Question 1

An appropriate government policy toward negative externalities is to

Accepted Answer

A) subsidize the activity that creates the negative externality. 
B) impose a tax or fine on the activity that creates the negative externality. 
C) pay money to the party that creates the negative externality. 
D) impose a tax on recipients of the negative externality. 
A) subsidize the activity that creates the negative externality. 
B) impose a tax or fine on the activity that creates the negative externality. 
C) pay money to the party that creates the negative externality. 
D) impose a tax on recipients of the negative externality.

Question 2

An example of a beneficial externality is

Accepted Answer

A) airport noise. 
B) a blooming curbside bed of violets. 
C) pollution of a fishing lake. 
D) freeway congestion. 
A) airport noise. 
B) a blooming curbside bed of violets. 
C) pollution of a fishing lake. 
D) freeway congestion.

Question 3

A private good is characterized by excludability and depletability.

Accepted Answer

A) True 
 B)False

Question 4

It has been said that well-educated citizens are necessary for democracy.Discuss this idea in economic terms.What market imperfection might occur and what are the appropriate government policies to correct it?

Accepted Answer

Education provides a beneficial external

Question 5

The classic example of a detrimental externality is

Accepted Answer

A) education. 
B) pollution. 
C) discovery of an AIDS vaccine. 
D) Mrs.Lewis' prize-winning rose garden. 
A) education. 
B) pollution. 
C) discovery of an AIDS vaccine. 
D) Mrs.Lewis' prize-winning rose garden.

Question 6

A public good is

Accepted Answer

A) any good provided by government. 
B) a good that can be most cheaply provided by government, though it may in fact be provided by private enterprise. 
C) a good whose benefits cannot readily be restricted to a small group of people. 
D) a good whose benefits cannot be enjoyed by an individual alone. 
A) any good provided by government. 
B) a good that can be most cheaply provided by government, though it may in fact be provided by private enterprise. 
C) a good whose benefits cannot readily be restricted to a small group of people. 
D) a good whose benefits cannot be enjoyed by an individual alone.

Question 7

The factor that leads to underpricing and overuse of an economic resource is

Accepted Answer

A) human greed and selfishness. 
B) capital markets. 
C) the lack of an enforceable property right. 
D) the lack of understanding of pollution and its effects. 
A) human greed and selfishness. 
B) capital markets. 
C) the lack of an enforceable property right. 
D) the lack of understanding of pollution and its effects.

Question 8

Private goods are not excludable.

Accepted Answer

A) True 
 B)False

Question 9

Symmetric information generally leads to efficient allocations of resources.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is an imperfection of market economies?

Accepted Answer

A) They produce inexpensive services but expensive manufactured goods. 
B) They place undue importance on the needs of future generations. 
C) They cannot provide certain goods such as national defense. 
D) They distribute income too unequally. 
A) They produce inexpensive services but expensive manufactured goods. 
B) They place undue importance on the needs of future generations. 
C) They cannot provide certain goods such as national defense. 
D) They distribute income too unequally.

Question 11

During the 1992 presidential campaign, H.Ross Perot made much of the various "special interests" which lobby in Washington, D.C.How might an economist view this?
 Which specific market breakdown may occur if there is lobbying?
 Relate your answer to the study of monopoly and oligopoly.

Accepted Answer

Lobbying may be a manifestation of rent

Question 12

The supply of public goods must be left to government and nonprofit institutions.Why?

Accepted Answer

Because nonpaying users usually cannot b

Question 13

What are private goods?
 Mention two important attributes of private goods.

Accepted Answer

A private good is a commodity characteri

Question 14

A true public good is characterized by

Accepted Answer

A) depletability but not excludability. 
B) excludability but not depletability. 
C) both depletability and excludability. 
D) neither depletability nor excludability. 
A) depletability but not excludability. 
B) excludability but not depletability. 
C) both depletability and excludability. 
D) neither depletability nor excludability.

Question 15

Some would cite the purchase of defective products and the rising cost of health care as market failures.Argue that these are not true market failures.

Accepted Answer

If one had perfect information, one woul

Question 16

An increase in interest rates will generally lead to a(n) ____ in present investment and a(n) ____ in future income and production.

Accepted Answer

A) decrease, decrease 
B) decrease, increase 
C) increase, decrease 
D) increase, increase 
A) decrease, decrease 
B) decrease, increase 
C) increase, decrease 
D) increase, increase

Question 17

It is efficient to increase the output of computers if

Accepted Answer

A) society considers the extra computers more valuable than other goods foregone to produce the computers. 
B) the opportunity cost of more computers is greater than their marginal utility. 
C) computer production can be increased only if production of other goods is decreased. 
D) the price of the computers is equal to their average cost. 
A) society considers the extra computers more valuable than other goods foregone to produce the computers. 
B) the opportunity cost of more computers is greater than their marginal utility. 
C) computer production can be increased only if production of other goods is decreased. 
D) the price of the computers is equal to their average cost.

Question 18

A 2% wage increase for teachers or police officers is:

Accepted Answer

A) usually offset by higher output per worker. 
B) leads to increases in municipal budgets. 
C) indicates that teachers and police have became more selfish. 
D) leads to more personalized service. 
A) usually offset by higher output per worker. 
B) leads to increases in municipal budgets. 
C) indicates that teachers and police have became more selfish. 
D) leads to more personalized service.

Question 19

Low interest rates will persuade corporations to invest more right now.

Accepted Answer

A) True 
 B)False

Question 20

If production of a good creates beneficial externalities, a perfectly competitive market will produce

Accepted Answer

A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is socially efficient. 
D) more output than is socially efficient. 
A) less output than would maximize profit. 
B) more output than would maximize profit. 
C) less output than is socially efficient. 
D) more output than is socially efficient.

Exam 15: The Shortcomings of Free Markets

An appropriate government policy toward negative externalities is to

An example of a beneficial externality is

A private good is characterized by excludability and depletability.

It has been said that well-educated citizens are necessary for democracy.Discuss this idea in economic terms.What market imperfection might occur and what are the appropriate government policies to correct it?

The classic example of a detrimental externality is

A public good is

The factor that leads to underpricing and overuse of an economic resource is

Private goods are not excludable.

Symmetric information generally leads to efficient allocations of resources.

Which of the following is an imperfection of market economies?

During the 1992 presidential campaign, H.Ross Perot made much of the various "special interests" which lobby in Washington, D.C.How might an economist view this? Which specific market breakdown may occur if there is lobbying? Relate your answer to the study of monopoly and oligopoly.

The supply of public goods must be left to government and nonprofit institutions.Why?

What are private goods? Mention two important attributes of private goods.

A true public good is characterized by

Some would cite the purchase of defective products and the rising cost of health care as market failures.Argue that these are not true market failures.

An increase in interest rates will generally lead to a(n) ____ in present investment and a(n) ____ in future income and production.

It is efficient to increase the output of computers if

A 2% wage increase for teachers or police officers is:

Low interest rates will persuade corporations to invest more right now.

If production of a good creates beneficial externalities, a perfectly competitive market will produce

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

Filters

An increase in interest rates will generally lead to a(n) in present investment and a(n) in future income and production.