Question 1

Increasing productivity in a society

Accepted Answer

A) always results in a better quality of life as society views it. 
B) can never make a nation poorer. 
C) guarantees that personal services will cost less. 
D) makes improved personal services available to everyone. 
A) always results in a better quality of life as society views it. 
B) can never make a nation poorer. 
C) guarantees that personal services will cost less. 
D) makes improved personal services available to everyone.

Question 2

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 3

High interest rates

Accepted Answer

A) increase the profitability of capital investments. 
B) decrease the opportunity costs of capital investments. 
C) increase the opportunity costs of capital investments. 
D) decrease the profitability of current sales. 
A) increase the profitability of capital investments. 
B) decrease the opportunity costs of capital investments. 
C) increase the opportunity costs of capital investments. 
D) decrease the profitability of current sales.

Question 4

A car sells at different prices at different dealerships in an oligopolistic market. If a consumer has imperfect information about the price of a car at each dealership, the consumer should

Accepted Answer

A) always gather all available information about prices. 
B) gather information about prices until the expected marginal utility of more information equals the marginal cost of gathering it. 
C) gather information about prices only if it can be gathered without cost. 
D) ignore information about prices because it is irrelevant to making an "optimally imperfect" decision. 
A) always gather all available information about prices. 
B) gather information about prices until the expected marginal utility of more information equals the marginal cost of gathering it. 
C) gather information about prices only if it can be gathered without cost. 
D) ignore information about prices because it is irrelevant to making an "optimally imperfect" decision.

Question 5

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 6

If unemployment insurance causes someone to wait longer before looking for work, this would be called

Accepted Answer

A) asymmetric information. 
B) moral hazard. 
C) adverse selection. 
D) adverse allocation. 
A) asymmetric information. 
B) moral hazard. 
C) adverse selection. 
D) adverse allocation.

Question 7

How does imperfect information affect market decisions?

Accepted Answer

A) It doesn't because information is generally excellent. 
B) It leads to inefficient outcomes in which expected benefits and actual benefits diverge. 
C) It leads to wasteful attempts to improve information. 
D) It leads to exploitation of sellers by buyers. 
A) It doesn't because information is generally excellent. 
B) It leads to inefficient outcomes in which expected benefits and actual benefits diverge. 
C) It leads to wasteful attempts to improve information. 
D) It leads to exploitation of sellers by buyers.

Question 8

During the 1992 presidential campaign, H. Ross Perot made much of the various "special interests" which lobby in Washington, D.C. How might an economist view this? Which specific market breakdown may occur if there is lobbying? Relate your answer to the study of monopoly and oligopoly.

Accepted Answer

Lobbying may be a manifestation of rent

Question 9

In a market where the seller has more information than the buyer,

Accepted Answer

A) the seller can never gain by increasing the buyer's information. 
B) both the buyer and seller can gain by increasing the buyer's information. 
C) the buyer can never gain from increasing the seller's information. 
D) the buyer can only gain from additional information if it is costless. 
A) the seller can never gain by increasing the buyer's information. 
B) both the buyer and seller can gain by increasing the buyer's information. 
C) the buyer can never gain from increasing the seller's information. 
D) the buyer can only gain from additional information if it is costless.

Question 10

The cost disease of services explains the problems surrounding the health-care crisis.

Accepted Answer

A) True 
 B)False

Question 11

Figure 15-1
 
Figure 15-1 portrays conditions in the monopolized weezil industry. From the diagram, the production of weezils

Accepted Answer

A) must cause a detrimental externality. 
B) must cause a beneficial externality. 
C) must cause either a detrimental or a beneficial externality, more information is needed to determine which one. 
D) may or may not cause an externality. 
A) must cause a detrimental externality. 
B) must cause a beneficial externality. 
C) must cause either a detrimental or a beneficial externality, more information is needed to determine which one. 
D) may or may not cause an externality.

Question 12

Externalities are failures of

Accepted Answer

A) the market to correctly price resources. 
B) firms and consumers to make rational tradeoffs. 
C) firms to make rational tradeoffs. 
D) consumers to make rational tradeoffs. 
A) the market to correctly price resources. 
B) firms and consumers to make rational tradeoffs. 
C) firms to make rational tradeoffs. 
D) consumers to make rational tradeoffs.

Question 13

Marginal social costs are the sum of marginal private costs and incidental costs.

Accepted Answer

A) True 
 B)False

Question 14

Productivity growth tends to affect all industries to the same degree.

Accepted Answer

A) True 
 B)False

Question 15

It is true of externalities that they

Accepted Answer

A) are always detrimental. 
B) are always beneficial. 
C) arise when all costs, social and private, are included in production cost. 
D) cause the price system to misallocate resources. 
A) are always detrimental. 
B) are always beneficial. 
C) arise when all costs, social and private, are included in production cost. 
D) cause the price system to misallocate resources.

Question 16

If production of a good creates beneficial externalities, a perfectly competitive market will produce

Accepted Answer

A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is socially efficient. 
D) more output than is socially efficient. 
A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is socially efficient. 
D) more output than is socially efficient.

Question 17

The marginal cost of serving an additional user of a public good is zero.

Accepted Answer

A) True 
 B)False

Question 18

Where a firm generates beneficial externalities, society would be better off if

Accepted Answer

A) the firm produced a larger output level. 
B) the firm reduced its output level. 
C) a tax was levied on the firm equal to the dollar amount of the externalities. 
D) price was reduced below marginal private cost. 
A) the firm produced a larger output level. 
B) the firm reduced its output level. 
C) a tax was levied on the firm equal to the dollar amount of the externalities. 
D) price was reduced below marginal private cost.

Question 19

An efficient tax for a product with detrimental externalities would equal

Accepted Answer

A) marginal social cost minus marginal external cost. 
B) marginal private cost plus marginal external cost. 
C) marginal external cost minus marginal private cost. 
D) marginal social cost minus marginal private cost. 
A) marginal social cost minus marginal external cost. 
B) marginal private cost plus marginal external cost. 
C) marginal external cost minus marginal private cost. 
D) marginal social cost minus marginal private cost.

Question 20

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying. Enforcement of the company's property right is very expensive. This problem emerges because TV signals are basically

Accepted Answer

A) economic goods. 
B) invisible goods. 
C) depletable goods. 
D) public goods. 
A) economic goods. 
B) invisible goods. 
C) depletable goods. 
D) public goods.

Exam 15: The Shortcomings of Free Markets

Increasing productivity in a society

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

High interest rates

A car sells at different prices at different dealerships in an oligopolistic market. If a consumer has imperfect information about the price of a car at each dealership, the consumer should

In a free market economy,

If unemployment insurance causes someone to wait longer before looking for work, this would be called

How does imperfect information affect market decisions?

During the 1992 presidential campaign, H. Ross Perot made much of the various "special interests" which lobby in Washington, D.C. How might an economist view this? Which specific market breakdown may occur if there is lobbying? Relate your answer to the study of monopoly and oligopoly.

In a market where the seller has more information than the buyer,

The cost disease of services explains the problems surrounding the health-care crisis.

Figure 15-1 Figure 15-1 portrays conditions in the monopolized weezil industry. From the diagram, the production of weezils

Externalities are failures of

Marginal social costs are the sum of marginal private costs and incidental costs.

Productivity growth tends to affect all industries to the same degree.

It is true of externalities that they

If production of a good creates beneficial externalities, a perfectly competitive market will produce

The marginal cost of serving an additional user of a public good is zero.

Where a firm generates beneficial externalities, society would be better off if

An efficient tax for a product with detrimental externalities would equal

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying. Enforcement of the company's property right is very expensive. This problem emerges because TV signals are basically

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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