Question 1

External benefits cause the market to:

Accepted Answer

A)  underallocate resources. 
B)  be more efficient. 
C)  set excessively high prices. 
D)  have persistent shortages. 
A)  underallocate resources. 
B)  be more efficient. 
C)  set excessively high prices. 
D)  have persistent shortages.

Question 2

Exhibit 4-3 Supply and demand curves
  
-In Exhibit 4-3,which of the following might cause a shift from S₂ to S₁?

Accepted Answer

A)  A decrease in input prices. 
B)  A decrease in consumer income. 
C)  An increase in input prices. 
D)  An increase in consumer income. 
A)  A decrease in input prices. 
B)  A decrease in consumer income. 
C)  An increase in input prices. 
D)  An increase in consumer income.

Question 3

Many student government candidates at colleges and universities propose rent controls on local rental housing as a way to help students afford rental housing.Economic theory suggests that this policy would harm students as a whole despite the fact that some students who are able to find housing at the reduced price would benefit.Which of the following are some of the offsetting secondary effects of the rent controls that would work to the disadvantage of students?

Accepted Answer

A)  There would be a shortage of rental housing, making it very difficult for students to find places to rent and causing increased discrimination in the rental housing market. 
B)  There would be a reduction in the quality of rental housing. 
C)  There would be a reduction in the future supply of rental housing. 
D)  All of the above would be secondary effects of the rent controls. 
A)  There would be a shortage of rental housing, making it very difficult for students to find places to rent and causing increased discrimination in the rental housing market. 
B)  There would be a reduction in the quality of rental housing. 
C)  There would be a reduction in the future supply of rental housing. 
D)  All of the above would be secondary effects of the rent controls.

Question 4

Exhibit 4-11 Data on supply and demand
  
-Market failure can result from market outcomes that:

Accepted Answer

A)  result in too few resources devoted to a good. 
B)  result in too many resources devoted to a good. 
C)  may justify government intervention. 
D)  all of the above. 
A)  result in too few resources devoted to a good. 
B)  result in too many resources devoted to a good. 
C)  may justify government intervention. 
D)  all of the above.

Question 5

If the supply curve decreases while the demand curve remains unchanged,the equilibrium price would decrease.

Accepted Answer

A) True 
 B)False

Question 6

Why do negative externalities like pollution result in inefficiency?

Accepted Answer

A)  Because producers artificially restrict their supply. 
B)  Because producers ignore the external costs they impose on third-parties. 
C)  Because producers manufacture more goods than people can afford to buy. 
D)  Because producers will receive an unequal distribution of profits. 
A)  Because producers artificially restrict their supply. 
B)  Because producers ignore the external costs they impose on third-parties. 
C)  Because producers manufacture more goods than people can afford to buy. 
D)  Because producers will receive an unequal distribution of profits.

Question 7

Suppose the government imposes a per unit tax on an item whose production process creates a negative externality.Suppose the tax is exactly the value of the marginal externality cost.If the government now uses the tax revenue to clean up pollution from this process,the market will:

Accepted Answer

A)  have internalized all costs and benefits. 
B)  be inefficient. 
C)  be destroyed. 
D)  not have failed. 
E)  be subject to obligatory controls. 
A)  have internalized all costs and benefits. 
B)  be inefficient. 
C)  be destroyed. 
D)  not have failed. 
E)  be subject to obligatory controls.

Question 8

A free rider is a person who:

Accepted Answer

A)  is harmed by another's actions. 
B)  is subject to a negative externality. 
C)  receives benefits from someone else's action but does not pay for them. 
D)  pays less than the full value for a product. 
E)  won the state lottery. 
A)  is harmed by another's actions. 
B)  is subject to a negative externality. 
C)  receives benefits from someone else's action but does not pay for them. 
D)  pays less than the full value for a product. 
E)  won the state lottery.

Question 9

Which of the following is a public good?

Accepted Answer

A)  An economics lecture. 
B)  A television set. 
C)  Higher education. 
D)  Housing. 
E)  Clean air 
A)  An economics lecture. 
B)  A television set. 
C)  Higher education. 
D)  Housing. 
E)  Clean air

Question 10

The former Soviet Union was known for black markets.An explanation for the existence of these illegal markets is that:

Accepted Answer

A)  goods were not subject to price controls. 
B)  the government imposed a price ceiling below the equilibrium price. 
C)  the government imposed a price ceiling above the equilibrium price. 
D)  all of the above. 
A)  goods were not subject to price controls. 
B)  the government imposed a price ceiling below the equilibrium price. 
C)  the government imposed a price ceiling above the equilibrium price. 
D)  all of the above.

Question 11

A price floor would be established in cases where the government believed the market equilibrium price would:

Accepted Answer

A)  result in a surplus. 
B)  be too high. 
C)  result in a shortage. 
D)  be too low. 
E)  yield excess profits. 
A)  result in a surplus. 
B)  be too high. 
C)  result in a shortage. 
D)  be too low. 
E)  yield excess profits.

Question 12

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Accepted Answer

A)  smoke; with food service 
B)  third parties; for food service 
C)  externalities; with public goods 
D)  third parties; externality 
E)  nonsmokers; for food service 
A)  smoke; with food service 
B)  third parties; for food service 
C)  externalities; with public goods 
D)  third parties; externality 
E)  nonsmokers; for food service

Question 13

Assume no price floor exists and a market has a given equilibrium.Then a price floor is established,which is above the market equilibrium.A shortage would result.

Accepted Answer

A) True 
 B)False

Question 14

Compared to ideal economic efficiency,when the production of a good generates external costs,competitive markets will result in an output that is too:

Accepted Answer

A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low. 
A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low.

Question 15

If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold,this could be explained by a(n):

Accepted Answer

A)  increase in the supply of the good. 
B)  increase in the demand for the good. 
C)  decrease in the demand for the good. 
D)  decrease in the supply of the good. 
A)  increase in the supply of the good. 
B)  increase in the demand for the good. 
C)  decrease in the demand for the good. 
D)  decrease in the supply of the good.

Question 16

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is not true?

Accepted Answer

A)  If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B)  If marginal externality costs are not zero, externalities exist. 
C)  An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D)  The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E)  When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level. 
A)  If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B)  If marginal externality costs are not zero, externalities exist. 
C)  An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D)  The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E)  When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level.

Question 18

Which of the following would be an example of a public good?

Accepted Answer

A)  A candy bar. 
B)  A painting by Monet. 
C)  A taxi cab. 
D)  A sunset. 
E)  The beach. 
A)  A candy bar. 
B)  A painting by Monet. 
C)  A taxi cab. 
D)  A sunset. 
E)  The beach.

Question 19

A market consequence of the establishment of a price floor program is that price will be:

Accepted Answer

A)  too low, and an excess supply will result. 
B)  too low, and a shortage will result. 
C)  too high, and an excess supply will result. 
D)  too high, and a shortage will result. 
E)  below the market equilibrium price. 
A)  too low, and an excess supply will result. 
B)  too low, and a shortage will result. 
C)  too high, and an excess supply will result. 
D)  too high, and a shortage will result. 
E)  below the market equilibrium price.

Question 20

A public good will:

Accepted Answer

A)  be efficiently provided by the free market as long as its total benefits exceed its total costs. 
B)  be efficiently provided by the free market as long as its marginal benefits exceed its marginal costs. 
C)  be provided in less than efficient quantities by the free market. 
D)  be provided in efficient quantities by voluntary contributions. 
E)  not be provided by the government. 
A)  be efficiently provided by the free market as long as its total benefits exceed its total costs. 
B)  be efficiently provided by the free market as long as its marginal benefits exceed its marginal costs. 
C)  be provided in less than efficient quantities by the free market. 
D)  be provided in efficient quantities by voluntary contributions. 
E)  not be provided by the government.

Exam 4: Markets in Action

External benefits cause the market to:

Exhibit 4-3 Supply and demand curves -In Exhibit 4-3,which of the following might cause a shift from S₂ to S₁?

Exhibit 4-11 Data on supply and demand -Market failure can result from market outcomes that:

If the supply curve decreases while the demand curve remains unchanged,the equilibrium price would decrease.

Why do negative externalities like pollution result in inefficiency?

Suppose the government imposes a per unit tax on an item whose production process creates a negative externality.Suppose the tax is exactly the value of the marginal externality cost.If the government now uses the tax revenue to clean up pollution from this process,the market will:

A free rider is a person who:

Which of the following is a public good?

The former Soviet Union was known for black markets.An explanation for the existence of these illegal markets is that:

A price floor would be established in cases where the government believed the market equilibrium price would:

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Assume no price floor exists and a market has a given equilibrium.Then a price floor is established,which is above the market equilibrium.A shortage would result.

Compared to ideal economic efficiency,when the production of a good generates external costs,competitive markets will result in an output that is too:

If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold,this could be explained by a(n):

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

Which of the following statements is not true?

Which of the following would be an example of a public good?

A market consequence of the establishment of a price floor program is that price will be:

A public good will:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

Nonsmoking sections in restaurants are designed to remove from a market .