Question 1

The opportunity cost of postponing income to some future time depends on the interest rate.

Accepted Answer

A) True 
 B)False

Question 2

Private ownership of rivers and lakes will halt all water pollution.

Accepted Answer

A) True 
 B)False

Question 3

The cost disease of services explains the problems surrounding the health care crisis.

Accepted Answer

A) True 
 B)False

Question 4

How does imperfect information affect market decisions?

Accepted Answer

A)  It doesn't, because information is generally excellent. 
B)  It leads to inefficient outcomes in which expected benefits and actual benefits diverge. 
C)  It leads to wasteful attempts to improve information. 
D)  It leads to exploitation of sellers by buyers. 
A)  It doesn't, because information is generally excellent. 
B)  It leads to inefficient outcomes in which expected benefits and actual benefits diverge. 
C)  It leads to wasteful attempts to improve information. 
D)  It leads to exploitation of sellers by buyers.

Question 5

Producers of computer software are plagued with the problem of "pirating", that is, many people copy software legally purchased by others.The industry estimates that for each legal copy of a program, there are two pirated copies in use.The industry wants strict laws for the enforcement of its "intellectual property rights," but enforcement is obviously very difficult.Economists call this problem

Accepted Answer

A)  depletability. 
B)  externality. 
C)  durability. 
D)  nonexcludability. 
A)  depletability. 
B)  externality. 
C)  durability. 
D)  nonexcludability.

Question 6

A good's marginal social cost is defined as its

Accepted Answer

A)  marginal private cost minus the value of any detrimental externality. 
B)  incidental cost. 
C)  marginal private cost plus the value of any taxes paid on its production. 
D)  marginal private cost plus its incidental cost. 
A)  marginal private cost minus the value of any detrimental externality. 
B)  incidental cost. 
C)  marginal private cost plus the value of any taxes paid on its production. 
D)  marginal private cost plus its incidental cost.

Question 7

If a commodity's price is above its marginal cost, the market will tend to produce too much of the good.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would be classified as an externality?

Accepted Answer

A)  Smoke from a chimney causes discolored and peeling paint on other houses in the neighborhood. 
B)  Noise from an unmuffled car wakes a sleeping person. 
C)  A neighbor cleans up a yard and repaints a house. 
D)  All of the above are externalities. 
A)  Smoke from a chimney causes discolored and peeling paint on other houses in the neighborhood. 
B)  Noise from an unmuffled car wakes a sleeping person. 
C)  A neighbor cleans up a yard and repaints a house. 
D)  All of the above are externalities.

Question 9

Producing more cabbage is efficient if

Accepted Answer

A)  cabbage production can be increased without reducing production of other goods. 
B)  the opportunity cost of more cabbage is less than its marginal utility. 
C)  society values the additional cabbage more highly than the lettuce it must give up to produce the extra cabbage. 
D)  All of the above are correct. 
A)  cabbage production can be increased without reducing production of other goods. 
B)  the opportunity cost of more cabbage is less than its marginal utility. 
C)  society values the additional cabbage more highly than the lettuce it must give up to produce the extra cabbage. 
D)  All of the above are correct.

Question 10

Figure 15-1
  
-Figure 15-1 describes conditions in the monopolized weezil industry.If the government replaces the monopolist with perfectly competitive firms and forces these firms to take account of all the costs and benefits they impose on society, the industry will produce an output equal to

Accepted Answer

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

Question 11

Hostile takeovers of corporations have been in the business news for some time now.Several states have passed laws making it harder for out-of-state corporations to acquire firms headquartered in their states.Several corporations have established "golden parachutes" to give executives high payoffs in case of hostile takeover.What market imperfection is likely to be worsened by these actions? Explain.

Accepted Answer

The problem of agency is likely to grow

Question 12

A free rider is one who enjoys the benefits of a public good without paying for it.

Accepted Answer

A) True 
 B)False

Question 13

Briefly and concisely define the following concepts and terms.
a.marginal social cost
b.detrimental externalities
c.free-rider problem
d.cost disease
e."defective telescopic faculty"

Accepted Answer

a.Marginal social cost is the sum of mar

Question 14

If a detrimental externality is being produced in the course of producing a good, then

Accepted Answer

A) P > MSC. B) MSC < MPC. C) incidental costs are negative. D) output is inefficiently large. A) P > MSC. B) MSC < MPC. C) incidental costs are negative. D) output is inefficiently large.

Question 15

Markets can efficiently handle irreversible decisions without involvement of government.

Accepted Answer

A) True 
 B)False

Question 16

Motorcycle helmet laws have been controversial in some states.Riders prefer the feel of the wind on their faces.Others, however, point out that riders without helmets are more likely to suffer severe injury and run up hospital bills at public expense.Which of the following would most likely reduce the incidence of high bills for helmetless riders?

Accepted Answer

A)  raise insurance rates for helmetless riders 
B)  lower insurance rates for helmetless riders 
C)  publish information on injury rates for helmetless riders 
D)  subsidize hospitals 
A)  raise insurance rates for helmetless riders 
B)  lower insurance rates for helmetless riders 
C)  publish information on injury rates for helmetless riders 
D)  subsidize hospitals

Question 17

When MSC > MPC there are detrimental externalities.

Accepted Answer

A) True 
 B)False

Question 18

Private goods are characterized by two important attributes.What are they?

Accepted Answer

A)  marginality and depletability 
B)  scalability and desirability 
C)  repeatability and reliability 
D)  depletability and excludability 
A)  marginality and depletability 
B)  scalability and desirability 
C)  repeatability and reliability 
D)  depletability and excludability

Question 19

Why do markets tend to underproduce public goods?

Accepted Answer

Markets, left to themselves, tend to und

Question 20

Activities that indiscriminately impose costs on others are externalities.

Accepted Answer

A) True 
 B)False

Exam 15: The Shortcomings of Free Markets

The opportunity cost of postponing income to some future time depends on the interest rate.

Private ownership of rivers and lakes will halt all water pollution.

The cost disease of services explains the problems surrounding the health care crisis.

How does imperfect information affect market decisions?

A good's marginal social cost is defined as its

If a commodity's price is above its marginal cost, the market will tend to produce too much of the good.

Which of the following would be classified as an externality?

Producing more cabbage is efficient if

Figure 15-1 -Figure 15-1 describes conditions in the monopolized weezil industry.If the government replaces the monopolist with perfectly competitive firms and forces these firms to take account of all the costs and benefits they impose on society, the industry will produce an output equal to

A free rider is one who enjoys the benefits of a public good without paying for it.

Briefly and concisely define the following concepts and terms. a.marginal social cost b.detrimental externalities c.free-rider problem d.cost disease e."defective telescopic faculty"

If a detrimental externality is being produced in the course of producing a good, then

Markets can efficiently handle irreversible decisions without involvement of government.

When MSC > MPC there are detrimental externalities.

Private goods are characterized by two important attributes.What are they?

Why do markets tend to underproduce public goods?

Activities that indiscriminately impose costs on others are externalities.

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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