Question 1

Additional highway traffic

Accepted Answer

A) creates a positive externality 
B) creates a negative externality when a highway is congested 
C) creates a negative externality even if a highway is not congested 
D) is Pareto optimal 
E) requires a side payment 
A) creates a positive externality 
B) creates a negative externality when a highway is congested 
C) creates a negative externality even if a highway is not congested 
D) is Pareto optimal 
E) requires a side payment

Question 2

One way to achieve efficiency in a market with a negative externality is

Accepted Answer

A) to raise the market demand curve to the position of the marginal social cost curve 
B) to apply the Coase theorem 
C) to lower the marginal social cost curve to the position of the market supply curve 
D) to eliminate all side payments 
E) to raise the market supply curve to the position of the marginal social cost curve 
A) to raise the market demand curve to the position of the marginal social cost curve 
B) to apply the Coase theorem 
C) to lower the marginal social cost curve to the position of the market supply curve 
D) to eliminate all side payments 
E) to raise the market supply curve to the position of the marginal social cost curve

Question 3

In the presence of a negative externality

Accepted Answer

A) the market marginal benefit curve lies above the market supply curve 
B) a market will produce less than the efficient quantity 
C) the market price will be too high for an efficient solution to exist 
D) the marginal social cost curve lies above the market supply curve 
E) Pareto optimality is automatically guaranteed 
A) the market marginal benefit curve lies above the market supply curve 
B) a market will produce less than the efficient quantity 
C) the market price will be too high for an efficient solution to exist 
D) the marginal social cost curve lies above the market supply curve 
E) Pareto optimality is automatically guaranteed

Question 4

Firms produce too little output

Accepted Answer

A) when tort laws are not enforced 
B) in perfectly competitive markets 
C) to achieve economic efficiency 
D) when they have monopoly power 
E) when there are no remaining Pareto improvements 
A) when tort laws are not enforced 
B) in perfectly competitive markets 
C) to achieve economic efficiency 
D) when they have monopoly power 
E) when there are no remaining Pareto improvements

Question 5

One reason why it is difficult to regulate a natural monopoly is

Accepted Answer

A) the lack of relevant economic theory 
B) determining what price the firm is actually charging its customers 
C) determining the appropriate side payment 
D) an information problem - the monopoly's managers have an incentive to overstate costs 
E) an information problem - the monopoly's managers have an incentive to overstate revenues 
A) the lack of relevant economic theory 
B) determining what price the firm is actually charging its customers 
C) determining the appropriate side payment 
D) an information problem - the monopoly's managers have an incentive to overstate costs 
E) an information problem - the monopoly's managers have an incentive to overstate revenues

Question 6

Many saltwater fish species are currently being overexploited.This is an example of

Accepted Answer

A) efficiency 
B) the tragedy of the commons 
C) Pareto optimality 
D) a negative externality 
E) a positive externality 
A) efficiency 
B) the tragedy of the commons 
C) Pareto optimality 
D) a negative externality 
E) a positive externality

Question 7

One way that natural monopolies are typically regulated is

Accepted Answer

A) by setting a price that makes economic profit zero. 
B) by forcing the firm to set price equal to marginal cost 
C) by setting a price that gives owners a "fair rate of return" 
D) by forcing the firm to set price equal to minimum average total cost 
E) by setting a price that maximizes the firm's economic profit 
A) by setting a price that makes economic profit zero. 
B) by forcing the firm to set price equal to marginal cost 
C) by setting a price that gives owners a "fair rate of return" 
D) by forcing the firm to set price equal to minimum average total cost 
E) by setting a price that maximizes the firm's economic profit

Question 8

A natural monopoly

Accepted Answer

A) typically arises because of a patent or copyright 
B) is a firm that,due to economies of scale,can serve a market at lower average cost than two or more firm could 
C) is a Pareto improvement as compared to a perfectly competitive market 
D) enjoys diseconomies of scale,so average total cost falls as more output is produced 
E) enjoys economies of scale,so average total cost rises as more output is produced 
A) typically arises because of a patent or copyright 
B) is a firm that,due to economies of scale,can serve a market at lower average cost than two or more firm could 
C) is a Pareto improvement as compared to a perfectly competitive market 
D) enjoys diseconomies of scale,so average total cost falls as more output is produced 
E) enjoys economies of scale,so average total cost rises as more output is produced

Question 9

Under Section 2 of the Sherman Act,

Accepted Answer

A) firms cannot act in ways that increase prices 
B) contracts between parties are deemed binding 
C) firms cannot operate in perfectly competitive markets 
D) firms that earn short-run profits face penalties 
E) a firm cannot attempt to monopolize an industry 
A) firms cannot act in ways that increase prices 
B) contracts between parties are deemed binding 
C) firms cannot operate in perfectly competitive markets 
D) firms that earn short-run profits face penalties 
E) a firm cannot attempt to monopolize an industry

Question 10

A market failure occurs when

Accepted Answer

A) a market equilibrium is economically inefficient 
B) a market equilibrium is economically efficient 
C) perfect competition maximizes the sum of consumer and producer surplus 
D) crime is not completely eliminated 
E) involuntary exchanges are not completely eliminated 
A) a market equilibrium is economically inefficient 
B) a market equilibrium is economically efficient 
C) perfect competition maximizes the sum of consumer and producer surplus 
D) crime is not completely eliminated 
E) involuntary exchanges are not completely eliminated

Question 11

Production involving a positive externality is inefficient.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that Pat has the legal right to fly an extremely noisy airplane over Chris's apartment and that he values that right at $1,000 per year.Chris would be willing to pay $1,200 per year to avoid the noise.In that case

Accepted Answer

A) Pat will be required to eliminate the overflight 
B) Chris will move to a new apartment 
C) Pat and Chris have a powerful incentive to agree to eliminate the overflight because both would benefit from it 
D) some governmental agency will step in to require Pat to choose a different flight pattern 
E) some governmental agency will require Chris to move to a new apartment 
A) Pat will be required to eliminate the overflight 
B) Chris will move to a new apartment 
C) Pat and Chris have a powerful incentive to agree to eliminate the overflight because both would benefit from it 
D) some governmental agency will step in to require Pat to choose a different flight pattern 
E) some governmental agency will require Chris to move to a new apartment

Question 13

A market failure in the form of an externality arises when

Accepted Answer

A) production costs are included in the price of a good 
B) not all costs and benefits are included in the price of a good 
C) the benefits of consuming a good exceed the costs 
D) a market fails to achieve equilibrium 
E) equilibrium price is unstable 
A) production costs are included in the price of a good 
B) not all costs and benefits are included in the price of a good 
C) the benefits of consuming a good exceed the costs 
D) a market fails to achieve equilibrium 
E) equilibrium price is unstable

Question 14

All of the following are examples of negative externalities except

Accepted Answer

A) getting the flu vaccine. 
B) smoking in a crowded bar. 
C) driving while intoxicated. 
D) littering in the park. 
E) pouring paint down the storm drains. 
A) getting the flu vaccine. 
B) smoking in a crowded bar. 
C) driving while intoxicated. 
D) littering in the park. 
E) pouring paint down the storm drains.

Question 15

Price-fixing agreements among competing firms are a violation of the Sherman Antitrust Act.

Accepted Answer

A) True 
 B)False

Question 16

An externality is defined as

Accepted Answer

A) the revenue generated by a firm in the external market 
B) a byproduct of a good or activity that affects someone not immediately involved in the transaction 
C) an additional cost of consumption that is borne by a third party 
D) a cost or benefit arising from price changes 
E) the value of a good or service to a consumer 
A) the revenue generated by a firm in the external market 
B) a byproduct of a good or activity that affects someone not immediately involved in the transaction 
C) an additional cost of consumption that is borne by a third party 
D) a cost or benefit arising from price changes 
E) the value of a good or service to a consumer

Question 17

Because of the free rider problem

Accepted Answer

A) private solutions to externality problems are often needed 
B) side payments are needed in order to achieve Pareto improvements 
C) governmental solutions to externality problems are often needed 
D) side payments are needed in order to solve externality problems 
E) private solutions to externality problems are common 
A) private solutions to externality problems are often needed 
B) side payments are needed in order to achieve Pareto improvements 
C) governmental solutions to externality problems are often needed 
D) side payments are needed in order to solve externality problems 
E) private solutions to externality problems are common

Question 18

A monopoly's

Accepted Answer

A) supply curve is the same as its marginal cost curve 
B) supply curve is the same as its marginal revenue curve 
C) marginal cost curve is downward sloping 
D) demand curve is horizontal 
E) marginal revenue curve is downward sloping 
A) supply curve is the same as its marginal cost curve 
B) supply curve is the same as its marginal revenue curve 
C) marginal cost curve is downward sloping 
D) demand curve is horizontal 
E) marginal revenue curve is downward sloping

Question 19

Which of the following is not an example of a Pareto improvement?

Accepted Answer

A) You buy a dozen oranges at a produce stand. 
B) Two children trade baseball cards. 
C) Your sister buys a new car. 
D) Two adults trade cars. 
E) A man is robbed at gunpoint. 
A) You buy a dozen oranges at a produce stand. 
B) Two children trade baseball cards. 
C) Your sister buys a new car. 
D) Two adults trade cars. 
E) A man is robbed at gunpoint.

Question 20

Output per worker tends to be higher in countries with

Accepted Answer

A) low-quality infrastructures 
B) high-quality infrastructures 
C) perfectly competitive labor markets 
D) low taxes 
E) free riders 
A) low-quality infrastructures 
B) high-quality infrastructures 
C) perfectly competitive labor markets 
D) low taxes 
E) free riders

Additional highway traffic

One way to achieve efficiency in a market with a negative externality is

In the presence of a negative externality

Firms produce too little output

One reason why it is difficult to regulate a natural monopoly is

Many saltwater fish species are currently being overexploited.This is an example of

One way that natural monopolies are typically regulated is

A natural monopoly

Under Section 2 of the Sherman Act,

A market failure occurs when

Production involving a positive externality is inefficient.

Suppose that Pat has the legal right to fly an extremely noisy airplane over Chris's apartment and that he values that right at $1,000 per year.Chris would be willing to pay $1,200 per year to avoid the noise.In that case

A market failure in the form of an externality arises when

All of the following are examples of negative externalities except

Price-fixing agreements among competing firms are a violation of the Sherman Antitrust Act.

An externality is defined as

Because of the free rider problem

A monopoly's

Which of the following is not an example of a Pareto improvement?

Output per worker tends to be higher in countries with

What Is Economics

Scarcity, choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

B:Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly

Labor Markets

B: Labor Markets

Capital and Financial Markets

Economic Efficiency and the Competitive Ideal

Comparative Advantage and the Gains From International Trade

Filters

Exam 16: Governments Role in Economic Efficiency

Additional highway traffic

One way to achieve efficiency in a market with a negative externality is

In the presence of a negative externality

Firms produce too little output

One reason why it is difficult to regulate a natural monopoly is

Many saltwater fish species are currently being overexploited.This is an example of

One way that natural monopolies are typically regulated is

A natural monopoly

Under Section 2 of the Sherman Act,

A market failure occurs when

Production involving a positive externality is inefficient.

Suppose that Pat has the legal right to fly an extremely noisy airplane over Chris's apartment and that he values that right at $1,000 per year.Chris would be willing to pay $1,200 per year to avoid the noise.In that case

A market failure in the form of an externality arises when

All of the following are examples of negative externalities except

Price-fixing agreements among competing firms are a violation of the Sherman Antitrust Act.

An externality is defined as

Because of the free rider problem

A monopoly's

Which of the following is not an example of a Pareto improvement?

Output per worker tends to be higher in countries with

What Is Economics

Scarcity, choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

B:Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly

Labor Markets

B: Labor Markets

Capital and Financial Markets

Economic Efficiency and the Competitive Ideal

Comparative Advantage and the Gains From International Trade

Filters