Question 1

Which of the following does not cause competitive market failure?

Accepted Answer

A) Detrimental externalities 
B) Beneficial externalities 
C) Poorly defined property rights 
D) The cost disease 
A) Detrimental externalities 
B) Beneficial externalities 
C) Poorly defined property rights 
D) The cost disease

Question 2

Explain whether the market produces too little, too much, or the right amount of goods with (a)detrimental externalities and (b)public good characteristics.

Accepted Answer

For goods with detrimental externalities

Question 3

The supply of public goods must be left to government and nonprofit institutions. Why?

Accepted Answer

Because nonpaying users usually cannot b

Question 4

Critics argue that society is depleting its energy resources far too quickly. The most likely explanation for this behavior is that

Accepted Answer

A) firms try to avoid making irreversible decisions about resource depletion. 
B) investors expect interest rates to fall continuously in the future. 
C) individuals tend to value their own well-being more highly than the well-being of future generations. 
D) people do not have what Pigou called a "defective telescopic faculty." 
A) firms try to avoid making irreversible decisions about resource depletion. 
B) investors expect interest rates to fall continuously in the future. 
C) individuals tend to value their own well-being more highly than the well-being of future generations. 
D) people do not have what Pigou called a "defective telescopic faculty."

Question 5

Define the following terms and explain their importance to the study of economics. 
a. public good 
b. externality 
c. irreversible decision 
d. moral hazard 
e. rent seeking

Accepted Answer

a. A public good is a commodity or servi

Question 6

An economy produces only two goods: paper and scissors. Dyes from paper production pollute a nearby river. Use a production possibilities curve (PPC)to illustrate your explanation of how the unfettered market would fail to provide the efficient mix of paper and scissors.

Accepted Answer

Label one point on the PPC the efficient

Question 7

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 8

A true public good is characterized by

Accepted Answer

A) depletability but not excludability. 
B) excludability but not depletability. 
C) both depletability and excludability. 
D) neither depletability nor excludability. 
A) depletability but not excludability. 
B) excludability but not depletability. 
C) both depletability and excludability. 
D) neither depletability nor excludability.

Question 9

A good's marginal social cost is defined as its

Accepted Answer

A) marginal private cost minus the value of any detrimental externality. 
B) incidental cost. 
C) marginal private cost plus the value of any taxes paid on its production. 
D) marginal private cost plus its incidental cost. 
A) marginal private cost minus the value of any detrimental externality. 
B) incidental cost. 
C) marginal private cost plus the value of any taxes paid on its production. 
D) marginal private cost plus its incidental cost.

Question 10

Figure 15-2
 
The firm illustrated in Figure 15-2 is producing

Accepted Answer

A) less than it would if the external costs were internalized. 
B) more than it would if external costs were internalized. 
C) a beneficial externality. 
D) at the socially optimal point. 
A) less than it would if the external costs were internalized. 
B) more than it would if external costs were internalized. 
C) a beneficial externality. 
D) at the socially optimal point.

Question 11

When MSC > MPC, there are detrimental externalities.

Accepted Answer

A) True 
 B)False

Question 12

National defense and coastal lighthouses are examples of

Accepted Answer

A) public goods. 
B) private goods. 
C) high marginal cost goods. 
D) depletable goods. 
A) public goods. 
B) private goods. 
C) high marginal cost goods. 
D) depletable goods.

Question 13

Rent seeking creates incentives for firms to use resources efficiently.

Accepted Answer

A) True 
 B)False

Question 14

Explain why government, rather than private firms, is required for efficient mosquito eradication programs.

Accepted Answer

Mosquito eradication is a public good. I

Question 15

Externalities can be either detrimental or beneficial to others.

Accepted Answer

A) True 
 B)False

Question 16

Rent-seeking behavior refers to

Accepted Answer

A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices. 
A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices.

Question 17

Regarding government manipulation of the interest rate, all of these statements are correct, except

Accepted Answer

A) to address business fluctuations, governments may reduce interest rates to induce people to borrow. 
B) such manipulations may give little thought to the effects on resource allocation between present and future. 
C) economists agree with the concept of using of interest rates to allocate resources among different time periods. 
D) generally, the price system reflects public preference between present and future resource allocation. 
A) to address business fluctuations, governments may reduce interest rates to induce people to borrow. 
B) such manipulations may give little thought to the effects on resource allocation between present and future. 
C) economists agree with the concept of using of interest rates to allocate resources among different time periods. 
D) generally, the price system reflects public preference between present and future resource allocation.

Question 18

Due to Pigou's "defective telescopic faculty," a market economy is inefficient in allocating resources between the present and the future.

Accepted Answer

A) True 
 B)False

Question 19

In general, monopolies decrease economic efficiency. But in the presence of detrimental externalities, is it possible for a monopoly to be more efficient than a competitive market? Why, or why not?

Accepted Answer

Yes. Detrimental externalities lead to i

Question 20

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.

Exam 15: The Shortcomings of Free Markets

Which of the following does not cause competitive market failure?

Explain whether the market produces too little, too much, or the right amount of goods with (a)detrimental externalities and (b)public good characteristics.

The supply of public goods must be left to government and nonprofit institutions. Why?

Critics argue that society is depleting its energy resources far too quickly. The most likely explanation for this behavior is that

Define the following terms and explain their importance to the study of economics. a. public good b. externality c. irreversible decision d. moral hazard e. rent seeking

An economy produces only two goods: paper and scissors. Dyes from paper production pollute a nearby river. Use a production possibilities curve (PPC)to illustrate your explanation of how the unfettered market would fail to provide the efficient mix of paper and scissors.

Which of the following is an example of moral hazard?

A true public good is characterized by

A good's marginal social cost is defined as its

Figure 15-2 The firm illustrated in Figure 15-2 is producing

When MSC > MPC, there are detrimental externalities.

National defense and coastal lighthouses are examples of

Rent seeking creates incentives for firms to use resources efficiently.

Explain why government, rather than private firms, is required for efficient mosquito eradication programs.

Externalities can be either detrimental or beneficial to others.

Rent-seeking behavior refers to

Regarding government manipulation of the interest rate, all of these statements are correct, except

Due to Pigou's "defective telescopic faculty," a market economy is inefficient in allocating resources between the present and the future.

In general, monopolies decrease economic efficiency. But in the presence of detrimental externalities, is it possible for a monopoly to be more efficient than a competitive market? Why, or why not?

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

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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