Question 1

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 2

Marginal social cost is made up of marginal private cost and external cost.

Accepted Answer

A) True 
 B)False

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

Is increased production of a good beneficial to society?

Accepted Answer

A) Yes, because scarcity is such an overriding concern. 
B) Yes, because more is always better. 
C) Maybe, it depends on what is foregone. 
D) No, because increased production does not increase utility. 
A) Yes, because scarcity is such an overriding concern. 
B) Yes, because more is always better. 
C) Maybe, it depends on what is foregone. 
D) No, because increased production does not increase utility.

Question 5

The interest rate is determined purely by market forces, and not by government involvement.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Rent seeking refers to unproductive activity in the pursuit of profit.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

What do you mean by Coase theorem?

Accepted Answer

Coase theorem suggests that, with low tr

Question 10

As manufacturing becomes more efficient, services can be expected to become more costly.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 13

Which of the following is not a problem for the price system allocating resources among different time periods?

Accepted Answer

A) Interest rates are used for a variety of purposes other than influencing investment. 
B) The market devotes too much to immediate consumption. 
C) Our market system leads to lesser real incomes for later generations. 
D) Our market system despoils irreplaceable natural resources. 
A) Interest rates are used for a variety of purposes other than influencing investment. 
B) The market devotes too much to immediate consumption. 
C) Our market system leads to lesser real incomes for later generations. 
D) Our market system despoils irreplaceable natural resources.

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Briefly and concisely define the following concepts and terms. 
a. marginal social cost 
b. detrimental externalities 
c. free-rider problem 
d. cost disease 
e. "defective telescopic faculty"

Accepted Answer

a. Marginal social cost is the sum of ma

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

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

Marginal social cost is made up of marginal private cost and external cost.

An "optimally imperfect" decision is one that

Is increased production of a good beneficial to society?

The interest rate is determined purely by market forces, and not by government involvement.

In an ideal competitive market,

Rent seeking refers to unproductive activity in the pursuit of profit.

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

What do you mean by Coase theorem?

As manufacturing becomes more efficient, services can be expected to become more costly.

When beneficial externalities are present in a market, the actual output will be

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

Which of the following is not a problem for the price system allocating resources among different time periods?

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

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

Briefly and concisely define the following concepts and terms. a. marginal social cost b. detrimental externalities c. free-rider problem d. cost disease e. "defective telescopic faculty"

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

The lure of _______ directs resources toward capital investments.

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

Filters

Exam 15: The Shortcomings of Free Markets

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

Marginal social cost is made up of marginal private cost and external cost.

An "optimally imperfect" decision is one that

Is increased production of a good beneficial to society?

The interest rate is determined purely by market forces, and not by government involvement.

In an ideal competitive market,

Rent seeking refers to unproductive activity in the pursuit of profit.

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

What do you mean by Coase theorem?

As manufacturing becomes more efficient, services can be expected to become more costly.

When beneficial externalities are present in a market, the actual output will be

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

Which of the following is not a problem for the price system allocating resources among different time periods?

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

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

Briefly and concisely define the following concepts and terms. a. marginal social cost b. detrimental externalities c. free-rider problem d. cost disease e. "defective telescopic faculty"

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

The lure of _______ directs resources toward capital investments.

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

Filters