Question 1

Because technology has automated so many functions, personal services have become cheaper in order to compete.

Accepted Answer

A) True 
 B)False

Question 2

If the interest rate rises, a profit-maximizing firm will tend to

Accepted Answer

A) invest in more projects (such as new plants) with payoffs in the future. 
B) invest in fewer projects with payoffs in the future. 
C) increase both current output and future output. 
D) reduce both current output and future output. 
A) invest in more projects (such as new plants) with payoffs in the future. 
B) invest in fewer projects with payoffs in the future. 
C) increase both current output and future output. 
D) reduce both current output and future output.

Question 3

A public good is

Accepted Answer

A) always depletable and excludable. 
B) always depletable and often excludable. 
C) never depletable and always excludable. 
D) never depletable and always nonexcludable. 
A) always depletable and excludable. 
B) always depletable and often excludable. 
C) never depletable and always excludable. 
D) never depletable and always nonexcludable.

Question 4

The economic justification for public subsidies to university research is based on the

Accepted Answer

A) value of this research to the university. 
B) higher salaries graduate students earn as a result of working with professors involved in research. 
C) external benefits of research and development to, in particular, high rates of economic growth. 
D) higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.). 
A) value of this research to the university. 
B) higher salaries graduate students earn as a result of working with professors involved in research. 
C) external benefits of research and development to, in particular, high rates of economic growth. 
D) higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.).

Question 5

As wages for manufacturing workers rise, wages for service workers will stay the same.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an example of moral hazard?

Accepted Answer

A) A college student drinking alcohol and partying instead of studying. 
B) A homeowner with fire insurance not clearing bush around their property. 
C) A chronically sick person using hospital services. 
D) A chronically sick person buying more health insurance than average. 
A) A college student drinking alcohol and partying instead of studying. 
B) A homeowner with fire insurance not clearing bush around their property. 
C) A chronically sick person using hospital services. 
D) A chronically sick person buying more health insurance than average.

Question 7

Figure 15-1  
-When beneficial externalities are present in a market, the actual output will be

Accepted Answer

A) greater than the optimal output. 
B) smaller than the optimal output. 
C) equal to the optimal output. 
D) either smaller or greater than the optimal output. 
A) greater than the optimal output. 
B) smaller than the optimal output. 
C) equal to the optimal output. 
D) either smaller or greater than the optimal output.

Question 8

If unemployment insurance causes someone to wait longer before looking for work, this would be called

Accepted Answer

A) asymmetric information. 
B) moral hazard. 
C) adverse selection. 
D) adverse allocation. 
A) asymmetric information. 
B) moral hazard. 
C) adverse selection. 
D) adverse allocation.

Question 9

As productivity in the manufacturing sector increases, the service sector must keep pace or it will become more expensive in the long run.

Accepted Answer

A) True 
 B)False

Question 10

Increasing productivity in a society

Accepted Answer

A) always results in a better quality of life as society views it. 
B) can never make a nation poorer. 
C) guarantees that personal services will cost less. 
D) makes improved personal services available to everyone. 
A) always results in a better quality of life as society views it. 
B) can never make a nation poorer. 
C) guarantees that personal services will cost less. 
D) makes improved personal services available to everyone.

Question 11

The market mechanism is more efficient in allocating resources between time periods than it is in allocating resources among different industries.

Accepted Answer

A) True 
 B)False

Question 12

The pollution emitted by a power plant is an example of a detrimental externality.

Accepted Answer

A) True 
 B)False

Question 13

Marginal social cost is defined as marginal private cost

Accepted Answer

A) plus opportunity cost. 
B) plus marginal opportunity cost. 
C) minus incidental cost. 
D) plus incidental cost. 
A) plus opportunity cost. 
B) plus marginal opportunity cost. 
C) minus incidental cost. 
D) plus incidental cost.

Question 14

An increase in wages in the public sector is always accompanied by an increase in labor productivity.

Accepted Answer

A) True 
 B)False

Question 15

In a competitive market, a good is most likely to be provided at inefficient levels if

Accepted Answer

A) private opportunity costs are positive. 
B) people can easily be prevented from using a good. 
C) people cannot be prevented from using a good. 
D) the good is depleteable. 
A) private opportunity costs are positive. 
B) people can easily be prevented from using a good. 
C) people cannot be prevented from using a good. 
D) the good is depleteable.

Question 16

Many detrimental externalities occur because

Accepted Answer

A) persons do not pay the full social cost of using a resource. 
B) persons do not pay the full private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the full social cost of using a resource. 
A) persons do not pay the full social cost of using a resource. 
B) persons do not pay the full private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the full social cost of using a resource.

Question 17

It is possible to charge a price for a pure public good.

Accepted Answer

A) True 
 B)False

Question 18

When General Motors pays an outside vendor for auto parts, this is an external cost.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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.

Exam 15: The Shortcomings of Free Markets

Because technology has automated so many functions, personal services have become cheaper in order to compete.

If the interest rate rises, a profit-maximizing firm will tend to

A public good is

The economic justification for public subsidies to university research is based on the

As wages for manufacturing workers rise, wages for service workers will stay the same.

Which of the following is an example of moral hazard?

Figure 15-1 -When beneficial externalities are present in a market, the actual output will be

If unemployment insurance causes someone to wait longer before looking for work, this would be called

As productivity in the manufacturing sector increases, the service sector must keep pace or it will become more expensive in the long run.

Increasing productivity in a society

The market mechanism is more efficient in allocating resources between time periods than it is in allocating resources among different industries.

The pollution emitted by a power plant is an example of a detrimental externality.

Marginal social cost is defined as marginal private cost

An increase in wages in the public sector is always accompanied by an increase in labor productivity.

In a competitive market, a good is most likely to be provided at inefficient levels if

Many detrimental externalities occur because

It is possible to charge a price for a pure public good.

When General Motors pays an outside vendor for auto parts, this is an external cost.

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

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

Filters