Question 1

Asymmetric information generally leads to efficient resource allocation.

Accepted Answer

A) True 
 B)False

Question 2

Low interest rates will persuade corporations to invest more right now.

Accepted Answer

A) True 
 B)False

Question 3

A competitive market may misallocate resources over time because

Accepted Answer

A) current profits are worth more than future profits because of the time value of money. 
B) current profits are worth less than future profits because of the time value of money. 
C) the Federal Reserve sets interest rates different than the opportunity cost of consuming now versus later. 
D) the Federal Reserve always prefers capital investment over personal consumption. 
A) current profits are worth more than future profits because of the time value of money. 
B) current profits are worth less than future profits because of the time value of money. 
C) the Federal Reserve sets interest rates different than the opportunity cost of consuming now versus later. 
D) the Federal Reserve always prefers capital investment over personal consumption.

Question 4

Education is subsidized because it generates beneficial externalities.

Accepted Answer

A) True 
 B)False

Question 5

All externalities are detrimental.

Accepted Answer

A) True 
 B)False

Question 6

What rule must be followed to obtain an efficient allocation of resources?

Accepted Answer

A) P = AC. 
B) P = MC. 
C) P = AR. 
D) MR = AC. 
A) P = AC. 
B) P = MC. 
C) P = AR. 
D) MR = AC.

Question 7

Externalities are failures of

Accepted Answer

A) the market to correctly price resources. 
B) firms and consumers to make rational tradeoffs. 
C) firms to make rational tradeoffs. 
D) consumers to make rational tradeoffs. 
A) the market to correctly price resources. 
B) firms and consumers to make rational tradeoffs. 
C) firms to make rational tradeoffs. 
D) consumers to make rational tradeoffs.

Question 8

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 9

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, the consumer 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 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

If production of a good creates beneficial externalities, a perfectly competitive market will produce

Accepted Answer

A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is socially efficient. 
D) more output than is socially efficient. 
A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is socially efficient. 
D) more output than is socially efficient.

Question 14

Externalities can be either detrimental or beneficial to others.

Accepted Answer

A) True 
 B)False

Question 15

If the price of a commodity is above marginal cost, then the economy will tend to

Accepted Answer

A) overproduce the item. 
B) underproduce the item. 
C) produce the optimal amount of the item. 
D) overproduce and underproduce the item cyclically. 
A) overproduce the item. 
B) underproduce the item. 
C) produce the optimal amount of the item. 
D) overproduce and underproduce the item cyclically.

Question 16

Which of the following is not a public good?

Accepted Answer

A) A coastal lighthouse 
B) National defense 
C) A flood-control levee 
D) The latest Walt Disney movie 
A) A coastal lighthouse 
B) National defense 
C) A flood-control levee 
D) The latest Walt Disney movie

Question 17

A process through which a firm seeks to obtain earnings without contributing to production, thus wasting valuable resources, is known as

Accepted Answer

A) moral hazard. 
B) rent seeking. 
C) detrimental externality. 
D) a defective telescopic faculty. 
A) moral hazard. 
B) rent seeking. 
C) detrimental externality. 
D) a defective telescopic faculty.

Question 18

Market economies produce outcomes that are

Accepted Answer

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

Question 19

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 20

The key explanation for the prevalence of waterway pollution is

Accepted Answer

A) the inclusion in production of all costs involving use of the waterway. 
B) that there are private costs but no costs to society. 
C) that waterways are not private property and can be used free of charge. 
D) that waterways are subject to the market's normal control procedures. 
A) the inclusion in production of all costs involving use of the waterway. 
B) that there are private costs but no costs to society. 
C) that waterways are not private property and can be used free of charge. 
D) that waterways are subject to the market's normal control procedures.

Exam 15: The Shortcomings of Free Markets

Asymmetric information generally leads to efficient resource allocation.

Low interest rates will persuade corporations to invest more right now.

A competitive market may misallocate resources over time because

Education is subsidized because it generates beneficial externalities.

All externalities are detrimental.

What rule must be followed to obtain an efficient allocation of resources?

Externalities are failures of

How does imperfect information affect market decisions?

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, the consumer should

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

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

If production of a good creates beneficial externalities, a perfectly competitive market will produce

Externalities can be either detrimental or beneficial to others.

If the price of a commodity is above marginal cost, then the economy will tend to

Which of the following is not a public good?

A process through which a firm seeks to obtain earnings without contributing to production, thus wasting valuable resources, is known as

Market economies produce outcomes that are

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

The key explanation for the prevalence of waterway pollution is

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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