Question 1

Are national forests public goods? Explain.

Accepted Answer

Yes. Forests provide soil rete

Question 2

Which of the following term refers to the share of an activity's marginal cost that is paid for by the persons who carry out the activity?

Accepted Answer

A) Beneficial cost 
B) Incidental cost 
C) Marginal private cost 
D) Marginal social cost 
A) Beneficial cost 
B) Incidental cost 
C) Marginal private cost 
D) Marginal social cost

Question 3

Marginal social cost is defined as marginal private cost

Accepted Answer

A) plus opportunity cost. 
B) plus marginal opportunity cost. 
C) minus incidental cost. 
D) plus incidental cost. 
A) plus opportunity cost. 
B) plus marginal opportunity cost. 
C) minus incidental cost. 
D) plus incidental cost.

Question 4

Many motorcycle riders want to feel the wind of the open road without the constriction of helmets. But riders without helmets are more likely to suffer severe injuries that run up hospital bills at public expense. Which of the following is most likely to reduce the costs imposed on hospitals by helmetless riders?

Accepted Answer

A) Fining riders caught not wearing helmets 
B) Taxing motorcycle helmet sales 
C) Reimbursing injured rider's hospital bills 
D) Subsidizing hospitals 
A) Fining riders caught not wearing helmets 
B) Taxing motorcycle helmet sales 
C) Reimbursing injured rider's hospital bills 
D) Subsidizing hospitals

Question 5

Private goods are not excludable.

Accepted Answer

A) True 
 B)False

Question 6

The former communist countries of eastern Europe and the Soviet Union

Accepted Answer

A) have a better track record in environment protection than market economies. 
B) have a dismal environmental record. 
C) epitomize the ability of planned economies to protect the environment. 
D) have no water pollution problems. 
A) have a better track record in environment protection than market economies. 
B) have a dismal environmental record. 
C) epitomize the ability of planned economies to protect the environment. 
D) have no water pollution problems.

Question 7

Many detrimental externalities occur because

Accepted Answer

A) persons do not pay the full social cost of using a resource. 
B) persons do not pay the full private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the full social cost of using a resource. 
A) persons do not pay the full social cost of using a resource. 
B) persons do not pay the full private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the full social cost of using a resource.

Question 8

Market economies have air and water pollution, but nonmarket economies

Accepted Answer

A) have much less pollution. 
B) have pollution that is much worse than in market economies. 
C) have about the same amount of pollution as market economies. 
D) do not generally suffer from external effects of any sort. 
A) have much less pollution. 
B) have pollution that is much worse than in market economies. 
C) have about the same amount of pollution as market economies. 
D) do not generally suffer from external effects of any sort.

Question 9

In the allocation of resources between present and future,

Accepted Answer

A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies. 
A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies.

Question 10

Asymmetric information may cause

Accepted Answer

A) used goods in excellent condition to not be sold. 
B) used goods in poor condition to not be offered for sale. 
C) sellers with goods in excellent condition to accept prices below their willingness to sell. 
D) sellers with goods in excellent condition to ship the goods to other markets. 
A) used goods in excellent condition to not be sold. 
B) used goods in poor condition to not be offered for sale. 
C) sellers with goods in excellent condition to accept prices below their willingness to sell. 
D) sellers with goods in excellent condition to ship the goods to other markets.

Question 11

Which of the following is not true about moral hazard?

Accepted Answer

A) It increases the difficulty of operating private insurance markets. 
B) It increases the difficulty of operating public insurance markets. 
C) It is the tendency of people to change behavior when insured. 
D) It is the tendency of people with higher risks to buy more insurance. 
A) It increases the difficulty of operating private insurance markets. 
B) It increases the difficulty of operating public insurance markets. 
C) It is the tendency of people to change behavior when insured. 
D) It is the tendency of people with higher risks to buy more insurance.

Question 12

The interest rate is the opportunity cost of transferring spending power between time periods. However, the market mechanism may fail to provide adequately for future economic growth. List the reasons why a market might fail.

Accepted Answer

Baumol and Blinder list the following th

Question 13

Figure 15-1
 
Figure 15-1 describes conditions in the monopolized weezil industry. If the government replaces the monopolist with perfectly competitive firms and forces these firms to take account of all the costs and benefits they impose on society, the industry will produce an output equal to

Accepted Answer

A) W. 
B) X. 
C) Y. 
D) Z. 
A) W. 
B) X. 
C) Y. 
D) Z.

Question 14

Which of the following is true?

Accepted Answer

A) Competitive markets that are free of government interference will efficiently price externalities. 
B) Nonmarket economies have historically created less environmental damage than market economies. 
C) Externalities are rare and in practice are not relevant to policy makers. 
D) Public institutions, private firms, and consumers all create externalities. 
A) Competitive markets that are free of government interference will efficiently price externalities. 
B) Nonmarket economies have historically created less environmental damage than market economies. 
C) Externalities are rare and in practice are not relevant to policy makers. 
D) Public institutions, private firms, and consumers all create externalities.

Question 15

Some would cite the purchase of defective products and the rising cost of health care as market failures. Argue that these are not true market failures.

Accepted Answer

If one had perfect information, one woul

Question 16

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

Accepted Answer

A) $5. 
B) $105. 
C) less than $5 if people suffer from a "defective telescopic faculty." 
D) more than $5 if people suffer from a "defective telescopic faculty." 
A) $5. 
B) $105. 
C) less than $5 if people suffer from a "defective telescopic faculty." 
D) more than $5 if people suffer from a "defective telescopic faculty."

Question 17

Give an appropriate remedy for correcting excessive pollution and note any difficulties in implementing it.

Accepted Answer

A tax on the polluting activity will hel

Question 18

Most Americans would voluntarily support defense without required taxation.

Accepted Answer

A) True 
 B)False

Question 19

Public goods could effectively be provided by private markets, but we choose to provide them through government.

Accepted Answer

A) True 
 B)False

Question 20

If both a buyer and a seller have the same information, they are said to have symmetric information.

Accepted Answer

A) True 
 B)False

Exam 15: The Shortcomings of Free Markets

Are national forests public goods? Explain.

Which of the following term refers to the share of an activity's marginal cost that is paid for by the persons who carry out the activity?

Marginal social cost is defined as marginal private cost

Private goods are not excludable.

The former communist countries of eastern Europe and the Soviet Union

Many detrimental externalities occur because

Market economies have air and water pollution, but nonmarket economies

In the allocation of resources between present and future,

Asymmetric information may cause

Which of the following is not true about moral hazard?

The interest rate is the opportunity cost of transferring spending power between time periods. However, the market mechanism may fail to provide adequately for future economic growth. List the reasons why a market might fail.

Figure 15-1 Figure 15-1 describes conditions in the monopolized weezil industry. If the government replaces the monopolist with perfectly competitive firms and forces these firms to take account of all the costs and benefits they impose on society, the industry will produce an output equal to

Which of the following is true?

Some would cite the purchase of defective products and the rising cost of health care as market failures. Argue that these are not true market failures.

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

Give an appropriate remedy for correcting excessive pollution and note any difficulties in implementing it.

Most Americans would voluntarily support defense without required taxation.

Public goods could effectively be provided by private markets, but we choose to provide them through government.

If both a buyer and a seller have the same information, they are said to have symmetric information.

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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