Question 1

A market transaction causes an externality if someone

Accepted Answer

A) directly involved in the transaction receives uncompensated benefits or costs from it. 
B) not directly involved in the transaction receives uncompensated benefits or costs from it. 
C) directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out. 
D) not directly involved in the transaction interferes in it by imposing regulations or product standards. 
A) directly involved in the transaction receives uncompensated benefits or costs from it. 
B) not directly involved in the transaction receives uncompensated benefits or costs from it. 
C) directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out. 
D) not directly involved in the transaction interferes in it by imposing regulations or product standards.

Question 2

A good is considered nonrival-in-consumption if

Accepted Answer

A) many individuals can share in the consumption of the same unit of the good. 
B) the consumption of the good by one individual lowers the amount available for others. 
C) even nonpaying customers can receive the full benefit from the good. 
D) its production is financed through tax revenue rather than market prices. 
A) many individuals can share in the consumption of the same unit of the good. 
B) the consumption of the good by one individual lowers the amount available for others. 
C) even nonpaying customers can receive the full benefit from the good. 
D) its production is financed through tax revenue rather than market prices.

Question 3

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 4

Because of the free-rider problem,

Accepted Answer

A) competitive markets will tend to undersupply public goods. 
B) the federal government spends too much on national defense. 
C) fireworks displays have become increasingly dangerous. 
D) poverty has increased. 
A) competitive markets will tend to undersupply public goods. 
B) the federal government spends too much on national defense. 
C) fireworks displays have become increasingly dangerous. 
D) poverty has increased.

Question 5

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 6

A good is considered nonexcludable if

Accepted Answer

A) many individuals can share in the consumption of the same unit of the good. 
B) the consumption of the good by one individual lowers the amount available for others. 
C) it is impossible or very costly to exclude nonpaying customers from receiving the good. 
D) its production is financed through tax revenue rather than market prices. 
A) many individuals can share in the consumption of the same unit of the good. 
B) the consumption of the good by one individual lowers the amount available for others. 
C) it is impossible or very costly to exclude nonpaying customers from receiving the good. 
D) its production is financed through tax revenue rather than market prices.

Question 7

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

Accepted Answer

A) a rock concert at an indoor arena 
B) a laptop computer 
C) a television broadcast signal 
D) an economics textbook 
A) a rock concert at an indoor arena 
B) a laptop computer 
C) a television broadcast signal 
D) an economics textbook

Question 8

If government taxes a firm which pollutes this will

Accepted Answer

A) increase the demand for the good produced. 
B) decrease the supply of the good produced. 
C) increase the equilibrium quantity of the good produced in the market. 
D) decrease the equilibrium price of the good produced in the market. 
E) all of the above. 
A) increase the demand for the good produced. 
B) decrease the supply of the good produced. 
C) increase the equilibrium quantity of the good produced in the market. 
D) decrease the equilibrium price of the good produced in the market. 
E) all of the above.

Question 9

Brand names such as "Nabisco" or "Sony"

Accepted Answer

A) raise the cost of goods because they require advertising to make consumers aware of the brand name and, therefore, generally increase the price of products to consumers without producing any benefit to them. 
B) generally convey little information about a product to consumers. 
C) benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about. 
D) provide the most value to consumers for goods that are repeat-purchase items. 
A) raise the cost of goods because they require advertising to make consumers aware of the brand name and, therefore, generally increase the price of products to consumers without producing any benefit to them. 
B) generally convey little information about a product to consumers. 
C) benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about. 
D) provide the most value to consumers for goods that are repeat-purchase items.

Question 10

Which of the following activities is least likely to give rise to external costs or benefits?

Accepted Answer

A) spraying to control mosquitos in your backyard 
B) driving one's car during rush hour 
C) inoculating your children during a flu epidemic 
D) buying a hamburger and eating it for lunch 
A) spraying to control mosquitos in your backyard 
B) driving one's car during rush hour 
C) inoculating your children during a flu epidemic 
D) buying a hamburger and eating it for lunch

Question 11

Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?

Accepted Answer

A) We should eliminate all pollution. 
B) Automobiles should be made completely safe. 
C) When cleaning house, people only generally clean the most visible areas. 
D) A price cannot be put on human life. 
A) We should eliminate all pollution. 
B) Automobiles should be made completely safe. 
C) When cleaning house, people only generally clean the most visible areas. 
D) A price cannot be put on human life.

Question 12

Which of the following are the four major factors that may undermine the ability of the invisible hand to produce market efficiency?

Accepted Answer

A) externalities, private goods, poorly informed buyers or sellers, lack of competition 
B) public goods, externalities, lack of competition, poorly informed buyers or sellers 
C) competition, poorly informed buyers or sellers, externalities, public goods 
D) public goods, lack of competition, well-informed buyers and sellers, externalities 
A) externalities, private goods, poorly informed buyers or sellers, lack of competition 
B) public goods, externalities, lack of competition, poorly informed buyers or sellers 
C) competition, poorly informed buyers or sellers, externalities, public goods 
D) public goods, lack of competition, well-informed buyers and sellers, externalities

Question 13

Suppose that the producers of copper are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of copper products in a competitive market compare with their values under conditions of ideal economic efficiency?

Accepted Answer

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

Question 14

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 15

Which of the following is true of public goods?

Accepted Answer

A) They can only be supplied by the government. 
B) They will tend to be supplied efficiently by the private sector when markets are competitive. 
C) It is difficult to establish a one-to-one link between payment and receipt of such goods. 
D) From an efficiency standpoint, private markets will tend to supply an excessively large amount of public goods. 
A) They can only be supplied by the government. 
B) They will tend to be supplied efficiently by the private sector when markets are competitive. 
C) It is difficult to establish a one-to-one link between payment and receipt of such goods. 
D) From an efficiency standpoint, private markets will tend to supply an excessively large amount of public goods.

Question 16

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 17

Which one of the following would reduce the efficiency of the market process?

Accepted Answer

A) promoting competitive markets 
B) protecting persons from fraud and theft 
C) providing a stable monetary environment 
D) protecting consumers by imposing legally mandated price ceilings 
A) promoting competitive markets 
B) protecting persons from fraud and theft 
C) providing a stable monetary environment 
D) protecting consumers by imposing legally mandated price ceilings

Question 18

Compared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too

Accepted Answer

A) large and a price that is too high. 
B) large and a price that is too low. 
C) small and a price that is too high. 
D) small and a price that is too low. 
A) large and a price that is too high. 
B) large and a price that is too low. 
C) small and a price that is too high. 
D) small and a price that is too low.

Question 19

New products provide a classic case of the consumer information problem. However, in some cases consumers partially solve the problem by trusting the "brand name" of the producer of the new product. Because firms spend millions of dollars advertising and maintaining their brand names, the likelihood of a "brand name" firm intentionally selling a dangerous or shoddy new product is

Accepted Answer

A) high because big firms are always after a quick dollar. 
B) high because their brand name is a communal property right. 
C) low because big firms do not make mistakes. 
D) low because the firm with a brand name has a lot to lose if word spreads about bad consumer experiences. 
A) high because big firms are always after a quick dollar. 
B) high because their brand name is a communal property right. 
C) low because big firms do not make mistakes. 
D) low because the firm with a brand name has a lot to lose if word spreads about bad consumer experiences.

Question 20

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

Accepted Answer

A) too much of both goods. 
B) too little of both goods. 
C) too much of the good that generates external benefits and too little of the good that generates external costs. 
D) too little of the good that generates external benefits and too much of the good that generates external costs. 
A) too much of both goods. 
B) too little of both goods. 
C) too much of the good that generates external benefits and too little of the good that generates external costs. 
D) too little of the good that generates external benefits and too much of the good that generates external costs.

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

A market transaction causes an externality if someone

A good is considered nonrival-in-consumption if

As more and more resources are dedicated to an activity

Because of the free-rider problem,

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

A good is considered nonexcludable if

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

If government taxes a firm which pollutes this will

Brand names such as "Nabisco" or "Sony"

Which of the following activities is least likely to give rise to external costs or benefits?

Which of the following is most consistent with the idea that if it's worth doing, it's worth doing imperfectly?

Which of the following are the four major factors that may undermine the ability of the invisible hand to produce market efficiency?

Suppose that the producers of copper are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of copper products in a competitive market compare with their values under conditions of ideal economic efficiency?

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

Which of the following is true of public goods?

When externalities are present,

Which one of the following would reduce the efficiency of the market process?

Compared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: 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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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