Question 1

A good is considered to be a public good if it

Accepted Answer

A)  is a good produced by the government sector. 
B)  is both nonrival-in-consumption and nonexcludable. 
C)  benefits only a small group of consumers but is very costly to produce. 
D)  is a good whose production is financed by tax revenue. 
A)  is a good produced by the government sector. 
B)  is both nonrival-in-consumption and nonexcludable. 
C)  benefits only a small group of consumers but is very costly to produce. 
D)  is a good whose production is financed by tax revenue.

Question 2

If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by

Accepted Answer

A)  raising price and reducing output. 
B)  raising price and expanding output. 
C)  lowering price and expanding output. 
D)  raising price and leaving output unchanged. 
A)  raising price and reducing output. 
B)  raising price and expanding output. 
C)  lowering price and expanding output. 
D)  raising price and leaving output unchanged.

Question 3

Markets provide the efficient amount of a good or service when

Accepted Answer

A)  externalities are present. 
B)  monopoly exists. 
C)  public goods are present. 
D)  competition is present and externalities and public goods are absent. 
A)  externalities are present. 
B)  monopoly exists. 
C)  public goods are present. 
D)  competition is present and externalities and public goods are absent.

Question 4

The English philosopher John Locke argued that

Accepted Answer

A)  only when we think about both marginal benefits and marginal costs can we realize there are alternate ways of pursuing objectives. 
B)  there should be a protective function and a productive function of government. 
C)  people own themselves as well as the fruits of their labor and thus the role of government is to protect these natural rights of individuals. 
D)  Competition is vital to the proper operation of the pricing mechanism. 
A)  only when we think about both marginal benefits and marginal costs can we realize there are alternate ways of pursuing objectives. 
B)  there should be a protective function and a productive function of government. 
C)  people own themselves as well as the fruits of their labor and thus the role of government is to protect these natural rights of individuals. 
D)  Competition is vital to the proper operation of the pricing mechanism.

Question 5

Manny's Bar-n-Grill is next door to a franchised fast-food restaurant near a busy freeway exit. Essentially, the menus, food quality, atmosphere, and service are equal at the two restaurants. Nevertheless, the nationally franchised restaurant can attract more customers, even though its prices are higher. This situation

Accepted Answer

A)  indicates that people are irrational because it never makes sense to pay a higher price when a product is cheaper elsewhere. 
B)  is one in which the national franchise provides uninformed consumers with valuable information that reduces their risk of being unsatisfied with the purchase. 
C)  reflects the greater elasticity of supply for food at Manny's Bar-n-Grill relative to the nationally franchised restaurant. 
D)  is inconsistent with the basic postulates that underlie the economic way of thinking. 
A)  indicates that people are irrational because it never makes sense to pay a higher price when a product is cheaper elsewhere. 
B)  is one in which the national franchise provides uninformed consumers with valuable information that reduces their risk of being unsatisfied with the purchase. 
C)  reflects the greater elasticity of supply for food at Manny's Bar-n-Grill relative to the nationally franchised restaurant. 
D)  is inconsistent with the basic postulates that underlie the economic way of thinking.

Question 6

"Government failure" exists when political decision-makers choose actions that

Accepted Answer

A)  seek efficient outcomes rather than fair outcomes. 
B)  seek fair outcomes rather than efficient outcomes. 
C)  conflict with efficient allocation of resources. 
D)  conflict with the outcome favored by the majority of voters. 
A)  seek efficient outcomes rather than fair outcomes. 
B)  seek fair outcomes rather than efficient outcomes. 
C)  conflict with efficient allocation of resources. 
D)  conflict with the outcome favored by the majority of voters.

Question 7

Use the figure below to answer the following question(s).
Figure 5-3
 
Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?

Accepted Answer

A)  Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency. 
B)  Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency. 
C)  The competitive private market outcome is consistent with the conditions for economic efficiency. 
D)  The good will tend to be oversupplied relative to the conditions for economic efficiency. 
A)  Point a illustrates the competitive private market outcome, while point b illustrates the outcome consistent with economic efficiency. 
B)  Point b illustrates the competitive private market outcome, while point a illustrates the outcome consistent with economic efficiency. 
C)  The competitive private market outcome is consistent with the conditions for economic efficiency. 
D)  The good will tend to be oversupplied relative to the conditions for economic efficiency.

Question 8

In the absence of government intervention, goods with external costs tend to be

Accepted Answer

A)  overproduced. 
B)  underproduced. 
C)  efficiently produced. 
D)  offset by goods generating external benefits. 
A)  overproduced. 
B)  underproduced. 
C)  efficiently produced. 
D)  offset by goods generating external benefits.

Question 9

The "free rider problem" occurs in connection with

Accepted Answer

A)  private goods. 
B)  both public and private goods. 
C)  goods that are not scarce. 
D)  public goods. 
A)  private goods. 
B)  both public and private goods. 
C)  goods that are not scarce. 
D)  public goods.

Question 10

When economists say that an activity meets the criterion for economic efficiency, they mean

Accepted Answer

A)  a majority of citizens favor the activity. 
B)  the benefits that result from the activity exceed the costs. 
C)  the number of people who gain from the activity exceeds the number on whom costs are imposed. 
D)  the costs that result from the activity exceed the benefits. 
A)  a majority of citizens favor the activity. 
B)  the benefits that result from the activity exceed the costs. 
C)  the number of people who gain from the activity exceeds the number on whom costs are imposed. 
D)  the costs that result from the activity exceed the benefits.

Question 11

Why is a stable monetary system essential for the smooth operation of a market system? What would an unstable monetary system be like? Why isn't a barter economy just as efficient as an economy with money?

Accepted Answer

A stable monetary system allows us to ex

Question 12

Markets fail when externalities are present

Accepted Answer

A)  because all of the costs and benefits of producing a good are reflected in the market price. 
B)  because some of the costs and benefits of producing a good are not reflected in the market price. 
C)  only if they are negative; positive externalities are not market failures. 
D)  because profits are not maximized. 
E)  if the positive externalities are less than the negative externalities. 
A)  because all of the costs and benefits of producing a good are reflected in the market price. 
B)  because some of the costs and benefits of producing a good are not reflected in the market price. 
C)  only if they are negative; positive externalities are not market failures. 
D)  because profits are not maximized. 
E)  if the positive externalities are less than the negative externalities.

Question 13

Because the benefits derived from an activity decline as it is expanded, it is generally

Accepted Answer

A)  wise to undertake all actions that generate benefits. 
B)  efficient to stop well before perfection is achieved. 
C)  best to continue as long as it is possible to derive some additional benefits. 
D)  unwise to engage in activities for which the benefits decline as you do more of it. 
A)  wise to undertake all actions that generate benefits. 
B)  efficient to stop well before perfection is achieved. 
C)  best to continue as long as it is possible to derive some additional benefits. 
D)  unwise to engage in activities for which the benefits decline as you do more of it.

Question 14

Because the benefits derived from an activity decline as it is expanded, it is generally wise to

Accepted Answer

A)  undertake all actions that generate benefits. 
B)  expend the smallest possible amount of resources on this type of activity. 
C)  avoid any activity with this characteristic. 
D)  stop the activity before perfection is reached.. 
A)  undertake all actions that generate benefits. 
B)  expend the smallest possible amount of resources on this type of activity. 
C)  avoid any activity with this characteristic. 
D)  stop the activity before perfection is reached..

Question 15

Competitive markets generally give consumers and producers correct incentives when

Accepted Answer

A)  externalities are present in the market. 
B)  property rights are well-defined and enforced. 
C)  the good being produced and consumed is a pure public good. 
D)  there is a substantial lack of information on the part of either buyers or sellers. 
A)  externalities are present in the market. 
B)  property rights are well-defined and enforced. 
C)  the good being produced and consumed is a pure public good. 
D)  there is a substantial lack of information on the part of either buyers or sellers.

Question 16

What are the two distinguishing characteristics of a public good?

Accepted Answer

A)  nonrivalry in consumption and nonexcludability 
B)  indivisibility in production and excludability of nonpaying customers 
C)  provision by government and funding through taxation 
D)  mass production and comparative advantage 
A)  nonrivalry in consumption and nonexcludability 
B)  indivisibility in production and excludability of nonpaying customers 
C)  provision by government and funding through taxation 
D)  mass production and comparative advantage

Question 17

Sellers will tend to be most concerned with customer satisfaction when

Accepted Answer

A)  it is difficult for the customer to evaluate product quality. 
B)  they depend on repeat customers for most of their business. 
C)  they sell primarily to tourists. 
D)  they are a monopoly protected from competition by government licensing. 
A)  it is difficult for the customer to evaluate product quality. 
B)  they depend on repeat customers for most of their business. 
C)  they sell primarily to tourists. 
D)  they are a monopoly protected from competition by government licensing.

Question 18

Which English philosopher argued that people own themselves and, as a result, own the fruits of their labor, and thus, the role of government is to protect these natural rights of individuals?

Accepted Answer

A)  Karl Marx 
B)  John Locke 
C)  Immanuel Kant 
D)  Ralph Nader 
A)  Karl Marx 
B)  John Locke 
C)  Immanuel Kant 
D)  Ralph Nader

Question 19

As more and more resources are dedicated to an activity

Accepted Answer

A)  the benefits will increase proportionately. 
B)  the benefits will become smaller and smaller while the costs will rise. 
C)  the demand for that activity will increase. 
D)  the costs will be offset by the benefits received from the activity. 
A)  the benefits will increase proportionately. 
B)  the benefits will become smaller and smaller while the costs will rise. 
C)  the demand for that activity will increase. 
D)  the costs will be offset by the benefits received from the activity.

Question 20

Which of the following provides the best example of a public good?

Accepted Answer

A)  elementary and secondary education 
B)  residential trash pickups provided by a local government 
C)  an unscrambled television signal 
D)  the medical services provided by a local hospital 
A)  elementary and secondary education 
B)  residential trash pickups provided by a local government 
C)  an unscrambled television signal 
D)  the medical services provided by a local hospital

A good is considered to be a public good if it

If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by

Markets provide the efficient amount of a good or service when

The English philosopher John Locke argued that

"Government failure" exists when political decision-makers choose actions that

Use the figure below to answer the following question(s). Figure 5-3 Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?

In the absence of government intervention, goods with external costs tend to be

The "free rider problem" occurs in connection with

When economists say that an activity meets the criterion for economic efficiency, they mean

Why is a stable monetary system essential for the smooth operation of a market system? What would an unstable monetary system be like? Why isn't a barter economy just as efficient as an economy with money?

Markets fail when externalities are present

Because the benefits derived from an activity decline as it is expanded, it is generally

Because the benefits derived from an activity decline as it is expanded, it is generally wise to

Competitive markets generally give consumers and producers correct incentives when

What are the two distinguishing characteristics of a public good?

Sellers will tend to be most concerned with customer satisfaction when

Which English philosopher argued that people own themselves and, as a result, own the fruits of their labor, and thus, the role of government is to protect these natural rights of individuals?

As more and more resources are dedicated to an activity

Which of the following provides the best example of a public good?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 5: Difficult Cases for the Market, and the Role of Government

A good is considered to be a public good if it

If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by

Markets provide the efficient amount of a good or service when

The English philosopher John Locke argued that

"Government failure" exists when political decision-makers choose actions that

Use the figure below to answer the following question(s). Figure 5-3 Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?

In the absence of government intervention, goods with external costs tend to be

The "free rider problem" occurs in connection with

When economists say that an activity meets the criterion for economic efficiency, they mean

Why is a stable monetary system essential for the smooth operation of a market system? What would an unstable monetary system be like? Why isn't a barter economy just as efficient as an economy with money?

Markets fail when externalities are present

Because the benefits derived from an activity decline as it is expanded, it is generally

Because the benefits derived from an activity decline as it is expanded, it is generally wise to

Competitive markets generally give consumers and producers correct incentives when

What are the two distinguishing characteristics of a public good?

Sellers will tend to be most concerned with customer satisfaction when

Which English philosopher argued that people own themselves and, as a result, own the fruits of their labor, and thus, the role of government is to protect these natural rights of individuals?

As more and more resources are dedicated to an activity

Which of the following provides the best example of a public good?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Use the figure below to answer the following question(s). Figure 5-3 Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?