Question 1

An externality is an event that

Accepted Answer

A) is external to economics. 
B) always brings harm to someone in the economy. 
C) is incidental to some market activity. 
D) harms the economy as a whole rather than a particular person. 
A) is external to economics. 
B) always brings harm to someone in the economy. 
C) is incidental to some market activity. 
D) harms the economy as a whole rather than a particular person.

Question 2

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 3

The economic justification for public subsidies to university research is based on the

Accepted Answer

A) value of this research to the university. 
B) higher salaries graduate students earn as a result of working with professors involved in research. 
C) external benefits of research and development to, in particular, high rates of economic growth. 
D) higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.). 
A) value of this research to the university. 
B) higher salaries graduate students earn as a result of working with professors involved in research. 
C) external benefits of research and development to, in particular, high rates of economic growth. 
D) higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.).

Question 4

An efficient allocation of resources requires each product's price equals its marginal cost.

Accepted Answer

A) True 
 B)False

Question 5

A commodity is ____ if it is used up when someone consumes it.

Accepted Answer

A) marginal 
B) scalable 
C) depletable 
D) replaceable 
A) marginal 
B) scalable 
C) depletable 
D) replaceable

Question 6

It is efficient to increase the output of computers if

Accepted Answer

A) society considers the extra computers more valuable than other goods foregone to produce the computers. 
B) the opportunity cost of more computers is greater than their marginal utility. 
C) computer production can be increased only if production of other goods is decreased. 
D) the price of the computers is equal to their average cost. 
A) society considers the extra computers more valuable than other goods foregone to produce the computers. 
B) the opportunity cost of more computers is greater than their marginal utility. 
C) computer production can be increased only if production of other goods is decreased. 
D) the price of the computers is equal to their average cost.

Question 7

In a competitive market, a good is most likely to be provided at inefficient levels if

Accepted Answer

A) private opportunity costs are positive. 
B) people can easily be prevented from using a good. 
C) people cannot be prevented from using a good. 
D) the good is depleteable. 
A) private opportunity costs are positive. 
B) people can easily be prevented from using a good. 
C) people cannot be prevented from using a good. 
D) the good is depleteable.

Question 8

If the price of a commodity is above marginal cost, then the economy will tend to

Accepted Answer

A) overproduce the item. 
B) underproduce the item. 
C) produce the optimal amount of the item. 
D) overproduce and underproduce the item cyclically. 
A) overproduce the item. 
B) underproduce the item. 
C) produce the optimal amount of the item. 
D) overproduce and underproduce the item cyclically.

Question 9

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 10

What are private goods? Mention two important attributes of private goods.

Accepted Answer

A private good is a commodity characteri

Question 11

Government often finds it difficult to cope with externalities because

Accepted Answer

A) costs and benefits are difficult to assess in monetary terms. 
B) taxes and subsidies are ineffective in equating MSC and MSB. 
C) government has no authority to impose fines for air and water pollution. 
D) marginal private cost curves cannot be shifted. 
A) costs and benefits are difficult to assess in monetary terms. 
B) taxes and subsidies are ineffective in equating MSC and MSB. 
C) government has no authority to impose fines for air and water pollution. 
D) marginal private cost curves cannot be shifted.

Question 12

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 13

The factor that leads to underpricing and overuse of an economic resource is

Accepted Answer

A) human greed and selfishness. 
B) capital markets. 
C) the lack of an enforceable property right. 
D) the lack of understanding of pollution and its effects. 
A) human greed and selfishness. 
B) capital markets. 
C) the lack of an enforceable property right. 
D) the lack of understanding of pollution and its effects.

Question 14

There is much world concern over the deteriorating condition of the pyramids and other historical structures in Egypt. While people of all nations enjoy visiting these structures, there has been little financial support for preservation coming from within Egypt or from elsewhere. Economists would describe this as an example of

Accepted Answer

A) an externality. 
B) a public good. 
C) a free-rider problem. 
D) imperfect information. 
A) an externality. 
B) a public good. 
C) a free-rider problem. 
D) imperfect information.

Question 15

Which of the following is not an example of rent seeking?

Accepted Answer

A) A firm uses resources to convince a legislature to direct subsidies toward the firm. 
B) A mastermind hires a crew to tunnel into a bank vault. 
C) A person listens to an outdoor concert without paying. 
D) A window salesman throws bricks through perfectly fine windows. 
A) A firm uses resources to convince a legislature to direct subsidies toward the firm. 
B) A mastermind hires a crew to tunnel into a bank vault. 
C) A person listens to an outdoor concert without paying. 
D) A window salesman throws bricks through perfectly fine windows.

Question 16

All externalities are detrimental.

Accepted Answer

A) True 
 B)False

Question 17

An increase in wages in the public sector is caused solely by increased labor productivity in that sector.

Accepted Answer

A) True 
 B)False

Question 18

In the event of a detrimental externality that affects the public interest, government action is the only solution.

Accepted Answer

A) True 
 B)False

Question 19

The classic example of a detrimental externality is

Accepted Answer

A) education. 
B) pollution. 
C) discovery of an AIDS vaccine. 
D) Mrs. Lewis' prize-winning rose garden. 
A) education. 
B) pollution. 
C) discovery of an AIDS vaccine. 
D) Mrs. Lewis' prize-winning rose garden.

Question 20

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.

Exam 15: The Shortcomings of Free Markets

An externality is an event that

In an efficient market without externalities,

The economic justification for public subsidies to university research is based on the

An efficient allocation of resources requires each product's price equals its marginal cost.

A commodity is ____ if it is used up when someone consumes it.

It is efficient to increase the output of computers if

In a competitive market, a good is most likely to be provided at inefficient levels if

If the price of a commodity is above marginal cost, then the economy will tend to

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.

What are private goods? Mention two important attributes of private goods.

Government often finds it difficult to cope with externalities because

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

The factor that leads to underpricing and overuse of an economic resource is

Which of the following is not an example of rent seeking?

All externalities are detrimental.

An increase in wages in the public sector is caused solely by increased labor productivity in that sector.

In the event of a detrimental externality that affects the public interest, government action is the only solution.

The classic example of a detrimental externality is

The cost disease of the service sector is evidenced by

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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