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

Sam lives next to The Party Pub and its outdoor "beer garden" that features live music. An economics major, Sam considers this a positive externality. Dave, another economics student, lives next to The Party Pub too, but he considers the music a negative externality. Which student, if either, is correct? Why?

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

Criteria of ideal economic efficiency requires that (I) all actions generating more social benefit than cost be undertaken and (II) no actions generating more social cost than social benefit be undertaken.

The economic way of thinking indicates that government action will

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

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

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?

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

Is your economics textbook a public or private good? If you conclude that it is a private good, why do we have copyright laws?

When external costs are present in a market,

Sellers have a strong incentive to lobby government for legal restrictions that would reduce the intensity of competition in their market because

The spillover effects of actions that affect the well-being of nonconsenting third parties are called

When external benefits are present in a market,

When production of a good generates external costs, the

The absence of well-defined and enforceable private property rights often

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?

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

The standard economists use to assess whether an activity should be undertaken is

Which of the following "goods" is the best example of a pure public good?

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?