Question 1

Productivity in manufacturing sectors has risen faster than in service sectors.

Accepted Answer

A) True 
 B)False

Question 2

Competitive markets generally do not provide unemployment insurance because of

Accepted Answer

A) problems created by moral hazard. 
B) problems created by externalities. 
C) problems created by cost disease. 
D) unemployment insurance is a public good. 
A) problems created by moral hazard. 
B) problems created by externalities. 
C) problems created by cost disease. 
D) unemployment insurance is a public good.

Question 3

Discuss the role of trust as a critical piece of any principal-agent situation. In particular, what role did trust play in the recent stock market scandals?

Accepted Answer

The main problem in a principal-agent si

Question 4

The principle of "comparable worth" asserts that people with comparable, if not identical, skills and responsibilities should receive the same pay. If this principle were to become law, it would tend to

Accepted Answer

A) reduce the problem of the "cost disease of services." 
B) exacerbate the problem of the "cost disease" of the service sector. 
C) be irrelevant to the "cost disease" problem. 
D) eliminate the problem of externalities. 
A) reduce the problem of the "cost disease of services." 
B) exacerbate the problem of the "cost disease" of the service sector. 
C) be irrelevant to the "cost disease" problem. 
D) eliminate the problem of externalities.

Question 5

Unscrupulous managers have learned ways to manipulate stock options and undermine their benefits to stockholders. Discuss some provisions that could be built into the process to curb such practices.

Accepted Answer

Such problems are best attacked directly

Question 6

An appropriate government policy toward negative externalities is to

Accepted Answer

A) subsidize the activity that creates the negative externality. 
B) impose a tax or fine on the activity that creates the negative externality. 
C) pay money to the party that creates the negative externality. 
D) impose a tax on recipients of the negative externality. 
A) subsidize the activity that creates the negative externality. 
B) impose a tax or fine on the activity that creates the negative externality. 
C) pay money to the party that creates the negative externality. 
D) impose a tax on recipients of the negative externality.

Question 7

Markets can efficiently handle irreversible decisions without involvement of government.

Accepted Answer

A) True 
 B)False

Question 8

If long-term investments are increasing,

Accepted Answer

A) current consumption must be increasing. 
B) interest rates must be relatively low. 
C) interest rates must be relatively high. 
D) the people must be experiencing a "defective telescopic faculty." 
A) current consumption must be increasing. 
B) interest rates must be relatively low. 
C) interest rates must be relatively high. 
D) the people must be experiencing a "defective telescopic faculty."

Question 9

Why do markets tend to underproduce public goods?

Accepted Answer

Markets, left to themselves, tend to und

Question 10

Transitioning from a centrally planned economy to a market economy

Accepted Answer

A) cannot occur. 
B) is a theoretical concern only. 
C) requires simply adopting market economy rules and laws. 
D) is possible but faces many challenges. 
A) cannot occur. 
B) is a theoretical concern only. 
C) requires simply adopting market economy rules and laws. 
D) is possible but faces many challenges.

Question 11

The "free rider" problem occurs when a good is

Accepted Answer

A) not available. 
B) not excludable. 
C) not depletable. 
D) not sold in free markets. 
A) not available. 
B) not excludable. 
C) not depletable. 
D) not sold in free markets.

Question 12

An increase in wages in the public sector is always accompanied by an increase in labor productivity.

Accepted Answer

A) True 
 B)False

Question 13

AZT is a drug that inhibits the reproduction of the AIDS virus, thus preventing the full development of the disease. The drug, which is sold in an unregulated market, is very expensive, and many AIDS patients who cannot afford it die from the disease. This case provides ammunition to critics of the market system on the basis of its

Accepted Answer

A) fairness. 
B) externalities. 
C) cost disease in services. 
D) inefficiency. 
A) fairness. 
B) externalities. 
C) cost disease in services. 
D) inefficiency.

Question 14

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

Accepted Answer

A) MSC > P. 
B) MPC > MSC. 
C) P > MU. 
D) MPC > P. 
A) MSC > P. 
B) MPC > MSC. 
C) P > MU. 
D) MPC > P.

Question 15

A public good has the quality of excludability but not the quality of depletability.

Accepted Answer

A) True 
 B)False

Question 16

An industry that generates detrimental externalities will have a marginal social cost higher than the marginal private cost to the industry.

Accepted Answer

A) True 
 B)False

Question 17

If a detrimental externality is being produced in the course of producing a good, then

Accepted Answer

A) P > MSC. 
B) MSC 
C) incidental costs are negative. 
D) output is inefficiently large. 
A) P > MSC. 
B) MSC 
C) incidental costs are negative. 
D) output is inefficiently large.

Question 18

If the market mechanism is efficient, the marginal cost accurately measures the opportunity cost of a good or service.

Accepted Answer

A) True 
 B)False

Question 19

Efficient resource allocation is defined as MC = AC.

Accepted Answer

A) True 
 B)False

Question 20

Moral hazard encourages people to take risks.

Accepted Answer

A) True 
 B)False

Exam 15: The Shortcomings of Free Markets

Productivity in manufacturing sectors has risen faster than in service sectors.

Competitive markets generally do not provide unemployment insurance because of

Discuss the role of trust as a critical piece of any principal-agent situation. In particular, what role did trust play in the recent stock market scandals?

The principle of "comparable worth" asserts that people with comparable, if not identical, skills and responsibilities should receive the same pay. If this principle were to become law, it would tend to

Unscrupulous managers have learned ways to manipulate stock options and undermine their benefits to stockholders. Discuss some provisions that could be built into the process to curb such practices.

An appropriate government policy toward negative externalities is to

Markets can efficiently handle irreversible decisions without involvement of government.

If long-term investments are increasing,

Why do markets tend to underproduce public goods?

Transitioning from a centrally planned economy to a market economy

The "free rider" problem occurs when a good is

An increase in wages in the public sector is always accompanied by an increase in labor productivity.

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

A public good has the quality of excludability but not the quality of depletability.

An industry that generates detrimental externalities will have a marginal social cost higher than the marginal private cost to the industry.

If a detrimental externality is being produced in the course of producing a good, then

If the market mechanism is efficient, the marginal cost accurately measures the opportunity cost of a good or service.

Efficient resource allocation is defined as MC = AC.

Moral hazard encourages people to take risks.

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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