Question 1

Markets fail to allocate resources efficiently when

Accepted Answer

A)  prices fluctuate. 
B)  people who have property rights abuse their privileges. 
C)  property rights are poorly enforced or not well established. 
D)  the government refuses to intervene in private markets. 
A)  prices fluctuate. 
B)  people who have property rights abuse their privileges. 
C)  property rights are poorly enforced or not well established. 
D)  the government refuses to intervene in private markets.

Question 2

Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?

Accepted Answer

A)  brand names 
B)  franchising 
C)  consumer ratings magazines 
D)  all of the above 
A)  brand names 
B)  franchising 
C)  consumer ratings magazines 
D)  all of the above

Question 3

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 4

Economic efficiency indicates that

Accepted Answer

A)  if something is worth doing, you should do it as well as humanly possible. 
B)  all pollution should be eliminated. 
C)  automobiles should be made as safe as possible 
D)  it nearly always makes sense to stop an activity well before perfection is achieved. 
A)  if something is worth doing, you should do it as well as humanly possible. 
B)  all pollution should be eliminated. 
C)  automobiles should be made as safe as possible 
D)  it nearly always makes sense to stop an activity well before perfection is achieved.

Question 5

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 6

Figure 5-4   Refer to Figure 5-4. The inefficient equilibrium price and quantity are

Accepted Answer

A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively. 
A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively.

Question 7

If the construction of a new elementary school would create $5 million worth of benefits for citizens and cost $7 million to construct, then using the criterion of economic efficiency, the school

Accepted Answer

A)  should be built. 
B)  should not be built. 
C)  results in a substantial improvement to the welfare of society. 
D)  should be built if it passes by a majority vote. 
A)  should be built. 
B)  should not be built. 
C)  results in a substantial improvement to the welfare of society. 
D)  should be built if it passes by a majority vote.

Question 8

In a competitive market, if the production process involves an external benefit, the market will

Accepted Answer

A)  produce the economically efficient outcome. 
B)  result in a market price that is higher than the efficient one. 
C)  result in a market price that is lower than the efficient one. 
D)  result in too much of the good being produced compared to the ideal efficient outcome. 
A)  produce the economically efficient outcome. 
B)  result in a market price that is higher than the efficient one. 
C)  result in a market price that is lower than the efficient one. 
D)  result in too much of the good being produced compared to the ideal efficient outcome.

Question 9

Which of the following is a true statement regarding why the government produces public goods?

Accepted Answer

A)  Public goods are valued highly by some but not by the majority. 
B)  Because of the electoral system, the public sector tends towards producing those goods that help politicians get elected. 
C)  Some goods should be produced whether they are economically efficient or not. 
D)  Because it is difficult to exclude those who do not pay for public goods. 
A)  Public goods are valued highly by some but not by the majority. 
B)  Because of the electoral system, the public sector tends towards producing those goods that help politicians get elected. 
C)  Some goods should be produced whether they are economically efficient or not. 
D)  Because it is difficult to exclude those who do not pay for public goods.

Question 10

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

Accepted Answer

A)  The price would be too low, and the output would be too large. 
B)  The price would be too high, and the output would be too large. 
C)  The price would be too low, and the output would be too small. 
D)  The price would be too high, and the output would be too small. 
A)  The price would be too low, and the output would be too large. 
B)  The price would be too high, and the output would be too large. 
C)  The price would be too low, and the output would be too small. 
D)  The price would be too high, and the output would be too small.

Question 11

When externalities are present,

Accepted Answer

A)  suppliers will refuse to produce desired goods and services. 
B)  this indicates that property rights are well-defined and enforced. 
C)  competitive market outcomes may be inconsistent with ideal economic efficiency. 
D)  competitive markets will generally achieve ideal economic efficiency. 
A)  suppliers will refuse to produce desired goods and services. 
B)  this indicates that property rights are well-defined and enforced. 
C)  competitive market outcomes may be inconsistent with ideal economic efficiency. 
D)  competitive markets will generally achieve ideal economic efficiency.

Question 12

Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad breath and dull teeth. Is there a role for the public sector in this situation?

Accepted Answer

The market should be able to handle the

Question 13

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

A)  The efficient outcome would be greater than 150 units. 
B)  The efficient outcome would be less than 150 units. 
C)  The efficient outcome would also be 150 units. 
D)  The efficient price would be less than $14. 
A)  The efficient outcome would be greater than 150 units. 
B)  The efficient outcome would be less than 150 units. 
C)  The efficient outcome would also be 150 units. 
D)  The efficient price would be less than $14.

Question 14

When competitive forces in an industry are weak,

Accepted Answer

A)  the absence of competition generally leads to overproduction. 
B)  prices may exceed the amount consumers are willing to pay. 
C)  the operational efficiency of private firms will be enhanced. 
D)  higher prices and less than optimal production may result. 
A)  the absence of competition generally leads to overproduction. 
B)  prices may exceed the amount consumers are willing to pay. 
C)  the operational efficiency of private firms will be enhanced. 
D)  higher prices and less than optimal production may result.

Question 15

In a market that lacks sufficient competition,

Accepted Answer

A)  output will generally be less than the output that is ideal from the standpoint of economic efficiency. 
B)  output will generally be greater than the output that is ideal from the standpoint of economic efficiency. 
C)  price will generally be less than the price that would result if the market was competitive. 
D)  profit rates will generally be so low that government subsidies will be necessary to ensure that the firms remain in business. 
A)  output will generally be less than the output that is ideal from the standpoint of economic efficiency. 
B)  output will generally be greater than the output that is ideal from the standpoint of economic efficiency. 
C)  price will generally be less than the price that would result if the market was competitive. 
D)  profit rates will generally be so low that government subsidies will be necessary to ensure that the firms remain in business.

Question 16

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income. 
A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

Question 17

Externalities are fundamentally the result of

Accepted Answer

A)  the absence of competition in a market. 
B)  the lack of well-defined or enforced property rights. 
C)  poor information on the part of consumers. 
D)  the presence of significant comparative advantages in production. 
A)  the absence of competition in a market. 
B)  the lack of well-defined or enforced property rights. 
C)  poor information on the part of consumers. 
D)  the presence of significant comparative advantages in production.

Question 18

Government failure is present when

Accepted Answer

A)  the government engages in an activity such as the setting of prices that interferes with competitive markets. 
B)  the incentives confronted by political participants encourage counterproductive use of resources. 
C)  externalities create perverse incentives that undermine the efficient use of resources. 
D)  unethical and corrupt actions are undertaken by some political officials. 
A)  the government engages in an activity such as the setting of prices that interferes with competitive markets. 
B)  the incentives confronted by political participants encourage counterproductive use of resources. 
C)  externalities create perverse incentives that undermine the efficient use of resources. 
D)  unethical and corrupt actions are undertaken by some political officials.

Question 19

Which of the following is the most fundamental function of government?

Accepted Answer

A)  protection of individuals and their property 
B)  imposing progressive taxes to fund income-transfer programs 
C)  regulating prices and wages 
D)  provision of postal services and garbage collection 
A)  protection of individuals and their property 
B)  imposing progressive taxes to fund income-transfer programs 
C)  regulating prices and wages 
D)  provision of postal services and garbage collection

Question 20

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

Accepted Answer

The text defines economic efficiency con

Markets fail to allocate resources efficiently when

Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?

Sellers will tend to be most concerned with customer satisfaction when

Economic efficiency indicates that

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

Figure 5-4 Refer to Figure 5-4. The inefficient equilibrium price and quantity are

If the construction of a new elementary school would create $5 million worth of benefits for citizens and cost $7 million to construct, then using the criterion of economic efficiency, the school

In a competitive market, if the production process involves an external benefit, the market will

Which of the following is a true statement regarding why the government produces public goods?

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

When externalities are present,

Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad breath and dull teeth. Is there a role for the public sector in this situation?

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

When competitive forces in an industry are weak,

In a market that lacks sufficient competition,

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Externalities are fundamentally the result of

Government failure is present when

Which of the following is the most fundamental function of government?

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

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

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

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

Markets fail to allocate resources efficiently when

Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?

Sellers will tend to be most concerned with customer satisfaction when

Economic efficiency indicates that

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

Figure 5-4 Refer to Figure 5-4. The inefficient equilibrium price and quantity are

If the construction of a new elementary school would create $5 million worth of benefits for citizens and cost $7 million to construct, then using the criterion of economic efficiency, the school

In a competitive market, if the production process involves an external benefit, the market will

Which of the following is a true statement regarding why the government produces public goods?

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

When externalities are present,

Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad breath and dull teeth. Is there a role for the public sector in this situation?

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

When competitive forces in an industry are weak,

In a market that lacks sufficient competition,

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Externalities are fundamentally the result of

Government failure is present when

Which of the following is the most fundamental function of government?

How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?

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

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters