Question 1

An industry that generates detrimental externalities will have a marginal social cost higher than the marginal private cost to the industry.

Accepted Answer

A) True 
 B)False

Question 2

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 3

An "optimally imperfect" decision is one that

Accepted Answer

A) is vaguely right instead of precisely wrong. 
B) recognizes that the decision could always be better if given more time. 
C) recognizes that the cost of additional information probably exceeds the potential gain from making a better decision. 
D) recognizes that any decision is imperfect because humans have limited intellectual capacities. 
A) is vaguely right instead of precisely wrong. 
B) recognizes that the decision could always be better if given more time. 
C) recognizes that the cost of additional information probably exceeds the potential gain from making a better decision. 
D) recognizes that any decision is imperfect because humans have limited intellectual capacities.

Question 4

Are national forests public goods? Explain.

Accepted Answer

Yes.Forests provide soil reten

Question 5

Moral hazard encourages people to take risks.

Accepted Answer

A) True 
 B)False

Question 6

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying.Enforcement of the company's property right is very expensive.This problem emerges because TV signals are basically

Accepted Answer

A) economic goods. 
B) invisible goods. 
C) depletable goods. 
D) public goods. 
A) economic goods. 
B) invisible goods. 
C) depletable goods. 
D) public goods.

Question 7

Marginal social costs are the sum of marginal private costs and incidental costs.

Accepted Answer

A) True 
 B)False

Question 8

Market economies produce only a few relatively minor defects.

Accepted Answer

A) True 
 B)False

Question 9

Students in a class are assigned to groups to work on a project.A grade will be given for each project, and everyone in the group will receive that grade.For the members of a particular group, the grade is a

Accepted Answer

A) beneficial externality. 
B) public good. 
C) detrimental externality. 
D) moral hazard. 
A) beneficial externality. 
B) public good. 
C) detrimental externality. 
D) moral hazard.

Question 10

If interest rates fall, the opportunity cost of spending money today rather than tomorrow

Accepted Answer

A) rises. 
B) falls. 
C) rises only if the prices of goods today rise. 
D) falls only if the prices of goods today fall. 
A) rises. 
B) falls. 
C) rises only if the prices of goods today rise. 
D) falls only if the prices of goods today fall.

Question 11

Rent seeking is a way of earning profit without adding to the product's value.

Accepted Answer

A) True 
 B)False

Question 12

The cost disease of personal services occurs when labor productivity in the general economy is

Accepted Answer

A) decreasing. 
B) increasing. 
C) increasing faster than in personal services. 
D) increasing slower than in personal services. 
A) decreasing. 
B) increasing. 
C) increasing faster than in personal services. 
D) increasing slower than in personal services.

Question 13

Which of the following is not an attempt to remedy and externality?

Accepted Answer

A) A tax per ton of sulfur dioxide pollution. 
B) Government quotas for individual fisherman to limit harvesting of wild salmon. 
C) Home association codes requiring home owners to maintain front yards. 
D) Price controls to combat the effects of the cost disease. 
A) A tax per ton of sulfur dioxide pollution. 
B) Government quotas for individual fisherman to limit harvesting of wild salmon. 
C) Home association codes requiring home owners to maintain front yards. 
D) Price controls to combat the effects of the cost disease.

Question 14

Markets are primarily responsible for the rapid rise in productivity during the 20th century.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) Beneficial cost 
B) External cost 
C) Marginal private cost 
D) Marginal social cost 
A) Beneficial cost 
B) External cost 
C) Marginal private cost 
D) Marginal social cost

Question 16

In an ideal competitive market,

Accepted Answer

A) excludable goods are minimized. 
B) there are no depleteable goods. 
C) external benefits are maximized. 
D) social surplus is maximized. 
A) excludable goods are minimized. 
B) there are no depleteable goods. 
C) external benefits are maximized. 
D) social surplus is maximized.

Question 17

The lure of _______ directs resources toward capital investments.

Accepted Answer

A) future profits 
B) current consumption 
C) high interest rates 
D) future interest rates 
A) future profits 
B) current consumption 
C) high interest rates 
D) future interest rates

Question 18

It has been said that well-educated citizens are necessary for democracy.Discuss this idea in economic terms.What market imperfection might occur and what are the appropriate government policies to correct it?

Accepted Answer

Education provides a beneficial external

Question 19

Private goods are characterized by two important attributes.What are they?

Accepted Answer

A) Marginality and depletability 
B) Scalability and desirability 
C) Repeatability and reliability 
D) Depletability and excludability 
A) Marginality and depletability 
B) Scalability and desirability 
C) Repeatability and reliability 
D) Depletability and excludability

Question 20

The production possibilities frontier shows the feasible combinations of production without waste.

Accepted Answer

A) True 
 B)False

Exam 15: The Shortcomings of Free Markets

An industry that generates detrimental externalities will have a marginal social cost higher than the marginal private cost to the industry.

Which of the following statements is correct?

An "optimally imperfect" decision is one that

Are national forests public goods? Explain.

Moral hazard encourages people to take risks.

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying.Enforcement of the company's property right is very expensive.This problem emerges because TV signals are basically

Marginal social costs are the sum of marginal private costs and incidental costs.

Market economies produce only a few relatively minor defects.

Students in a class are assigned to groups to work on a project.A grade will be given for each project, and everyone in the group will receive that grade.For the members of a particular group, the grade is a

If interest rates fall, the opportunity cost of spending money today rather than tomorrow

Rent seeking is a way of earning profit without adding to the product's value.

The cost disease of personal services occurs when labor productivity in the general economy is

Which of the following is not an attempt to remedy and externality?

Markets are primarily responsible for the rapid rise in productivity during the 20th century.

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

In an ideal competitive market,

The lure of _______ directs resources toward capital investments.

It has been said that well-educated citizens are necessary for democracy.Discuss this idea in economic terms.What market imperfection might occur and what are the appropriate government policies to correct it?

Private goods are characterized by two important attributes.What are they?

The production possibilities frontier shows the feasible combinations of production without waste.

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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