Question 1

The construct used to demonstrate efficient use of society's resources is the

Accepted Answer

A)  production possibilities frontier. 
B)  payoff matrix. 
C)  input-output table. 
D)  cost-benefit table. 
A)  production possibilities frontier. 
B)  payoff matrix. 
C)  input-output table. 
D)  cost-benefit table.

Question 2

Unscrupulous managers have learned ways to manipulate stock options and undermine their benefits to stockholders.Discuss some provisions that could be built into the process to curb such practices.

Accepted Answer

Such problems are best attacked directly

Question 3

The desirable level of output in a perfectly competitive market if there exists a detrimental externality is

Accepted Answer

A)  the point at which MSC curve intersects the marginal revenue curve. 
B)  the point at which MSC intersects the MPC. 
C)  the point at which MSC intersects MPC. 
D)  the point at which marginal revenue curve intersects the MPC. 
A)  the point at which MSC curve intersects the marginal revenue curve. 
B)  the point at which MSC intersects the MPC. 
C)  the point at which MSC intersects MPC. 
D)  the point at which marginal revenue curve intersects the MPC.

Question 4

An unregulated market economy provides material wealth, but does not generate effective control of environmental damage.

Accepted Answer

A) True 
 B)False

Question 5

For most industrial nations, health-care costs have increased faster than the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 6

Define the following terms and explain their importance to the study of economics.
a.public good
b.externality
c.irreversible decision
d.moral hazard
e.rent seeking

Accepted Answer

a.A public good is a commodity or servic

Question 7

Beneficial externalities would be removed if the recipients of the benefit paid the producer of the externality.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Marginal social cost is the share of marginal cost caused by an activity that is paid for by the persons who carry out the activity. 
B)  Marginal private cost is the share of marginal cost caused by an activity that is borne by persons other than those who carry out the activity. 
C)  Marginal social cost is the sum of marginal private cost and incidental cost. 
D)  Marginal private cost and incidental cost are one and the same. 
A)  Marginal social cost is the share of marginal cost caused by an activity that is paid for by the persons who carry out the activity. 
B)  Marginal private cost is the share of marginal cost caused by an activity that is borne by persons other than those who carry out the activity. 
C)  Marginal social cost is the sum of marginal private cost and incidental cost. 
D)  Marginal private cost and incidental cost are one and the same.

Question 9

Public goods are

Accepted Answer

A)  valuable socially. 
B)  not depletable and not excludable. 
C)  subject to the "free rider" problem. 
D)  All of the above are correct. 
A)  valuable socially. 
B)  not depletable and not excludable. 
C)  subject to the "free rider" problem. 
D)  All of the above are correct.

Question 10

All externalities are detrimental.

Accepted Answer

A) True 
 B)False

Question 11

The principle of "comparable worth" asserts that people with comparable, if not identical, skills and responsibilities should receive the same pay.If this principle were to become law, it would tend to

Accepted Answer

A)  reduce the problem of the "cost disease of services." 
B)  exacerbate the problem of the "cost disease" of the service sector. 
C)  be irrelevant to the "cost disease" problem. 
D)  eliminate the problem of externalities. 
A)  reduce the problem of the "cost disease of services." 
B)  exacerbate the problem of the "cost disease" of the service sector. 
C)  be irrelevant to the "cost disease" problem. 
D)  eliminate the problem of externalities.

Question 12

Asymmetric information will lead to

Accepted Answer

A)  higher prices for some used cars, lower prices for others. 
B)  "lemon" prices for good used cars. 
C)  new cars selling for prices lower than good used cars. 
D)  old cars selling for more than new cars. 
A)  higher prices for some used cars, lower prices for others. 
B)  "lemon" prices for good used cars. 
C)  new cars selling for prices lower than good used cars. 
D)  old cars selling for more than new cars.

Question 13

A firm is generating detrimental externalities when

Accepted Answer

A)  MSC is less than MPC. 
B)  MSC is the same as MPC. 
C)  MSC is greater than MPC. 
D)  MPC includes some incidental costs. 
A)  MSC is less than MPC. 
B)  MSC is the same as MPC. 
C)  MSC is greater than MPC. 
D)  MPC includes some incidental costs.

Question 14

A free market may produce a misallocation of resources over time because

Accepted Answer

A)  the Fed manipulates interest rates. 
B)  people have a "defective telescopic faculty." 
C)  private risk usually exceeds social risk. 
D)  All of the above are correct. 
A)  the Fed manipulates interest rates. 
B)  people have a "defective telescopic faculty." 
C)  private risk usually exceeds social risk. 
D)  All of the above are correct.

Question 15

Part of the reason why barely used cars sell for much less than new cars is that

Accepted Answer

A)  buyers and sellers have symmetric information about cars and both have less information about used cars than about new cars. 
B)  buyers and sellers have symmetric information about cars and both have more information about used cars than about new cars. 
C)  buyers have more information about used cars than sellers do. 
D)  sellers have more information about used cars than buyers do. 
A)  buyers and sellers have symmetric information about cars and both have less information about used cars than about new cars. 
B)  buyers and sellers have symmetric information about cars and both have more information about used cars than about new cars. 
C)  buyers have more information about used cars than sellers do. 
D)  sellers have more information about used cars than buyers do.

Question 16

A local flower grower grows products in a plot of land which is exceptionally colorful, and is admired by many passersby.There is no way to charge for this in the price of the flowers.We can safely conclude that

Accepted Answer

A)  the florist produces too many flowers. 
B)  the florist produces too few flowers. 
C)  the florist produces the right amount of flowers. 
D)  society pays the socially optimal amount for the flowers. 
A)  the florist produces too many flowers. 
B)  the florist produces too few flowers. 
C)  the florist produces the right amount of flowers. 
D)  society pays the socially optimal amount for the flowers.

Question 17

Government can deal with externalities through the use of taxes and subsidies.

Accepted Answer

A) True 
 B)False

Question 18

Productivity in manufacturing sectors has risen faster than in service sectors.

Accepted Answer

A) True 
 B)False

Question 19

The cost disease of personal services stems primarily from the fact that

Accepted Answer

A)  prices rise too slowly to provide public receipts. 
B)  inflation has been with us since the early 1970s. 
C)  personal service requires direct contact between producer and consumer. 
D)  sellers of personal services have strong unions. 
A)  prices rise too slowly to provide public receipts. 
B)  inflation has been with us since the early 1970s. 
C)  personal service requires direct contact between producer and consumer. 
D)  sellers of personal services have strong unions.

Question 20

In an ideal competitive market economy

Accepted Answer

A)  resources are allocated according to a person's needs. 
B)  resources are allocated according to ability to pay. 
C)  social and individual needs are met by the market. 
D)  All of the above are true. 
A)  resources are allocated according to a person's needs. 
B)  resources are allocated according to ability to pay. 
C)  social and individual needs are met by the market. 
D)  All of the above are true.

Exam 15: The Shortcomings of Free Markets

The construct used to demonstrate efficient use of society's resources is the

Unscrupulous managers have learned ways to manipulate stock options and undermine their benefits to stockholders.Discuss some provisions that could be built into the process to curb such practices.

The desirable level of output in a perfectly competitive market if there exists a detrimental externality is

An unregulated market economy provides material wealth, but does not generate effective control of environmental damage.

For most industrial nations, health-care costs have increased faster than the rate of inflation.

Define the following terms and explain their importance to the study of economics. a.public good b.externality c.irreversible decision d.moral hazard e.rent seeking

Beneficial externalities would be removed if the recipients of the benefit paid the producer of the externality.

Which of the following statements is correct?

Public goods are

All externalities are detrimental.

The principle of "comparable worth" asserts that people with comparable, if not identical, skills and responsibilities should receive the same pay.If this principle were to become law, it would tend to

Asymmetric information will lead to

A firm is generating detrimental externalities when

A free market may produce a misallocation of resources over time because

Part of the reason why barely used cars sell for much less than new cars is that

A local flower grower grows products in a plot of land which is exceptionally colorful, and is admired by many passersby.There is no way to charge for this in the price of the flowers.We can safely conclude that

Government can deal with externalities through the use of taxes and subsidies.

Productivity in manufacturing sectors has risen faster than in service sectors.

The cost disease of personal services stems primarily from the fact that

In an ideal competitive market economy

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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