Question 1

Market economies produce outcomes that

Accepted Answer

A)  are virtually ideal in all respects. 
B)  are inferior to most other systems. 
C)  are, in some respects, far from ideal. 
D)  are virtually indistinguishable from command economies. 
A)  are virtually ideal in all respects. 
B)  are inferior to most other systems. 
C)  are, in some respects, far from ideal. 
D)  are virtually indistinguishable from command economies.

Question 2

Market economies produce only a few relatively minor defects.

Accepted Answer

A) True 
 B)False

Question 3

The market mechanism is more efficient in allocating resources between time periods than it is in allocating resources among different industries.

Accepted Answer

A) True 
 B)False

Question 4

Education is subsidized because it generates beneficial externalities.

Accepted Answer

A) True 
 B)False

Question 5

Many detrimental externalities occur because

Accepted Answer

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

Question 6

Marginal social costs are the sum of marginal private costs and incidental costs.

Accepted Answer

A) True 
 B)False

Question 7

The prices of most services have risen much faster than inflation in recent years because

Accepted Answer

A)  wages and salaries of service providers have risen much faster than inflation. 
B)  wages and salaries of service providers have risen but their productivity has not. 
C)  the productivity of service providers has risen dramatically. 
D)  the demand for services has risen. 
A)  wages and salaries of service providers have risen much faster than inflation. 
B)  wages and salaries of service providers have risen but their productivity has not. 
C)  the productivity of service providers has risen dramatically. 
D)  the demand for services has risen.

Question 8

An increase in interest rates will generally lead to a(n) ____ in present investment and a(n) ____ in future income and production.

Accepted Answer

A)  decrease, decrease 
B)  decrease, increase 
C)  increase, decrease 
D)  increase, increase 
A)  decrease, decrease 
B)  decrease, increase 
C)  increase, decrease 
D)  increase, increase

Question 9

Marginal social cost is made up of marginal private cost and incidental cost.

Accepted Answer

A) True 
 B)False

Question 10

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

Accepted Answer

A)  MU = MSC. 
B)  P  MSC. 
A)  MU = MSC. 
B)  P  MSC.

Question 11

The cost of trash removal goes up, in part at least, because labor productivity in auto manufacturing goes up.

Accepted Answer

A) True 
 B)False

Question 12

Discuss the role of trust as a critical piece of any principal-agent situation.In particular, what role did trust play in the recent stock market scandals?

Accepted Answer

The main problem in a principal-agent si

Question 13

Moral hazard is best described as

Accepted Answer

A)  an action by an individual that endangers others. 
B)  an action that puts one's salvation at risk. 
C)  the presence of insurance increasing risk taking behavior. 
D)  vigilance by individuals to keep total insurance claims at a minimum to keep rates low. 
A)  an action by an individual that endangers others. 
B)  an action that puts one's salvation at risk. 
C)  the presence of insurance increasing risk taking behavior. 
D)  vigilance by individuals to keep total insurance claims at a minimum to keep rates low.

Question 14

The cost disease of the service sector is evidenced by

Accepted Answer

A)  a failure of the market mechanism. 
B)  increased quality of public and private services. 
C)  dramatic increases in municipal budget burdens for education, health care, and police and fire protection. 
D)  the increased productivity in the services area. 
A)  a failure of the market mechanism. 
B)  increased quality of public and private services. 
C)  dramatic increases in municipal budget burdens for education, health care, and police and fire protection. 
D)  the increased productivity in the services area.

Question 15

Which of the following is not a problem for the price system allocating resources among different time periods?

Accepted Answer

A)  Interest rates are used for a variety of purposes other than influencing investment. 
B)  The market devotes too much to immediate consumption. 
C)  Our market system leads to lesser real incomes for later generations. 
D)  Our market system despoils irreplaceable natural resources. 
A)  Interest rates are used for a variety of purposes other than influencing investment. 
B)  The market devotes too much to immediate consumption. 
C)  Our market system leads to lesser real incomes for later generations. 
D)  Our market system despoils irreplaceable natural resources.

Question 16

A private good is characterized by excludability and depletability.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is an imperfection of market economies?

Accepted Answer

A)  They produce inexpensive services but expensive manufactured goods. 
B)  They place undue importance on the needs of future generations. 
C)  They cannot provide certain goods such as national defense. 
D)  They distribute income too unequally. 
A)  They produce inexpensive services but expensive manufactured goods. 
B)  They place undue importance on the needs of future generations. 
C)  They cannot provide certain goods such as national defense. 
D)  They distribute income too unequally.

Question 18

A monopoly price reflects a good's marginal utility.

Accepted Answer

A) True 
 B)False

Question 19

What are private goods? Mention two important attributes of private goods.

Accepted Answer

A private good is a commodity characteri

Question 20

Where a firm generates beneficial externalities, society would be better off if

Accepted Answer

A)  the firm produced a larger output level. 
B)  the firm reduced its output level. 
C)  a tax was levied on the firm equal to the dollar amount of the externalities. 
D)  price was reduced below marginal private cost. 
A)  the firm produced a larger output level. 
B)  the firm reduced its output level. 
C)  a tax was levied on the firm equal to the dollar amount of the externalities. 
D)  price was reduced below marginal private cost.

Exam 15: The Shortcomings of Free Markets

Market economies produce outcomes that

Market economies produce only a few relatively minor defects.

The market mechanism is more efficient in allocating resources between time periods than it is in allocating resources among different industries.

Education is subsidized because it generates beneficial externalities.

Many detrimental externalities occur because

Marginal social costs are the sum of marginal private costs and incidental costs.

The prices of most services have risen much faster than inflation in recent years because

An increase in interest rates will generally lead to a(n) ____ in present investment and a(n) ____ in future income and production.

Marginal social cost is made up of marginal private cost and incidental cost.

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

The cost of trash removal goes up, in part at least, because labor productivity in auto manufacturing goes up.

Discuss the role of trust as a critical piece of any principal-agent situation.In particular, what role did trust play in the recent stock market scandals?

Moral hazard is best described as

The cost disease of the service sector is evidenced by

Which of the following is not a problem for the price system allocating resources among different time periods?

A private good is characterized by excludability and depletability.

Which of the following is an imperfection of market economies?

A monopoly price reflects a good's marginal utility.

What are private goods? Mention two important attributes of private goods.

Where a firm generates beneficial externalities, society would be better off if

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

Filters

An increase in interest rates will generally lead to a(n) in present investment and a(n) in future income and production.