Question 1

A commodity is ____ if it is used up when someone consumes it.

Accepted Answer

A)  marginal 
B)  scalable 
C)  depletable 
D)  replaceable 
A)  marginal 
B)  scalable 
C)  depletable 
D)  replaceable

Question 2

An example of a beneficial externality is

Accepted Answer

A)  airport noise. 
B)  a blooming curbside bed of violets. 
C)  pollution of a fishing lake. 
D)  freeway congestion. 
A)  airport noise. 
B)  a blooming curbside bed of violets. 
C)  pollution of a fishing lake. 
D)  freeway congestion.

Question 3

In the case of a beneficial externality

Accepted Answer

A)  marginal private cost is below marginal social cost. 
B)  marginal social cost is above marginal private cost. 
C)  marginal social cost and marginal private cost are equal. 
D)  the free market price is below the socially efficient price. 
A)  marginal private cost is below marginal social cost. 
B)  marginal social cost is above marginal private cost. 
C)  marginal social cost and marginal private cost are equal. 
D)  the free market price is below the socially efficient price.

Question 4

An appropriate government policy toward negative externalities is to

Accepted Answer

A)  subsidize the activity that creates the negative externality. 
B)  impose a tax or fine on the activity that creates the negative externality. 
C)  pay money to the party that creates the negative externality. 
D)  impose a tax on recipients of the negative externality. 
A)  subsidize the activity that creates the negative externality. 
B)  impose a tax or fine on the activity that creates the negative externality. 
C)  pay money to the party that creates the negative externality. 
D)  impose a tax on recipients of the negative externality.

Question 5

A car sells at different prices at different dealerships in an oligopolistic market.If a consumer has imperfect information about the price of a car at each dealership, he should

Accepted Answer

A)  always gather all available information about prices. 
B)  gather information about prices until the expected marginal utility of more information equals the marginal cost of gathering it. 
C)  gather information about prices only if it can be gathered without cost. 
D)  ignore information about prices because it is irrelevant to making an "optimally imperfect" decision. 
A)  always gather all available information about prices. 
B)  gather information about prices until the expected marginal utility of more information equals the marginal cost of gathering it. 
C)  gather information about prices only if it can be gathered without cost. 
D)  ignore information about prices because it is irrelevant to making an "optimally imperfect" decision.

Question 6

The lure of ____ directs resources to optimally efficient activities and time periods.

Accepted Answer

A)  future consumption 
B)  present consumption 
C)  market share growth 
D)  profits 
A)  future consumption 
B)  present consumption 
C)  market share growth 
D)  profits

Question 7

The factor that leads to underpricing and overuse of an economic resource is

Accepted Answer

A)  human greed and selfishness. 
B)  capital markets. 
C)  the lack of an enforceable property right. 
D)  the lack of understanding of pollution and its effects. 
A)  human greed and selfishness. 
B)  capital markets. 
C)  the lack of an enforceable property right. 
D)  the lack of understanding of pollution and its effects.

Question 8

Which of the following is not true for a public good?

Accepted Answer

A)  Marginal cost of serving public good to one more person is zero. 
B)  Free rider problem arises in case of public goods. 
C)  Exclusion is not possible in most of the public goods. 
D)  Public goods include only material commodities. 
A)  Marginal cost of serving public good to one more person is zero. 
B)  Free rider problem arises in case of public goods. 
C)  Exclusion is not possible in most of the public goods. 
D)  Public goods include only material commodities.

Question 9

Some would cite the purchase of defective products and the rising cost of health care as market failures.Argue that these are not true market failures.

Accepted Answer

If one had perfect information, one woul

Question 10

National defense and coastal lighthouses are examples of

Accepted Answer

A)  public goods. 
B)  private goods. 
C)  high marginal cost goods. 
D)  depletable goods. 
A)  public goods. 
B)  private goods. 
C)  high marginal cost goods. 
D)  depletable goods.

Question 11

There is much world concern over the deteriorating condition of the Pyramids and other historical structures in Egypt.While people of all nations enjoy visiting these structures, there has been little financial support for preservation coming from within Egypt or from elsewhere.Economists would describe this as an example of

Accepted Answer

A)  an externality. 
B)  a public good. 
C)  a free rider problem. 
D)  imperfect information. 
A)  an externality. 
B)  a public good. 
C)  a free rider problem. 
D)  imperfect information.

Question 12

Individuals cannot buy unemployment insurance for themselves.The most likely reason for this is

Accepted Answer

A)  moral hazard. 
B)  imperfect information. 
C)  a culture of poverty. 
D)  the free-rider problem. 
A)  moral hazard. 
B)  imperfect information. 
C)  a culture of poverty. 
D)  the free-rider problem.

Question 13

Is increased production of a good beneficial to society?

Accepted Answer

A)  Yes, because scarcity is such an overriding concern. 
B)  Yes, because more is always better. 
C)  Maybe, it depends on what is foregone. 
D)  No, because increased production does not increase utility. 
A)  Yes, because scarcity is such an overriding concern. 
B)  Yes, because more is always better. 
C)  Maybe, it depends on what is foregone. 
D)  No, because increased production does not increase utility.

Question 14

Are national forests public goods? Explain.

Accepted Answer

Yes.Forests provide soil reten

Question 15

Which term refers to the share of an activity's marginal cost that is paid for by people other than those who carry out the activity?

Accepted Answer

A)  Beneficial cost 
B)  Incidental cost 
C)  Marginal private cost 
D)  Marginal social cost 
A)  Beneficial cost 
B)  Incidental cost 
C)  Marginal private cost 
D)  Marginal social cost

Question 16

Pleasure boaters enjoy the use of waterways, but sometimes run into problems and need rescue.Coast Guard boats, supported by tax revenue, are often used for rescue.Is it likely that there will be an efficient amount of boating and rescuing?

Accepted Answer

No.The full cost of boating includes the

Question 17

Rent seeking refers to unproductive activity in the pursuit of profit.

Accepted Answer

A) True 
 B)False

Question 18

A public good is

Accepted Answer

A)  any good provided by government. 
B)  a good that can be most cheaply provided by government, though it may in fact be provided by private enterprise. 
C)  a good whose benefits cannot readily be restricted to a small group of people. 
D)  a good whose benefits cannot be enjoyed by an individual alone. 
A)  any good provided by government. 
B)  a good that can be most cheaply provided by government, though it may in fact be provided by private enterprise. 
C)  a good whose benefits cannot readily be restricted to a small group of people. 
D)  a good whose benefits cannot be enjoyed by an individual alone.

Question 19

A true public good is characterized by

Accepted Answer

A)  depletability but not excludability. 
B)  excludability but not depletability. 
C)  both depletability and excludability. 
D)  neither depletability nor excludability. 
A)  depletability but not excludability. 
B)  excludability but not depletability. 
C)  both depletability and excludability. 
D)  neither depletability nor excludability.

Question 20

If a firm's activities generate detrimental externalities, the marginal social cost will be less than the marginal private cost.

Accepted Answer

A) True 
 B)False

Exam 15: The Shortcomings of Free Markets

A commodity is ____ if it is used up when someone consumes it.

An example of a beneficial externality is

In the case of a beneficial externality

An appropriate government policy toward negative externalities is to

A car sells at different prices at different dealerships in an oligopolistic market.If a consumer has imperfect information about the price of a car at each dealership, he should

The lure of ____ directs resources to optimally efficient activities and time periods.

The factor that leads to underpricing and overuse of an economic resource is

Which of the following is not true for a public good?

Some would cite the purchase of defective products and the rising cost of health care as market failures.Argue that these are not true market failures.

National defense and coastal lighthouses are examples of

Individuals cannot buy unemployment insurance for themselves.The most likely reason for this is

Is increased production of a good beneficial to society?

Are national forests public goods? Explain.

Which term refers to the share of an activity's marginal cost that is paid for by people other than those who carry out the activity?

Pleasure boaters enjoy the use of waterways, but sometimes run into problems and need rescue.Coast Guard boats, supported by tax revenue, are often used for rescue.Is it likely that there will be an efficient amount of boating and rescuing?

Rent seeking refers to unproductive activity in the pursuit of profit.

A public good is

A true public good is characterized by

If a firm's activities generate detrimental externalities, the marginal social cost will be less than the marginal private cost.

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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