Question 1

A good is most likely to be inefficiently priced if

Accepted Answer

A) some of the resources used in its production are scarce. 
B) the good is private property. 
C) some of the resources used in its production are free. 
D) a corporation produces the good. 
A) some of the resources used in its production are scarce. 
B) the good is private property. 
C) some of the resources used in its production are free. 
D) a corporation produces the good.

Question 2

If a firm's activities generate detrimental externalities, the marginal social cost will be less than the marginal private cost.

Accepted Answer

A) True 
 B)False

Question 3

Explain why government, rather than private firms, is required for efficient mosquito eradication programs.

Accepted Answer

Mosquito eradication is a public good.It

Question 4

The interest rate is determined purely by market forces, and not by government involvement.

Accepted Answer

A) True 
 B)False

Question 5

One of the reasons why firms pollute air and water is that

Accepted Answer

A) air and water are often not priced. 
B) managers desire to pollute. 
C) air and water have no value to society. 
D) managers are profit maximizers. 
A) air and water are often not priced. 
B) managers desire to pollute. 
C) air and water have no value to society. 
D) managers are profit maximizers.

Question 6

When consumers or businessmen stop collecting information to make decisions at the point where marginal cost of data collection equals the marginal utility of the data, economists would call the decisions based on existing data

Accepted Answer

A) perfect decisions. 
B) optimally imperfect decisions. 
C) joint decisions. 
D) rent seeking. 
A) perfect decisions. 
B) optimally imperfect decisions. 
C) joint decisions. 
D) rent seeking.

Question 7

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

Accepted Answer

A) $5. 
B) $105. 
C) less than $5 if people suffer from a "defective telescopic faculty." 
D) more than $5 if people suffer from a "defective telescopic faculty." 
A) $5. 
B) $105. 
C) less than $5 if people suffer from a "defective telescopic faculty." 
D) more than $5 if people suffer from a "defective telescopic faculty."

Question 8

A good's marginal social cost is defined as its

Accepted Answer

A) marginal private cost minus the value of any detrimental externality. 
B) incidental cost. 
C) marginal private cost plus the value of any taxes paid on its production. 
D) marginal private cost plus its incidental cost. 
A) marginal private cost minus the value of any detrimental externality. 
B) incidental cost. 
C) marginal private cost plus the value of any taxes paid on its production. 
D) marginal private cost plus its incidental cost.

Question 9

National defense and coastal lighthouses are examples of

Accepted Answer

A) public goods. 
B) private goods. 
C) high marginal cost goods. 
D) depletable goods. 
A) public goods. 
B) private goods. 
C) high marginal cost goods. 
D) depletable goods.

Question 10

AZT is a drug that inhibits the reproduction of the AIDS virus, thus preventing the full development of the disease.The drug, which is sold in an unregulated market, is very expensive and many AIDS patients who can't afford it die from the disease.This case provides ammunition to critics of the market system on the basis of its

Accepted Answer

A) fairness. 
B) externalities. 
C) cost disease in services. 
D) inefficiency. 
A) fairness. 
B) externalities. 
C) cost disease in services. 
D) inefficiency.

Question 11

Moral hazard encourages people to take risks.

Accepted Answer

A) True 
 B)False

Question 12

Where a firm generates beneficial externalities, society would be better off if

Accepted Answer

A) the firm produced a larger output level. 
B) the firm reduced its output level. 
C) a tax was levied on the firm equal to the dollar amount of the externalities. 
D) price was reduced below marginal private cost. 
A) the firm produced a larger output level. 
B) the firm reduced its output level. 
C) a tax was levied on the firm equal to the dollar amount of the externalities. 
D) price was reduced below marginal private cost.

Question 13

The market's contribution to the general welfare has been its

Accepted Answer

A) stimulation of growth in productivity. 
B) yield of an abundance of consumers' goods. 
C) contribution to human longevity. 
D) All of the above are correct. 
A) stimulation of growth in productivity. 
B) yield of an abundance of consumers' goods. 
C) contribution to human longevity. 
D) All of the above are correct.

Question 14

Part of the reason why barely used cars sell for much less than new cars is that

Accepted Answer

A) buyers and sellers have symmetric information about cars and both have less information about used cars than about new cars. 
B) buyers and sellers have symmetric information about cars and both have more information about used cars than about new cars. 
C) buyers have more information about used cars than sellers do. 
D) sellers have more information about used cars than buyers do. 
A) buyers and sellers have symmetric information about cars and both have less information about used cars than about new cars. 
B) buyers and sellers have symmetric information about cars and both have more information about used cars than about new cars. 
C) buyers have more information about used cars than sellers do. 
D) sellers have more information about used cars than buyers do.

Question 15

Monopolists usually earn economic rent.

Accepted Answer

A) True 
 B)False

Question 16

The construct used to demonstrate efficient use of society's resources is the

Accepted Answer

A) production possibilities frontier. 
B) payoff matrix. 
C) input-output table. 
D) cost-benefit table. 
A) production possibilities frontier. 
B) payoff matrix. 
C) input-output table. 
D) cost-benefit table.

Question 17

Explain how stock options can ensure compatibility between the interest of stockholders and managers.

Accepted Answer

When the price of the company's stock go

Question 18

Governments can deal with externalities through the use of

Accepted Answer

A) subsidies. 
B) taxes. 
C) price controls. 
D) All of the above are correct. 
A) subsidies. 
B) taxes. 
C) price controls. 
D) All of the above are correct.

Question 19

All externalities are detrimental.

Accepted Answer

A) True 
 B)False

Question 20

If a commodity's price is above its marginal cost, the market will tend to produce too much of the good.

Accepted Answer

A) True 
 B)False

Exam 15: The Shortcomings of Free Markets

A good is most likely to be inefficiently priced if

If a firm's activities generate detrimental externalities, the marginal social cost will be less than the marginal private cost.

Explain why government, rather than private firms, is required for efficient mosquito eradication programs.

The interest rate is determined purely by market forces, and not by government involvement.

One of the reasons why firms pollute air and water is that

When consumers or businessmen stop collecting information to make decisions at the point where marginal cost of data collection equals the marginal utility of the data, economists would call the decisions based on existing data

If the interest rate on saving is 5 percent per period, then the true opportunity cost of being paid $100 next period instead of this period is

A good's marginal social cost is defined as its

National defense and coastal lighthouses are examples of

Moral hazard encourages people to take risks.

Where a firm generates beneficial externalities, society would be better off if

The market's contribution to the general welfare has been its

Part of the reason why barely used cars sell for much less than new cars is that

Monopolists usually earn economic rent.

The construct used to demonstrate efficient use of society's resources is the

Explain how stock options can ensure compatibility between the interest of stockholders and managers.

Governments can deal with externalities through the use of

All externalities are detrimental.

If a commodity's price is above its marginal cost, the market will tend to produce too much of the good.

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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