Question 1

Regarding government manipulation of the interest rate, all of these statements are correct, except:

Accepted Answer

A) ​To address business fluctuations, governments may reduce interest rates to induce people to borrow. 
B) ​Such manipulations may give little thought to the effects on resource allocation between present and future. 
C) ​Economists agree with the concept of using of interest rates to allocate resources among different time periods. 
D) ​Generally, the price system reflects public preference between present and future resource allocation. 
A) ​To address business fluctuations, governments may reduce interest rates to induce people to borrow. 
B) ​Such manipulations may give little thought to the effects on resource allocation between present and future. 
C) ​Economists agree with the concept of using of interest rates to allocate resources among different time periods. 
D) ​Generally, the price system reflects public preference between present and future resource allocation.

Question 2

The City Symphony presents three open-air concerts in the city park pavilion during the spring and summer.Many who attend make donations for symphony expenses, but the donation is not required.Some who attend make no contributions.Economists would

Accepted Answer

A) classify the noncontributors as detrimental externalities. 
B) call the concerts excludable events. 
C) call the noncontributors free riders. 
D) call the concerts depletable goods. 
A) classify the noncontributors as detrimental externalities. 
B) call the concerts excludable events. 
C) call the noncontributors free riders. 
D) call the concerts depletable goods.

Question 3

Figure 15-1
  
-Figure 15-1 describes conditions in the monopolized weezil industry.If the government replaces the monopolist with perfectly competitive firms and forces these firms to take account of all the costs and benefits they impose on society, the industry will produce an output equal to

Accepted Answer

A) W. 
B) X. 
C) Y. 
D) Z. 
A) W. 
B) X. 
C) Y. 
D) Z.

Question 4

If P = MC for all goods in a free-market economy, then

Accepted Answer

A) the desire for utility maximization will lead consumers to buy the amount of each good at which MU = MC. 
B) the desire for profit maximization will lead consumers to buy the amount of each good at which MU = MC. 
C) the desire for utility maximization will lead consumers to buy only those goods that have low opportunity costs. 
D) the desire for profit maximization will lead all firms to stop producing in the long run (though possibly not in the short run). 
A) the desire for utility maximization will lead consumers to buy the amount of each good at which MU = MC. 
B) the desire for profit maximization will lead consumers to buy the amount of each good at which MU = MC. 
C) the desire for utility maximization will lead consumers to buy only those goods that have low opportunity costs. 
D) the desire for profit maximization will lead all firms to stop producing in the long run (though possibly not in the short run).

Question 5

The lure of ____ directs resources to optimally efficient activities and time periods.

Accepted Answer

A) future consumption 
B) present consumption 
C) market share growth 
D) profits 
A) future consumption 
B) present consumption 
C) market share growth 
D) profits

Question 6

What rule must be followed to obtain an efficient allocation of resources?

Accepted Answer

A) P = AC. 
B) P = MC. 
C) P = AR. 
D) MR = AC. 
A) P = AC. 
B) P = MC. 
C) P = AR. 
D) MR = AC.

Question 7

Private ownership of rivers and lakes will halt all water pollution.

Accepted Answer

A) True 
 B)False

Question 8

Figure 15-2
  
-The firm illustrated in Figure 15-2 is producing

Accepted Answer

A) less than it would if the external costs were internalized. 
B) more than it would if external costs were internalized. 
C) a beneficial externality. 
D) at the socially optimal point. 
A) less than it would if the external costs were internalized. 
B) more than it would if external costs were internalized. 
C) a beneficial externality. 
D) at the socially optimal point.

Question 9

Marginal social cost is made up of marginal private cost and incidental cost.

Accepted Answer

A) True 
 B)False

Question 10

The interest rate is the opportunity cost of transferring spending power between time periods.However, the market mechanism may fail to provide adequately for future economic growth.List the reasons why a market might fail.

Accepted Answer

Baumol and Blinder list the following th

Question 11

In the allocation of resources between present and future

Accepted Answer

A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies. 
A) the market works imperfectly. 
B) the market works perfectly. 
C) centrally planned economies are more efficient than market economies. 
D) the invisible hand guarantees efficiency in market economies.

Question 12

The pollution emitted by a power plant is an example of a detrimental externality.

Accepted Answer

A) True 
 B)False

Question 13

The cost disease of personal services causes

Accepted Answer

A) the cost of health care to rise faster than the economy's rate of inflation. 
B) legislators to blame declining standards of quality at public hospitals on greedy doctors or administrators. 
C) legislators to propose price controls on insurance. 
D) All of the above are correct. 
A) the cost of health care to rise faster than the economy's rate of inflation. 
B) legislators to blame declining standards of quality at public hospitals on greedy doctors or administrators. 
C) legislators to propose price controls on insurance. 
D) All of the above are correct.

Question 14

Public goods could effectively be provided by private markets, but we choose to provide them through government.

Accepted Answer

A) True 
 B)False

Question 15

Rent-seeking behavior refers to

Accepted Answer

A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices. 
A) the offering of goods on a for-rent rather than for-sale basis. 
B) profit maximization by producers. 
C) unproductive activity in the pursuit of economic profit. 
D) illegal manipulation of prices.

Question 16

The key explanation for the prevalence of waterway pollution is

Accepted Answer

A) the inclusion in production of all costs involving use of the waterway. 
B) that there are private costs but no costs to society. 
C) that waterways are not private property and can be used free of charge. 
D) that waterways are subject to the market's normal control procedures. 
A) the inclusion in production of all costs involving use of the waterway. 
B) that there are private costs but no costs to society. 
C) that waterways are not private property and can be used free of charge. 
D) that waterways are subject to the market's normal control procedures.

Question 17

The most threatening and damaging detrimental externality at issue today is:

Accepted Answer

A) ​The explosion and oil spill at the Deepwater Horizon 
B) ​the continued pollution of city air due to factory emissions 
C) ​water shortages 
D) ​global warming 
A) ​The explosion and oil spill at the Deepwater Horizon 
B) ​the continued pollution of city air due to factory emissions 
C) ​water shortages 
D) ​global warming

Question 18

The Rand Corporation estimates that the external costs imposed by alcohol consumption (for example, deaths caused by drunk drivers) to be 48 cents per ounce consumed.Taxes on alcohol amount to 23 cents per ounce consumed.This information suggests: (i) alcohol is overconsumed; (ii) alcohol taxes should be raised.Which of these statements is correct?

Accepted Answer

A) i and ii 
B) i not ii 
C) ii not i 
D) neither i nor ii 
A) i and ii 
B) i not ii 
C) ii not i 
D) neither i nor ii

Question 19

The economic justification for public subsidies to university research is based on

Accepted Answer

A) the value of this research to the university. 
B) the higher salaries graduate students earn as a result of working with professors involved in research. 
C) the external benefits of research and development to, in particular, high rates of economic growth. 
D) higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.). 
A) the value of this research to the university. 
B) the higher salaries graduate students earn as a result of working with professors involved in research. 
C) the external benefits of research and development to, in particular, high rates of economic growth. 
D) higher incomes earned by those who provide services to university researchers (equipment, supplies, etc.).

Question 20

Which term refers to the share of an activity's marginal cost that is paid for by people other than those who carry out the activity?

Accepted Answer

A) Beneficial cost 
B) Incidental cost 
C) Marginal private cost 
D) Marginal social cost 
A) Beneficial cost 
B) Incidental cost 
C) Marginal private cost 
D) Marginal social cost

Exam 15: The Shortcomings of Free Markets

Regarding government manipulation of the interest rate, all of these statements are correct, except:

The City Symphony presents three open-air concerts in the city park pavilion during the spring and summer.Many who attend make donations for symphony expenses, but the donation is not required.Some who attend make no contributions.Economists would

Figure 15-1 -Figure 15-1 describes conditions in the monopolized weezil industry.If the government replaces the monopolist with perfectly competitive firms and forces these firms to take account of all the costs and benefits they impose on society, the industry will produce an output equal to

If P = MC for all goods in a free-market economy, then

The lure of ____ directs resources to optimally efficient activities and time periods.

What rule must be followed to obtain an efficient allocation of resources?

Private ownership of rivers and lakes will halt all water pollution.

Figure 15-2 -The firm illustrated in Figure 15-2 is producing

Marginal social cost is made up of marginal private cost and incidental cost.

The interest rate is the opportunity cost of transferring spending power between time periods.However, the market mechanism may fail to provide adequately for future economic growth.List the reasons why a market might fail.

In the allocation of resources between present and future

The pollution emitted by a power plant is an example of a detrimental externality.

The cost disease of personal services causes

Public goods could effectively be provided by private markets, but we choose to provide them through government.

Rent-seeking behavior refers to

The key explanation for the prevalence of waterway pollution is

The most threatening and damaging detrimental externality at issue today is:

The economic justification for public subsidies to university research is based on

Which term refers to the share of an activity's marginal cost that is paid for by people other than those who carry out the activity?

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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