Question 1

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 2

Public goods could effectively be provided by private markets, but we choose to provide them through government.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following term refers to the share of an activity's marginal cost that is paid for by the persons 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 4

A free rider is one who enjoys the benefits of a public good without paying for it.

Accepted Answer

A) True 
 B)False

Question 5

The classic example of a detrimental externality is

Accepted Answer

A) education. 
B) pollution. 
C) discovery of an AIDS vaccine. 
D) Mrs.Lewis' prize-winning rose garden. 
A) education. 
B) pollution. 
C) discovery of an AIDS vaccine. 
D) Mrs.Lewis' prize-winning rose garden.

Question 6

A good's marginal social cost is defined as its

Accepted Answer

A) marginal private cost minus the value of any detrimental externality. 
B) incidental cost. 
C) marginal private cost plus the value of any taxes paid on its production. 
D) marginal private cost plus its incidental cost. 
A) marginal private cost minus the value of any detrimental externality. 
B) incidental cost. 
C) marginal private cost plus the value of any taxes paid on its production. 
D) marginal private cost plus its incidental cost.

Question 7

In general, monopolies decrease economic efficiency.But in the presence of detrimental externalities, is it possible for a monopoly to be more efficient than a competitive market? Why, or why not?

Accepted Answer

Yes.Detrimental externalities lead to in

Question 8

Figure 15-1  
-Figure 15-1 portrays conditions in the monopolized weezil industry.From the diagram, the production of weezils

Accepted Answer

A) must cause a detrimental externality. 
B) must cause a beneficial externality. 
C) must cause either a detrimental or a beneficial externality, more information is needed to determine which one. 
D) may or may not cause an externality. 
A) must cause a detrimental externality. 
B) must cause a beneficial externality. 
C) must cause either a detrimental or a beneficial externality, more information is needed to determine which one. 
D) may or may not cause an externality.

Question 9

Figure 15-2  
-The firm illustrated in Figure 15-2 is producing

Accepted Answer

A) less than it would if the external costs were internalized. 
B) more than it would if external costs were internalized. 
C) a beneficial externality. 
D) at the socially optimal point. 
A) less than it would if the external costs were internalized. 
B) more than it would if external costs were internalized. 
C) a beneficial externality. 
D) at the socially optimal point.

Question 10

Markets can efficiently handle irreversible decisions without involvement of government.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Hostile takeovers of corporations have been in the business news for some time now.Several states have passed laws making it harder for out-of-state corporations to acquire firms headquartered in their states.Several corporations have established "golden parachutes" to give executives high payoffs in case of hostile takeover.What market imperfection is likely to be worsened by these actions? Explain.

Accepted Answer

The problem of agency is likely to grow

Question 13

Efficient resource allocation is defined as MC = AC.

Accepted Answer

A) True 
 B)False

Question 14

One of the reasons why firms pollute the air is that

Accepted Answer

A) use of the air is not easily excludable. 
B) use of the air is costless to society. 
C) use of the air is excludable. 
D) moral hazard creates incentives to pollute the air. 
A) use of the air is not easily excludable. 
B) use of the air is costless to society. 
C) use of the air is excludable. 
D) moral hazard creates incentives to pollute the air.

Question 15

Private ownership of rivers and lakes will halt all water pollution.

Accepted Answer

A) True 
 B)False

Question 16

Figure 15-1  
-Figure 15-1 describes conditions in the monopolized weezil industry.In the absence of government intervention, the monopolist will produce an output equal to

Accepted Answer

A) W. 
B) X. 
C) Y. 
D) Z. 
A) W. 
B) X. 
C) Y. 
D) Z.

Question 17

Public goods are

Accepted Answer

A) nondepleteable and nonexcludable. 
B) depleteable and excludable. 
C) nondepleteable but excludable. 
D) depleteable but nonexcludable. 
A) nondepleteable and nonexcludable. 
B) depleteable and excludable. 
C) nondepleteable but excludable. 
D) depleteable but nonexcludable.

Question 18

There is no way that externalities can be corrected.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Land on both sides of the border of Brazil and Venezuela has long been occupied by the Yanomamo people.These "fierce people" are the last Stone Age tribe left in South America.Following discovery of gold, approximately 45,000 garimpeiros (gold miners) invaded the Yanomamo territory.The mining process pollutes the rivers and scares away game, so traditional Yanomamo sources of food are almost impossible to find now.The Yanomamo are starving.Economists call this problem

Accepted Answer

A) the cost disease. 
B) an externality. 
C) specialization. 
D) rent seeking. 
A) the cost disease. 
B) an externality. 
C) specialization. 
D) rent seeking.

Exam 15: The Shortcomings of Free Markets

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

Public goods could effectively be provided by private markets, but we choose to provide them through government.

Which of the following term refers to the share of an activity's marginal cost that is paid for by the persons who carry out the activity?

A free rider is one who enjoys the benefits of a public good without paying for it.

The classic example of a detrimental externality is

A good's marginal social cost is defined as its

In general, monopolies decrease economic efficiency.But in the presence of detrimental externalities, is it possible for a monopoly to be more efficient than a competitive market? Why, or why not?

Figure 15-1 -Figure 15-1 portrays conditions in the monopolized weezil industry.From the diagram, the production of weezils

Figure 15-2 -The firm illustrated in Figure 15-2 is producing

Markets can efficiently handle irreversible decisions without involvement of government.

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

Efficient resource allocation is defined as MC = AC.

One of the reasons why firms pollute the air is that

Private ownership of rivers and lakes will halt all water pollution.

Figure 15-1 -Figure 15-1 describes conditions in the monopolized weezil industry.In the absence of government intervention, the monopolist will produce an output equal to

Public goods are

There is no way that externalities can be corrected.

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

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

Filters

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