Question 1

When a particular resource is commonly used,it tends to get underutilized.

Accepted Answer

A) True 
 B)False

Question 2

When a divergence between social costs and private costs exists,then:

Accepted Answer

A) markets will always provide an efficient allocation of resources. 
B) there will be too much or too little production and consumption in the market. 
C) there will be an acute shortage of goods and services in the market. 
D) there will be an excess demand for goods and services in the market. 
E) private costs must be greater than social costs. 
A) markets will always provide an efficient allocation of resources. 
B) there will be too much or too little production and consumption in the market. 
C) there will be an acute shortage of goods and services in the market. 
D) there will be an excess demand for goods and services in the market. 
E) private costs must be greater than social costs.

Question 3

Moral hazard is the term used to describe the situation in which:

Accepted Answer

A) a consumer may buy a low-quality product. 
B) consumers receive a lower price because of a mistake on the part of the clerk. 
C) a consumer is being compensated for a defective product. 
D) people may change their behavior after they have signed a contract or agreed to a specified behavior. 
E) people want to change their behavior after they have signed a contract or agreed to a specified behavior but are unable to do so. 
A) a consumer may buy a low-quality product. 
B) consumers receive a lower price because of a mistake on the part of the clerk. 
C) a consumer is being compensated for a defective product. 
D) people may change their behavior after they have signed a contract or agreed to a specified behavior. 
E) people want to change their behavior after they have signed a contract or agreed to a specified behavior but are unable to do so.

Question 4

A tradable government permit for the atmospheric release of a ton of sulfur dioxide can help reduce acid rain.

Accepted Answer

A) True 
 B)False

Question 5

The figure below shows the demand and supply curves in the market for elementary education. Figure 13.1
  In the figure,
D: Private demand curve for elementary education
D + s: Demand curve which includes public benefits
S: Supply curve of education
Price and Quantity have been taken on vertical and horizontal axes respectively.
-According to Figure 13.1,the outcome of an unregulated,unsubsidized market would be:

Accepted Answer

A) point a. 
B) point b. 
C) point c. 
D) point d. 
E) point e. 
A) point a. 
B) point b. 
C) point c. 
D) point d. 
E) point e.

Question 6

Higher the economic freedom in a country:

Accepted Answer

A) lower is the standard of living of the people. 
B) higher is the life expectancy. 
C) greater is the bureaucratic freedom and red-tapism. 
D) lower is the level of education due to lack of government schools. 
E) lower is the literacy rate. 
A) lower is the standard of living of the people. 
B) higher is the life expectancy. 
C) greater is the bureaucratic freedom and red-tapism. 
D) lower is the level of education due to lack of government schools. 
E) lower is the literacy rate.

Question 7

The good for which neither the principle of mutual excludability nor the principle of rivalry applies is referred to as a:

Accepted Answer

A) public good. 
B) commons good. 
C) club good. 
D) normal good. 
E) private good. 
A) public good. 
B) commons good. 
C) club good. 
D) normal good. 
E) private good.

Question 8

Which of the following is an example of a positive externality?

Accepted Answer

A) Smoking a cigarette 
B) Driving a less fuel efficient vehicle 
C) Setting up a chemicals factory in a residential area 
D) Overuse of chemical fertilizers 
E) Beekeepers keeping bees for honey 
A) Smoking a cigarette 
B) Driving a less fuel efficient vehicle 
C) Setting up a chemicals factory in a residential area 
D) Overuse of chemical fertilizers 
E) Beekeepers keeping bees for honey

Question 9

The owner of a good has the right to decide how that good is used and to restrict others from using that good.This idea is known as:

Accepted Answer

A) the principle of mutual excludability. 
B) the principle of comparative advantage. 
C) the principle of public ownership. 
D) the principle of negative externalities. 
E) the law of demand. 
A) the principle of mutual excludability. 
B) the principle of comparative advantage. 
C) the principle of public ownership. 
D) the principle of negative externalities. 
E) the law of demand.

Question 10

Private property rights help to ensure an efficient use of resources,because owners of the resources must bear the costs of inefficient use.

Accepted Answer

A) True 
 B)False

Question 11

When the commons are converted into privately owned resources:

Accepted Answer

A) utilization is increased,and benefits to the society declines. 
B) utilization is increased,and the benefits to the society also increases. 
C) utilization is decreased,and the benefits to the society also decreases. 
D) utilization remains unchanged,and the benefits to the society increases. 
E) utilization is decreased,and the benefits to the society increases. 
A) utilization is increased,and benefits to the society declines. 
B) utilization is increased,and the benefits to the society also increases. 
C) utilization is decreased,and the benefits to the society also decreases. 
D) utilization remains unchanged,and the benefits to the society increases. 
E) utilization is decreased,and the benefits to the society increases.

Question 12

If the government is successful in internalizing the external costs of production in a market,then:

Accepted Answer

A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero. 
A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero.

Question 13

Which of the following is not a problem with a public good?

Accepted Answer

A) An incentive to free-ride 
B) A public good is often underconsumed 
C) An absence of private property rights 
D) An inability to limit consumption to those who purchase the good 
E) A public good is usually underproduced 
A) An incentive to free-ride 
B) A public good is often underconsumed 
C) An absence of private property rights 
D) An inability to limit consumption to those who purchase the good 
E) A public good is usually underproduced

Question 14

It is often impossible for a business firm to determine its private costs of production.

Accepted Answer

A) True 
 B)False

Question 15

When the people creating an externality are made to pay for the externality by the government,the externality is said to be internalized.

Accepted Answer

A) True 
 B)False

Question 16

Why are cows and chickens less prone to become extinct?

Accepted Answer

A) They are usually consumed in huge numbers 
B) They are mainly privately owned 
C) They are a part of common resources 
D) Poaching these animals for their meat is banned by the government 
E) They are not used for commercial purposes 
A) They are usually consumed in huge numbers 
B) They are mainly privately owned 
C) They are a part of common resources 
D) Poaching these animals for their meat is banned by the government 
E) They are not used for commercial purposes

Question 17

Co-payments and deductibles provide a means of reducing moral hazard problems because they allow each party in the transaction to share in the costs.

Accepted Answer

A) True 
 B)False

Question 18

When consumers have perfect information about the quality of the products they purchase,the problem of adverse selection is likely to arise.

Accepted Answer

A) True 
 B)False

Question 19

As opposed to economists like Tinbergen and Galbraith,the "public choice" school argues that:

Accepted Answer

A) the invisible hand of the market is inefficient in allocating resources to their best uses. 
B) the government often does not take correct economic decisions as it is run by self-interested politicians. 
C) the government takes correct decisions as it is run by conscious and educated individuals. 
D) the market fails to maximize social efficiency. 
E) the government is a non-profit making organization which works to maximize social efficiency. 
A) the invisible hand of the market is inefficient in allocating resources to their best uses. 
B) the government often does not take correct economic decisions as it is run by self-interested politicians. 
C) the government takes correct decisions as it is run by conscious and educated individuals. 
D) the market fails to maximize social efficiency. 
E) the government is a non-profit making organization which works to maximize social efficiency.

Question 20

If education has positive externalities:

Accepted Answer

A) the private market will provide an efficient allocation of resources. 
B) the private costs of production will exceed the social costs. 
C) the government can help to bring about a more efficient allocation through subsidies. 
D) the only benefits of consumption accrue to the consumers themselves. 
E) the government can help to bring about a more efficient allocation by levying education cess. 
A) the private market will provide an efficient allocation of resources. 
B) the private costs of production will exceed the social costs. 
C) the government can help to bring about a more efficient allocation through subsidies. 
D) the only benefits of consumption accrue to the consumers themselves. 
E) the government can help to bring about a more efficient allocation by levying education cess.

Exam 13: Market Failures, Government Failures, and Rent Seeking

When a particular resource is commonly used,it tends to get underutilized.

When a divergence between social costs and private costs exists,then:

Moral hazard is the term used to describe the situation in which:

A tradable government permit for the atmospheric release of a ton of sulfur dioxide can help reduce acid rain.

Higher the economic freedom in a country:

The good for which neither the principle of mutual excludability nor the principle of rivalry applies is referred to as a:

Which of the following is an example of a positive externality?

The owner of a good has the right to decide how that good is used and to restrict others from using that good.This idea is known as:

Private property rights help to ensure an efficient use of resources,because owners of the resources must bear the costs of inefficient use.

When the commons are converted into privately owned resources:

If the government is successful in internalizing the external costs of production in a market,then:

Which of the following is not a problem with a public good?

It is often impossible for a business firm to determine its private costs of production.

When the people creating an externality are made to pay for the externality by the government,the externality is said to be internalized.

Why are cows and chickens less prone to become extinct?

Co-payments and deductibles provide a means of reducing moral hazard problems because they allow each party in the transaction to share in the costs.

When consumers have perfect information about the quality of the products they purchase,the problem of adverse selection is likely to arise.

As opposed to economists like Tinbergen and Galbraith,the "public choice" school argues that:

If education has positive externalities:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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