Question 1

The cost disease of the service sector is evidenced by

Accepted Answer

A) a failure of the market mechanism. 
B) increased quality of public and private services. 
C) dramatic increases in municipal budget burdens for education, health care, and police and fire protection. 
D) the increased productivity in the services area. 
A) a failure of the market mechanism. 
B) increased quality of public and private services. 
C) dramatic increases in municipal budget burdens for education, health care, and police and fire protection. 
D) the increased productivity in the services area.

Question 2

When MSC > MPC, there are detrimental externalities.

Accepted Answer

A) True 
 B)False

Question 3

The concept of "government failure" implies

Accepted Answer

A) laissez faire is always best. 
B) government intervention is always justified since government never fails. 
C) no market failure can be corrected by government intervention. 
D) government intervention to correct a "market failure" sometimes fails. 
A) laissez faire is always best. 
B) government intervention is always justified since government never fails. 
C) no market failure can be corrected by government intervention. 
D) government intervention to correct a "market failure" sometimes fails.

Question 4

Imposing fines on companies that contribute heavily to air and water pollution is an attempt to bring marginal private costs in line with marginal social costs.

Accepted Answer

A) True 
 B)False

Question 5

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

Accepted Answer

A) $5. 
B) $105. 
C) less than $5 if people suffer from a "defective telescopic faculty." 
D) more than $5 if people suffer from a "defective telescopic faculty." 
A) $5. 
B) $105. 
C) less than $5 if people suffer from a "defective telescopic faculty." 
D) more than $5 if people suffer from a "defective telescopic faculty."

Question 6

A public good has the quality of excludability but not the quality of depletability.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following observations is true?

Accepted Answer

A) The cost disease is most prevalent in low income countries. 
B) The cost disease affects public goods but not private goods. 
C) The cost disease is most prevalent in commodity markets. 
D) The cost disease occurs as the opportunity cost of labor increases. 
A) The cost disease is most prevalent in low income countries. 
B) The cost disease affects public goods but not private goods. 
C) The cost disease is most prevalent in commodity markets. 
D) The cost disease occurs as the opportunity cost of labor increases.

Question 8

A market economy provides solutions to almost all social ills such as poverty and environmental damage.

Accepted Answer

A) True 
 B)False

Question 9

Why do markets tend to underproduce public goods?

Accepted Answer

Markets, left to themselves, tend to und

Question 10

In an efficient market without externalities,

Accepted Answer

A) price equals marginal private cost and is below marginal social cost. 
B) price equals marginal private cost and marginal social cost. 
C) price equals marginal private value and is below marginal external value. 
D) price equals marginal private value and marginal external value. 
A) price equals marginal private cost and is below marginal social cost. 
B) price equals marginal private cost and marginal social cost. 
C) price equals marginal private value and is below marginal external value. 
D) price equals marginal private value and marginal external value.

Question 11

Explain how stock options can ensure compatibility between the interest of stockholders and managers.

Accepted Answer

When the price of the company's stock go

Question 12

In the allocation of resources between present and future,

Accepted Answer

A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies. 
A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies.

Question 13

If a firm's activities generate detrimental externalities, the marginal social cost will be less than the marginal private cost.

Accepted Answer

A) True 
 B)False

Question 14

If a commodity's price is above its marginal cost, the market will tend to produce too much of the good.

Accepted Answer

A) True 
 B)False

Question 15

If both a buyer and a seller have the same information, they are said to have symmetric information.

Accepted Answer

A) True 
 B)False

Question 16

Government can deal with externalities through the use of taxes and subsidies.

Accepted Answer

A) True 
 B)False

Question 17

In a free market economy,

Accepted Answer

A) problems with externalities can never be solved. 
B) public goods will be efficiently provided by the private sector. 
C) detrimental externalities are rare. 
D) externalities can be solved by policy makers using market methods. 
A) problems with externalities can never be solved. 
B) public goods will be efficiently provided by the private sector. 
C) detrimental externalities are rare. 
D) externalities can be solved by policy makers using market methods.

Question 18

The cost disease of the service sector in recent years is the result of

Accepted Answer

A) market failure. 
B) government intervention. 
C) collective bargaining by unions. 
D) uneven productivity growth. 
A) market failure. 
B) government intervention. 
C) collective bargaining by unions. 
D) uneven productivity growth.

Question 19

The desirable level of output in a perfectly competitive market if there exists a detrimental externality is

Accepted Answer

A) the point at which MSC curve intersects the marginal revenue curve. 
B) the point at which MSC intersects the MPC. 
C) the point at which MSC intersects the marginal private benefit curve. 
D) the point at which marginal revenue curve intersects the MPC. 
A) the point at which MSC curve intersects the marginal revenue curve. 
B) the point at which MSC intersects the MPC. 
C) the point at which MSC intersects the marginal private benefit curve. 
D) the point at which marginal revenue curve intersects the MPC.

Question 20

A firm is generating detrimental externalities when

Accepted Answer

A) MSC is less than MPC. 
B) MSC is the same as MPC. 
C) MSC is greater than MPC. 
D) MPC includes some incidental costs. 
A) MSC is less than MPC. 
B) MSC is the same as MPC. 
C) MSC is greater than MPC. 
D) MPC includes some incidental costs.

Exam 15: The Shortcomings of Free Markets

The cost disease of the service sector is evidenced by

When MSC > MPC, there are detrimental externalities.

The concept of "government failure" implies

Imposing fines on companies that contribute heavily to air and water pollution is an attempt to bring marginal private costs in line with marginal social costs.

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

A public good has the quality of excludability but not the quality of depletability.

Which of the following observations is true?

A market economy provides solutions to almost all social ills such as poverty and environmental damage.

Why do markets tend to underproduce public goods?

In an efficient market without externalities,

Explain how stock options can ensure compatibility between the interest of stockholders and managers.

In the allocation of resources between present and future,

If a firm's activities generate detrimental externalities, the marginal social cost will be less than the marginal private cost.

If a commodity's price is above its marginal cost, the market will tend to produce too much of the good.

If both a buyer and a seller have the same information, they are said to have symmetric information.

Government can deal with externalities through the use of taxes and subsidies.

In a free market economy,

The cost disease of the service sector in recent years is the result of

The desirable level of output in a perfectly competitive market if there exists a detrimental externality is

A firm is generating detrimental externalities when

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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