Question 1

Externalities are due to which of the following?

Accepted Answer

A) poorly defined or enforced private property rights 
B) individuals not caring sufficiently about the welfare of others 
C) the choice of a capitalist, rather than socialist, economy 
D) poor information on the part of buyers and sellers 
A) poorly defined or enforced private property rights 
B) individuals not caring sufficiently about the welfare of others 
C) the choice of a capitalist, rather than socialist, economy 
D) poor information on the part of buyers and sellers

Question 2

"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 3

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 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

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

Accepted Answer

A) pollution is not a serious problem in this industry. 
B) the consumers of steel are unwilling to bear the costs of pollution generated from steel production. 
C) pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution. 
D) pollution creates an external benefit rather than an external cost in this case. 
A) pollution is not a serious problem in this industry. 
B) the consumers of steel are unwilling to bear the costs of pollution generated from steel production. 
C) pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution. 
D) pollution creates an external benefit rather than an external cost in this case.

Question 6

"Government failure" is present when

Accepted Answer

A) constitutional restrictions block government action that is favored by the majority of voters. 
B) political decision-makers try to serve the general public rather than their personal interest. 
C) the structure of incentives encourages political decision-makers to undertake actions that conflict with the efficient allocation of resources. 
D) the political decision-makers are motivated by something other than good intentions; if they have good intentions, political action will allocate resources efficiently. 
A) constitutional restrictions block government action that is favored by the majority of voters. 
B) political decision-makers try to serve the general public rather than their personal interest. 
C) the structure of incentives encourages political decision-makers to undertake actions that conflict with the efficient allocation of resources. 
D) the political decision-makers are motivated by something other than good intentions; if they have good intentions, political action will allocate resources efficiently.

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

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.

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

Externalities are due to which of the following?

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

When competitive forces in an industry are weak,

The English philosopher John Locke argued that

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

"Government failure" is present when

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?

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

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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