Question 1

When beneficial externalities are present in a market, the actual output will be

Accepted Answer

A) greater than the optimal output. 
B) smaller than the optimal output. 
C) equal to the optimal output. 
D) either smaller or greater than the optimal output. 
A) greater than the optimal output. 
B) smaller than the optimal output. 
C) equal to the optimal output. 
D) either smaller or greater than the optimal output.

Question 2

The concept of "government failure" implies

Accepted Answer

A) laissez faire is always best. 
B) government intervention is always justified since government never fails. 
C) no market failure can be corrected by government intervention. 
D) government intervention to correct a "market failure" sometimes fails. 
A) laissez faire is always best. 
B) government intervention is always justified since government never fails. 
C) no market failure can be corrected by government intervention. 
D) government intervention to correct a "market failure" sometimes fails.

Question 3

For most industrial nations, health-care costs have increased faster than the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 4

Rent seeking refers to unproductive activity in the pursuit of profit.

Accepted Answer

A) True 
 B)False

Question 5

Many cities have summer pops series in which the local orchestra performs light classical music in a public park.These performances are free in some areas.Apply the concept of a public good to pops performances and explain whether an admission charge is efficient.

Accepted Answer

Pops performances are nondepletable in t

Question 6

Moral hazard is best described as

Accepted Answer

A) an action by an individual that endangers others. 
B) an action that puts one's salvation at risk. 
C) the presence of insurance increasing risk taking behavior. 
D) vigilance by individuals to keep total insurance claims at a minimum to keep rates low. 
A) an action by an individual that endangers others. 
B) an action that puts one's salvation at risk. 
C) the presence of insurance increasing risk taking behavior. 
D) vigilance by individuals to keep total insurance claims at a minimum to keep rates low.

Question 7

When MSC > MPC there are detrimental externalities.

Accepted Answer

A) True 
 B)False

Question 8

Anthony Downs, in The Economic Theory of Democracy, argues that voters choose to remain "rationally ignorant" when they vote in elections, knowing relatively little about the candidates or the issues.What economic principle would you invoke to explain this behavior?

Accepted Answer

A) public good theory 
B) moral hazard 
C) the cost of information 
D) risk aversion 
A) public good theory 
B) moral hazard 
C) the cost of information 
D) risk aversion

Question 9

A monopoly price reflects a good's marginal utility.

Accepted Answer

A) True 
 B)False

Question 10

The factor that most often leads to under pricing and overuse of an economic resource is human greed.

Accepted Answer

A) True 
 B)False

Question 11

Markets will always create more efficient outcomes without government intervention.

Accepted Answer

A) True 
 B)False

Question 12

A public good is

Accepted Answer

A) always depletable and excludable. 
B) always depletable and often excludable. 
C) never depletable and always excludable. 
D) never depletable and always nonexcludable. 
A) always depletable and excludable. 
B) always depletable and often excludable. 
C) never depletable and always excludable. 
D) never depletable and always nonexcludable.

Question 13

In an ideal competitive market economy

Accepted Answer

A) resources are allocated according to a person's needs. 
B) resources are allocated according to ability to pay. 
C) social and individual needs are met by the market. 
D) All of the above are true. 
A) resources are allocated according to a person's needs. 
B) resources are allocated according to ability to pay. 
C) social and individual needs are met by the market. 
D) All of the above are true.

Question 14

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying.Enforcement of the company's property right is very expensive.This problem emerges because TV signals are basically

Accepted Answer

A) economic goods. 
B) invisible goods. 
C) depletable goods. 
D) public goods. 
A) economic goods. 
B) invisible goods. 
C) depletable goods. 
D) public goods.

Question 15

Productivity in manufacturing sectors has risen faster than in service sectors.

Accepted Answer

A) True 
 B)False

Question 16

In a free market where a firm's activity causes detrimental externalities,

Accepted Answer

A) marginal benefits will be less than marginal social costs. 
B) smaller outputs than those that maximize profits will be socially desirable. 
C) marginal social cost will be greater than marginal private cost. 
D) All of the above are correct. 
A) marginal benefits will be less than marginal social costs. 
B) smaller outputs than those that maximize profits will be socially desirable. 
C) marginal social cost will be greater than marginal private cost. 
D) All of the above are correct.

Question 17

Governments can most effectively encourage a firm to produce the efficient level of output of a good whose production causes a beneficial externality by

Accepted Answer

A) increasing the demand at every price for the good. 
B) subsidizing the production of the good. 
C) taxing the production of the good. 
D) imposing a price ceiling on the good. 
A) increasing the demand at every price for the good. 
B) subsidizing the production of the good. 
C) taxing the production of the good. 
D) imposing a price ceiling on the good.

Question 18

Which of the following is not generally considered a failing of market economies?

Accepted Answer

A) Market economies can have severe swings from boom to bust. 
B) Market economies tend to underprovide public goods. 
C) Market economies tend to promote equity at the expense of efficiency. 
D) Market economies can misallocate resources when property rights are ill defined. 
A) Market economies can have severe swings from boom to bust. 
B) Market economies tend to underprovide public goods. 
C) Market economies tend to promote equity at the expense of efficiency. 
D) Market economies can misallocate resources when property rights are ill defined.

Question 19

Often when consumers enter the used car market to make a purchase,

Accepted Answer

A) they know little about what they are purchasing. 
B) the motto "let the buyer beware" applies. 
C) the information they gain may not be perfect, but may be what economists call "optimally imperfect." 
D) All of the above are correct. 
A) they know little about what they are purchasing. 
B) the motto "let the buyer beware" applies. 
C) the information they gain may not be perfect, but may be what economists call "optimally imperfect." 
D) All of the above are correct.

Question 20

If long-term investments are increasing,

Accepted Answer

A) current consumption must be increasing. 
B) interest rates must be relatively low. 
C) interest rates must be relatively high. 
D) the people must be experiencing a "defective telescopic faculty." 
A) current consumption must be increasing. 
B) interest rates must be relatively low. 
C) interest rates must be relatively high. 
D) the people must be experiencing a "defective telescopic faculty."

Exam 15: The Shortcomings of Free Markets

When beneficial externalities are present in a market, the actual output will be

The concept of "government failure" implies

For most industrial nations, health-care costs have increased faster than the rate of inflation.

Rent seeking refers to unproductive activity in the pursuit of profit.

Many cities have summer pops series in which the local orchestra performs light classical music in a public park.These performances are free in some areas.Apply the concept of a public good to pops performances and explain whether an admission charge is efficient.

Moral hazard is best described as

When MSC > MPC there are detrimental externalities.

Anthony Downs, in The Economic Theory of Democracy, argues that voters choose to remain "rationally ignorant" when they vote in elections, knowing relatively little about the candidates or the issues.What economic principle would you invoke to explain this behavior?

A monopoly price reflects a good's marginal utility.

The factor that most often leads to under pricing and overuse of an economic resource is human greed.

Markets will always create more efficient outcomes without government intervention.

A public good is

In an ideal competitive market economy

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying.Enforcement of the company's property right is very expensive.This problem emerges because TV signals are basically

Productivity in manufacturing sectors has risen faster than in service sectors.

In a free market where a firm's activity causes detrimental externalities,

Governments can most effectively encourage a firm to produce the efficient level of output of a good whose production causes a beneficial externality by

Which of the following is not generally considered a failing of market economies?

Often when consumers enter the used car market to make a purchase,

If long-term investments are increasing,

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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