Question 1

The marginal cost of serving an additional user of a public good is zero.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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 4

A 2 percent wage increase for teachers or police officers

Accepted Answer

A) is usually offset by higher output per worker. 
B) leads to increases in municipal budgets. 
C) indicates that teachers and police have become more selfish. 
D) leads to more personalized service. 
A) is usually offset by higher output per worker. 
B) leads to increases in municipal budgets. 
C) indicates that teachers and police have become more selfish. 
D) leads to more personalized service.

Question 5

In a competitive market without intervention, pure public goods would be

Accepted Answer

A) produced but at inefficiently high quantities. 
B) produced but at inefficiently low quantities. 
C) freely available. 
D) not produced. 
A) produced but at inefficiently high quantities. 
B) produced but at inefficiently low quantities. 
C) freely available. 
D) not produced.

Question 6

The City Symphony presents three open-air concerts in the city park pavilion during the spring and summer.Many who attend make donations for symphony expenses, but the donation is not required.Some who attend make no contributions.Economists would

Accepted Answer

A) classify the noncontributors as detrimental externalities. 
B) call the concerts excludable events. 
C) call the noncontributors free riders. 
D) call the concerts depletable goods. 
A) classify the noncontributors as detrimental externalities. 
B) call the concerts excludable events. 
C) call the noncontributors free riders. 
D) call the concerts depletable goods.

Question 7

Rent seeking creates incentives for firms to use resources efficiently.

Accepted Answer

A) True 
 B)False

Question 8

Competitive markets generally do not provide unemployment insurance because of

Accepted Answer

A) problems created by moral hazard. 
B) problems created by externalities. 
C) problems created by cost disease. 
D) unemployment insurance is a public good. 
A) problems created by moral hazard. 
B) problems created by externalities. 
C) problems created by cost disease. 
D) unemployment insurance is a public good.

Question 9

The main shortcoming of the market, in the view of many,

Accepted Answer

A) lies in the arena of justice and injustice. 
B) lies in the area of consumer goods production. 
C) is its inability to stimulate the creation of new products. 
D) is its drag on growth in productivity. 
A) lies in the arena of justice and injustice. 
B) lies in the area of consumer goods production. 
C) is its inability to stimulate the creation of new products. 
D) is its drag on growth in productivity.

Question 10

Examples of public goods include national defense, police, and the U.S.Postal Service.

Accepted Answer

A) True 
 B)False

Question 11

Producing more cabbage will be inefficient if

Accepted Answer

A) the marginal opportunity cost of cabbage is less than the marginal value. 
B) cabbage production can be increased without reducing production of other goods. 
C) the marginal value of forgone lettuce is greater than the marginal value of cabbage. 
D) the marginal value of forgone lettuce is less than the marginal value of cabbage. 
A) the marginal opportunity cost of cabbage is less than the marginal value. 
B) cabbage production can be increased without reducing production of other goods. 
C) the marginal value of forgone lettuce is greater than the marginal value of cabbage. 
D) the marginal value of forgone lettuce is less than the marginal value of cabbage.

Question 12

According to Coase,

Accepted Answer

A) externalities do not matter in truly competitive markets because people can always negotiate around them. 
B) people in competitive markets can never negotiate to overcome externalities. 
C) people in competitive markets often fail to overcome externalities because negotiating is costly. 
D) people in competitive markets can overcome the principal-agent problem if the agents negotiate well. 
A) externalities do not matter in truly competitive markets because people can always negotiate around them. 
B) people in competitive markets can never negotiate to overcome externalities. 
C) people in competitive markets often fail to overcome externalities because negotiating is costly. 
D) people in competitive markets can overcome the principal-agent problem if the agents negotiate well.

Question 13

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 14

Which of the following is true?

Accepted Answer

A) Competitive markets that are free of government interference will efficiently price externalities. 
B) Nonmarket economies have historically created less environmental damage than market economies. 
C) Externalities are rare and in practice are not relevant to policy makers. 
D) Public institutions, private firms, and consumers all create externalities. 
A) Competitive markets that are free of government interference will efficiently price externalities. 
B) Nonmarket economies have historically created less environmental damage than market economies. 
C) Externalities are rare and in practice are not relevant to policy makers. 
D) Public institutions, private firms, and consumers all create externalities.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

Give an appropriate remedy for correcting excessive pollution and note any difficulties in implementing it.

Accepted Answer

A tax on the polluting activity will hel

Question 18

Society would be better off with more products that create beneficial externalities.

Accepted Answer

A) True 
 B)False

Question 19

As manufacturing becomes more efficient, services can be expected to become more costly.

Accepted Answer

A) True 
 B)False

Question 20

Rent-seeking behavior refers to

Accepted Answer

A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices. 
A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices.

Exam 15: The Shortcomings of Free Markets

The marginal cost of serving an additional user of a public good is zero.

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

The former communist countries of eastern Europe and the Soviet Union

A 2 percent wage increase for teachers or police officers

In a competitive market without intervention, pure public goods would be

The City Symphony presents three open-air concerts in the city park pavilion during the spring and summer.Many who attend make donations for symphony expenses, but the donation is not required.Some who attend make no contributions.Economists would

Rent seeking creates incentives for firms to use resources efficiently.

Competitive markets generally do not provide unemployment insurance because of

The main shortcoming of the market, in the view of many,

Examples of public goods include national defense, police, and the U.S.Postal Service.

Producing more cabbage will be inefficient if

According to Coase,

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

Which of the following is true?

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

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

Give an appropriate remedy for correcting excessive pollution and note any difficulties in implementing it.

Society would be better off with more products that create beneficial externalities.

As manufacturing becomes more efficient, services can be expected to become more costly.

Rent-seeking behavior refers to

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Economics of 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

Contemporary Issues in the Useconomy

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