the long run.

Which of the following observations is true?

As long as the market sets prices above marginal costs, production will be efficient.

If interest rates fall, the opportunity cost of spending money today rather than tomorrow

On balance, markets do some things very well, and some things poorly.

Government gives subsidies to encourage production of products with beneficial externalities.

As wages for manufacturing workers rise, wages for service workers will stay the same.

Often when consumers enter the used car market to make a purchase,

Most Americans would voluntarily support defense without required taxation.

An efficient allocation of resources requires each product's price to equal its marginal cost.

The cost disease of personal services causes

Markets are primarily responsible for the rapid rise in productivity during the twentieth century.

An economy is operating with optimum efficiency if

Figure 15-1 -Figure 15-1 describes conditions in the monopolized weezil industry.In the absence of government intervention, the monopolist will produce an output equal to

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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