Question 1

If a monopolist's production process has economies of scale and average cost exceeds marginal cost, then

Accepted Answer

A) the government could set price equal to marginal cost and subsidize the monopoly. 
B) the government should not offer a subsidy, since the monopoly can make a profit setting price equal to marginal costs. 
C) if the government sets price equal to average cost, the monopoly will go out of business. 
D) the government cannot regulate price. 
A) the government could set price equal to marginal cost and subsidize the monopoly. 
B) the government should not offer a subsidy, since the monopoly can make a profit setting price equal to marginal costs. 
C) if the government sets price equal to average cost, the monopoly will go out of business. 
D) the government cannot regulate price. A

Question 2

Rent seeking is

Accepted Answer

A) when consumers search for the lowest possible rent on housing. 
B) illegal in the U.S. 
C) what regulators do to improve their chances of getting jobs in the regulated industry after they leave government service. 
D) where firms expend effort and money to profit from government actions. 
A) when consumers search for the lowest possible rent on housing. 
B) illegal in the U.S. 
C) what regulators do to improve their chances of getting jobs in the regulated industry after they leave government service. 
D) where firms expend effort and money to profit from government actions. D

Question 3

If Pareto efficiency has been achieved

Accepted Answer

A) there are no additional Pareto improvements that can be made. 
B) surplus is maximized. 
C) economic efficiency is also achieved. 
D) All of the above. 
A) there are no additional Pareto improvements that can be made. 
B) surplus is maximized. 
C) economic efficiency is also achieved. 
D) All of the above. D

Question 4

The argument that society should be in favor of changes that benefit some people without making others worse off is known as

Accepted Answer

A) a positive externality. 
B) the Coase Theorem. 
C) the cost-benefit principle. 
D) the Pareto principle. 
A) a positive externality. 
B) the Coase Theorem. 
C) the cost-benefit principle. 
D) the Pareto principle.

Question 5

An example of an essential facility is

Accepted Answer

A) the telephone line into your house. 
B) U.S. Route 66. 
C) the Golden Gate Bridge. 
D) your local pizza parlor. 
A) the telephone line into your house. 
B) U.S. Route 66. 
C) the Golden Gate Bridge. 
D) your local pizza parlor.

Question 6

If a production process generates pollution, then a competitive market will

Accepted Answer

A) produce more of the good than is socially optimal. 
B) produce less of the good than is socially optimal. 
C) produce the socially optimal quantity of that good. 
D) produce zero output. 
A) produce more of the good than is socially optimal. 
B) produce less of the good than is socially optimal. 
C) produce the socially optimal quantity of that good. 
D) produce zero output.

Question 7

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is

Accepted Answer

A) 0 units. 
B) 50 units. 
C) 100 units. 
D) produced if the market were competitive. 
A) 0 units. 
B) 50 units. 
C) 100 units. 
D) produced if the market were competitive.

Question 8

The result that, under certain circumstances, no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called

Accepted Answer

A) a Nash Equilibrium. 
B) the Coase Theorem. 
C) the Bargaining Theorem. 
D) English Bargaining. 
A) a Nash Equilibrium. 
B) the Coase Theorem. 
C) the Bargaining Theorem. 
D) English Bargaining.

Question 9

Which of the following is an alternative to patents that still encourages research?

Accepted Answer

A) the government funding research by firms 
B) offering a prize for discovery 
C) government grants to universities 
D) All of the above. 
A) the government funding research by firms 
B) offering a prize for discovery 
C) government grants to universities 
D) All of the above.

Question 10

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Accepted Answer

A) marginal benefit to the median voter. 
B) marginal benefit to each individual. 
C) sum of all individual marginal benefits. 
D) sum of all individual marginal benefits divided by the number of voters. 
A) marginal benefit to the median voter. 
B) marginal benefit to each individual. 
C) sum of all individual marginal benefits. 
D) sum of all individual marginal benefits divided by the number of voters.

Question 11

If the government has enough knowledge about a market and the damage it causes through pollution, it can force the socially optimal output

Accepted Answer

A) through an emission fee. 
B) using a ban on pollution. 
C) by deregulating to eliminate the monopoly. 
D) All of the above. 
A) through an emission fee. 
B) using a ban on pollution. 
C) by deregulating to eliminate the monopoly. 
D) All of the above.

Question 12

One way a government can eliminate a market failure

Accepted Answer

A) is to regulate the price so that it equals marginal cost. 
B) is to implement a price floor equal to marginal cost. 
C) is to regulate the price so that it is below average cost. 
D) None of the above solutions will eliminate a market failure. 
A) is to regulate the price so that it equals marginal cost. 
B) is to implement a price floor equal to marginal cost. 
C) is to regulate the price so that it is below average cost. 
D) None of the above solutions will eliminate a market failure.

Question 13

If a production process creates pollution, a competitive market produces excessive pollution because

Accepted Answer

A) private marginal cost of pollution exceeds its social marginal cost. 
B) social marginal cost of pollution exceeds its private marginal cost. 
C) the marginal benefit of pollution to the firm is zero. 
D) zero pollution is optimal. 
A) private marginal cost of pollution exceeds its social marginal cost. 
B) social marginal cost of pollution exceeds its private marginal cost. 
C) the marginal benefit of pollution to the firm is zero. 
D) zero pollution is optimal.

Question 14

If a production process creates positive externalities, a competitive market produces too few positive externalities because the producer

Accepted Answer

A) does not pay all the costs of the externalities. 
B) does not receive compensation for the externalities. 
C) Both A and B. 
D) None of the above. 
A) does not pay all the costs of the externalities. 
B) does not receive compensation for the externalities. 
C) Both A and B. 
D) None of the above.

Question 15

In the U.S., charging monopoly-level prices

Accepted Answer

A) is evidence of a conspiracy. 
B) is illegal. 
C) is not necessarily illegal. 
D) constitutes a per se violation. 
A) is evidence of a conspiracy. 
B) is illegal. 
C) is not necessarily illegal. 
D) constitutes a per se violation.

Question 16

If a policy helps some but harms others

Accepted Answer

A) the result is a Pareto improvement for the people who are helped. 
B) then the cost-benefit analysis will show a net increase in surplus and is therefore desirable. 
C) we cannot use the Pareto principle to evaluate whether or not the policy is desirable. 
D) it is too hard to determine whether or not the outcome is desirable. 
A) the result is a Pareto improvement for the people who are helped. 
B) then the cost-benefit analysis will show a net increase in surplus and is therefore desirable. 
C) we cannot use the Pareto principle to evaluate whether or not the policy is desirable. 
D) it is too hard to determine whether or not the outcome is desirable.

Question 17

Positive externalities are created when

Accepted Answer

A) other consumers reduce their demand for coffee and price thereby declines. 
B) farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. 
C) your neighbor plants beautiful trees and flowers in her yard. 
D) you purchase the "Mona Lisa" and lock it in a vault. 
A) other consumers reduce their demand for coffee and price thereby declines. 
B) farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. 
C) your neighbor plants beautiful trees and flowers in her yard. 
D) you purchase the "Mona Lisa" and lock it in a vault.

Question 18

If a government policy increases benefits to the unemployed without having a detrimental effect on any other constituent, the policy is

Accepted Answer

A) a Pareto improvement. 
B) redistributive. 
C) regressive. 
D) a positive externality effect. 
A) a Pareto improvement. 
B) redistributive. 
C) regressive. 
D) a positive externality effect.

Question 19

If the government regulates the price a monopoly can charge, and the price ceiling is set below what the competitive market price would be, then

Accepted Answer

A) there will be excess supply. 
B) there will be excess demand. 
C) producer surplus is maximized. 
D) consumer surplus is maximized. 
A) there will be excess supply. 
B) there will be excess demand. 
C) producer surplus is maximized. 
D) consumer surplus is maximized.

Question 20

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, one way to alleviate the externality is that

Accepted Answer

A) Al is fined by the government. 
B) Al has the right to leave trash and Bert cannot do anything about it. 
C) Bert has the right to a clean park and Al cannot leave trash. 
D) Either Al or Bert owns the park. 
A) Al is fined by the government. 
B) Al has the right to leave trash and Bert cannot do anything about it. 
C) Bert has the right to a clean park and Al cannot leave trash. 
D) Either Al or Bert owns the park.

If a monopolist's production process has economies of scale and average cost exceeds marginal cost, then

Rent seeking is

If Pareto efficiency has been achieved

The argument that society should be in favor of changes that benefit some people without making others worse off is known as

An example of an essential facility is

If a production process generates pollution, then a competitive market will

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is

The result that, under certain circumstances, no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called

Which of the following is an alternative to patents that still encourages research?

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

If the government has enough knowledge about a market and the damage it causes through pollution, it can force the socially optimal output

One way a government can eliminate a market failure

If a production process creates pollution, a competitive market produces excessive pollution because

If a production process creates positive externalities, a competitive market produces too few positive externalities because the producer

In the U.S., charging monopoly-level prices

If a policy helps some but harms others

Positive externalities are created when

If a government policy increases benefits to the unemployed without having a detrimental effect on any other constituent, the policy is

If the government regulates the price a monopoly can charge, and the price ceiling is set below what the competitive market price would be, then

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, one way to alleviate the externality is that

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Global Business

Filters

Exam 16: Government and Business

If a monopolist's production process has economies of scale and average cost exceeds marginal cost, then

Rent seeking is

If Pareto efficiency has been achieved

The argument that society should be in favor of changes that benefit some people without making others worse off is known as

An example of an essential facility is

If a production process generates pollution, then a competitive market will

-The above figure shows the market for steel ingots. The socially optimal quantity of steel is

The result that, under certain circumstances, no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called

Which of the following is an alternative to patents that still encourages research?

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

If the government has enough knowledge about a market and the damage it causes through pollution, it can force the socially optimal output

One way a government can eliminate a market failure

If a production process creates pollution, a competitive market produces excessive pollution because

If a production process creates positive externalities, a competitive market produces too few positive externalities because the producer

In the U.S., charging monopoly-level prices

If a policy helps some but harms others

Positive externalities are created when

If a government policy increases benefits to the unemployed without having a detrimental effect on any other constituent, the policy is

If the government regulates the price a monopoly can charge, and the price ceiling is set below what the competitive market price would be, then

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, one way to alleviate the externality is that

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Global Business

Filters