Question 1

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.

Question 2

In a competitive market without intervention, pure public goods would be

Accepted Answer

A) produced but at inefficiently high quantities. 
B) produced but at inefficiently low quantities. 
C) freely available. 
D) not produced. 
A) produced but at inefficiently high quantities. 
B) produced but at inefficiently low quantities. 
C) freely available. 
D) not produced.

Question 3

SouthState Chemical Co. produces pine oil cleaners in a process that produces emissions that discolor the paint on nearby houses, although the emissions have been declared nontoxic to humans. 
a. Is the price for the cleaner likely to be allocatively efficient? Use a graphic illustration in your answer. 
b. If your answer to (a)is no, what is an appropriate government policy to correct the problem?

Accepted Answer

a. No, the price for the cleaner is too

Question 4

An efficient allocation of resources requires that a product's price equals its average cost.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The owner of a garage makes large contributions to a politician who is seeking the office of state governor. If his candidate wins, he will get the contract, which now resides with a competitor, to repair State Police vehicles. This is an example of

Accepted Answer

A) moral hazard. 
B) externality. 
C) rent seeking. 
D) investment. 
A) moral hazard. 
B) externality. 
C) rent seeking. 
D) investment.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Examples of public goods include national defense, police, and the U.S. Postal Service.

Accepted Answer

A) True 
 B)False

Question 9

When insurance causes people to take more risks, this is called

Accepted Answer

A) defective telescopic faculty. 
B) adverse selection. 
C) asymmetric information. 
D) moral hazard. 
A) defective telescopic faculty. 
B) adverse selection. 
C) asymmetric information. 
D) moral hazard.

Question 10

Competitive markets tend to produce an inefficiently large amount of beneficial externalities.

Accepted Answer

A) True 
 B)False

Question 11

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 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 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 14

The opportunity cost of postponing income to some future time depends on the interest rate.

Accepted Answer

A) True 
 B)False

Question 15

Pleasure boaters enjoy the use of waterways, but sometimes run into problems and need rescue. Coast Guard boats, supported by tax revenue, are often used for rescue. Is it likely that there will be an efficient amount of boating and rescuing?

Accepted Answer

No. The full cost of boating includes th

Question 16

A potential cause of competitive market failure is symmetric information.

Accepted Answer

A) True 
 B)False

Question 17

A market will be efficient even if there is imperfect information as long as the market is competitive.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 15: The Shortcomings of Free Markets

A firm is generating detrimental externalities when

In a competitive market without intervention, pure public goods would be

An efficient allocation of resources requires that a product's price equals its average cost.

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

The owner of a garage makes large contributions to a politician who is seeking the office of state governor. If his candidate wins, he will get the contract, which now resides with a competitor, to repair State Police vehicles. This is an example of

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

Examples of public goods include national defense, police, and the U.S. Postal Service.

When insurance causes people to take more risks, this is called

Competitive markets tend to produce an inefficiently large amount of beneficial externalities.

The concept of "government failure" implies

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

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?

The opportunity cost of postponing income to some future time depends on the interest rate.

Pleasure boaters enjoy the use of waterways, but sometimes run into problems and need rescue. Coast Guard boats, supported by tax revenue, are often used for rescue. Is it likely that there will be an efficient amount of boating and rescuing?

A potential cause of competitive market failure is symmetric information.

A market will be efficient even if there is imperfect information as long as the market is competitive.

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

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

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

What Is Economics

The Economy: 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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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