Question 1

An industry that generates detrimental externalities will have a marginal social cost higher than the marginal private cost to the industry.

Accepted Answer

A) True 
 B)False

Question 2

Rent seeking is a way of earning profit without adding to the product's value.

Accepted Answer

A) True 
 B)False

Question 3

Examples of public goods include national defense, police, and the U.S.Postal Service.

Accepted Answer

A) True 
 B)False

Question 4

Conscious manipulation of the interest rate causes it to become a less effective tool in allocating resources among time periods.

Accepted Answer

A) True 
 B)False

Question 5

Students in a class are assigned to groups to work on a project.A grade will be given for each project, and everyone in the group will receive that grade.For the members of a particular group, the grade is a

Accepted Answer

A) beneficial externality. 
B) public good. 
C) detrimental externality. 
D) moral hazard. 
A) beneficial externality. 
B) public good. 
C) detrimental externality. 
D) moral hazard.

Question 6

Without government intervention, public goods would

Accepted Answer

A) be much less expensive. 
B) not be provided. 
C) be produced in much larger quantity. 
D) be priced within the income ability of all individuals to purchase them. 
A) be much less expensive. 
B) not be provided. 
C) be produced in much larger quantity. 
D) be priced within the income ability of all individuals to purchase them.

Question 7

Imposing fines on companies that contribute heavily to air and water pollution is an attempt to bring marginal private costs in line with marginal social costs.

Accepted Answer

A) True 
 B)False

Question 8

The main shortcoming of the market, in the view of many,

Accepted Answer

A) lies in the arena of justice and injustice. 
B) lies in the area of consumer goods production. 
C) is its inability to stimulate the creation of new products. 
D) is its drag on growth in productivity. 
A) lies in the arena of justice and injustice. 
B) lies in the area of consumer goods production. 
C) is its inability to stimulate the creation of new products. 
D) is its drag on growth in productivity.

Question 9

A free market may produce a misallocation of resources over time because

Accepted Answer

A) the Fed manipulates interest rates. 
B) people have a "defective telescopic faculty." 
C) private risk usually exceeds social risk. 
D) All of the above are correct. 
A) the Fed manipulates interest rates. 
B) people have a "defective telescopic faculty." 
C) private risk usually exceeds social risk. 
D) All of the above are correct.

Question 10

It is true of externalities that they

Accepted Answer

A) are always detrimental. 
B) are always beneficial. 
C) arise when all costs, social and private, are included in production cost. 
D) cause the price system to misallocate resources. 
A) are always detrimental. 
B) are always beneficial. 
C) arise when all costs, social and private, are included in production cost. 
D) cause the price system to misallocate resources.

Question 11

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

Accepted Answer

A)  MU = MSC. 
B)  P  MSC. 
A)  MU = MSC. 
B)  P  MSC.

Question 12

Externalities can be either detrimental or beneficial to others.

Accepted Answer

A) True 
 B)False

Question 13

Efficient resource allocation is defined as MC = AC.

Accepted Answer

A) True 
 B)False

Question 14

The owner of a garage makes large contributions to a politician who is seeking the office of state governor.If his candidate wins, he will get the contract, which now resides with a competitor, to repair State Police vehicles.This is an example of

Accepted Answer

A) moral hazard. 
B) externality. 
C) rent seeking. 
D) investment. 
A) moral hazard. 
B) externality. 
C) rent seeking. 
D) investment.

Question 15

Market economies produce only a few relatively minor defects.

Accepted Answer

A) True 
 B)False

Question 16

The desirable level of output in a perfectly competitive market if there exists a detrimental externality is

Accepted Answer

A)  the point at which MSC curve intersects the marginal revenue curve. 
B)  the point at which MSC intersects the MPC. 
C)  the point at which MSC intersects MPC. 
D)  the point at which marginal revenue curve intersects the MPC. 
A)  the point at which MSC curve intersects the marginal revenue curve. 
B)  the point at which MSC intersects the MPC. 
C)  the point at which MSC intersects MPC. 
D)  the point at which marginal revenue curve intersects the MPC.

Question 17

The former communist countries of eastern Europe and the Soviet Union

Accepted Answer

A) have a better track record in environment protection than market economies. 
B) have a dismal environmental record. 
C) epitomize the ability of planned economies to protect the environment. 
D) have no water pollution problems. 
A) have a better track record in environment protection than market economies. 
B) have a dismal environmental record. 
C) epitomize the ability of planned economies to protect the environment. 
D) have no water pollution problems.

Question 18

In a properly functioning free market

Accepted Answer

A) the price of any good reflects its marginal utility to consumers. 
B) price will equal marginal cost. 
C) the invisible hand will assure that society's resources are used efficiently. 
D) All of the above are correct. 
A) the price of any good reflects its marginal utility to consumers. 
B) price will equal marginal cost. 
C) the invisible hand will assure that society's resources are used efficiently. 
D) All of the above are correct.

Question 19

An economy is operating with optimum efficiency if

Accepted Answer

A) the price of the product is greater than marginal cost. 
B) the production of more of commodity A entails the production of less of commodity B. 
C) marginal cost of output is greater than marginal utility of output. 
D) an increase in output would result in a decrease in average cost per unit. 
A) the price of the product is greater than marginal cost. 
B) the production of more of commodity A entails the production of less of commodity B. 
C) marginal cost of output is greater than marginal utility of output. 
D) an increase in output would result in a decrease in average cost per unit.

Question 20

In the case of a beneficial externality

Accepted Answer

A) marginal private cost is below marginal social cost. 
B) marginal social cost is above marginal private cost. 
C) marginal social cost and marginal private cost are equal. 
D) the free market price is below the socially efficient price. 
A) marginal private cost is below marginal social cost. 
B) marginal social cost is above marginal private cost. 
C) marginal social cost and marginal private cost are equal. 
D) the free market price is below the socially efficient price.

Exam 15: The Shortcomings of Free Markets

An industry that generates detrimental externalities will have a marginal social cost higher than the marginal private cost to the industry.

Rent seeking is a way of earning profit without adding to the product's value.

Examples of public goods include national defense, police, and the U.S.Postal Service.

Conscious manipulation of the interest rate causes it to become a less effective tool in allocating resources among time periods.

Students in a class are assigned to groups to work on a project.A grade will be given for each project, and everyone in the group will receive that grade.For the members of a particular group, the grade is a

Without government intervention, public goods would

Imposing fines on companies that contribute heavily to air and water pollution is an attempt to bring marginal private costs in line with marginal social costs.

The main shortcoming of the market, in the view of many,

A free market may produce a misallocation of resources over time because

It is true of externalities that they

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

Externalities can be either detrimental or beneficial to others.

Efficient resource allocation is defined as MC = AC.

The owner of a garage makes large contributions to a politician who is seeking the office of state governor.If his candidate wins, he will get the contract, which now resides with a competitor, to repair State Police vehicles.This is an example of

Market economies produce only a few relatively minor defects.

The desirable level of output in a perfectly competitive market if there exists a detrimental externality is

The former communist countries of eastern Europe and the Soviet Union

In a properly functioning free market

An economy is operating with optimum efficiency if

In the case of a beneficial externality

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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