Question 1

In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

Accepted Answer

A) True 
 B)False

Question 2

Along a demand curve, product price and consumer surplus are inversely related.

Accepted Answer

A) True 
 B)False

Question 3

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Accepted Answer

A) True 
 B)False

Question 4

Consumer surplus arises in a market because

Accepted Answer

A)  the quantity supplied is greater than quantity demanded at the current market price. 
B)  the quantity demanded is greater than quantity supplied at the current market price. 
C)  the market price is below what some consumers are willing to pay for the product. 
D)  the market price is higher than what some consumers are willing to pay for the product. 
A)  the quantity supplied is greater than quantity demanded at the current market price. 
B)  the quantity demanded is greater than quantity supplied at the current market price. 
C)  the market price is below what some consumers are willing to pay for the product. 
D)  the market price is higher than what some consumers are willing to pay for the product.

Question 5

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

Accepted Answer

A) True 
 B)False

Question 6

(Consider This) The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

Accepted Answer

A) True 
 B)False

Question 7

When the total consumer and producer surplus is at a maximum, the deadweight loss in the market is zero.

Accepted Answer

A) True 
 B)False

Question 8

Other things equal, a fall in the market price caused by a change in supply will

Accepted Answer

A)  increase consumer surplus. 
B)  decrease consumer surplus. 
C)  increase producer surplus while leaving consumer surplus unchanged. 
D)  decrease producer surplus while leaving consumer surplus unchanged. 
A)  increase consumer surplus. 
B)  decrease consumer surplus. 
C)  increase producer surplus while leaving consumer surplus unchanged. 
D)  decrease producer surplus while leaving consumer surplus unchanged.

Question 9

In a situation where an externality occurs, the "third party" refers to those who

Accepted Answer

A)  buy the product from others. 
B)  produce the product for others. 
C)  trade the product with others outside the nation or community. 
D)  are not directly involved in the transaction or activity. 
A)  buy the product from others. 
B)  produce the product for others. 
C)  trade the product with others outside the nation or community. 
D)  are not directly involved in the transaction or activity.

Question 10

The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called

Accepted Answer

A)  production costs. 
B)  producers' supply. 
C)  producer surplus. 
D)  surplus production. 
A)  production costs. 
B)  producers' supply. 
C)  producer surplus. 
D)  surplus production.

Question 11

In the insurance business, the moral hazard problem arises when

Accepted Answer

A)  not-so-healthy people are the ones more eager to buy insurance. 
B)  people with unhealthy lifestyles buy more insurance coverage. 
C)  people who have car-insurance coverage drive less carefully. 
D)  people do not get sufficient car-insurance coverage. 
A)  not-so-healthy people are the ones more eager to buy insurance. 
B)  people with unhealthy lifestyles buy more insurance coverage. 
C)  people who have car-insurance coverage drive less carefully. 
D)  people do not get sufficient car-insurance coverage.

Question 12

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $20 for the fifth unit of a public good; Kara, $15; and Susie, $25. Government should produce the fifth unit of the public good if the marginal cost is less than or equal to

Accepted Answer

A)  $25. 
B)  $15. 
C)  $60. 
D)  $20. 
A)  $25. 
B)  $15. 
C)  $60. 
D)  $20.

Question 13

A significant amount of positive consumer surplus is the reason why sometimes a shopper regrets having bought a particular item.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is the best example of a supply-side market failure?

Accepted Answer

A)  No one provides street lights in a town because, once the lights are in operation, people donâ€™t have to pay to use them. 
B)  A firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area. 
C)  Government imposes taxes on the production of a socially desirable good. 
D)  Street performers donâ€™t get full payment for the value of their output because people watch and enjoy the shows without paying the artist. 
A)  No one provides street lights in a town because, once the lights are in operation, people donâ€™t have to pay to use them. 
B)  A firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area. 
C)  Government imposes taxes on the production of a socially desirable good. 
D)  Street performers donâ€™t get full payment for the value of their output because people watch and enjoy the shows without paying the artist.

Question 15

According to the marginal-cost-marginal-benefit rule,

Accepted Answer

A)  only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits. 
B)  the optimal project size is the one for which MB = MC. 
C)  the optimal project size is the one for which MB exceeds MC by the greatest amount. 
D)  project managers should attempt to minimize both MB and MC. 
A)  only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits. 
B)  the optimal project size is the one for which MB = MC. 
C)  the optimal project size is the one for which MB exceeds MC by the greatest amount. 
D)  project managers should attempt to minimize both MB and MC.

Question 16

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

Accepted Answer

A)  the display creates negative externalities. 
B)  government should tax the producers of holiday lighting. 
C)  resources are currently overallocated to the provision of holiday lighting in Anytown. 
D)  resources are currently underallocated to the provision of holiday lighting in Anytown. 
A)  the display creates negative externalities. 
B)  government should tax the producers of holiday lighting. 
C)  resources are currently overallocated to the provision of holiday lighting in Anytown. 
D)  resources are currently underallocated to the provision of holiday lighting in Anytown.

Question 17

Antipollution policies can be overaggressively designed and implemented, resulting in

Accepted Answer

A)  the social costs of pollution reduction becoming greater than the benefits. 
B)  the social benefits of pollution reduction becoming zero. 
C)  too few resources being devoted toward reducing pollution. 
D)  the social costs of pollution reduction becoming less than the benefits. 
A)  the social costs of pollution reduction becoming greater than the benefits. 
B)  the social benefits of pollution reduction becoming zero. 
C)  too few resources being devoted toward reducing pollution. 
D)  the social costs of pollution reduction becoming less than the benefits.

Question 18

(Consider This) Suppose that a new band, "Balin and the Wolf Riders," tries to sell its music on the Internet. Economists would expect

Accepted Answer

A)  all of those enjoying the music to pay for downloads and compensate the band for its costs. 
B)  some of those enjoying the music to "free ride" through illegal file sharing and digital piracy. 
C)  government to tax those attempting to download the band's music. 
D)  there to be no consumer surplus for those who download the band's music. 
A)  all of those enjoying the music to pay for downloads and compensate the band for its costs. 
B)  some of those enjoying the music to "free ride" through illegal file sharing and digital piracy. 
C)  government to tax those attempting to download the band's music. 
D)  there to be no consumer surplus for those who download the band's music.

Question 19

When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

Accepted Answer

A) True 
 B)False

Question 20

(Consider This) Augi is the hottest new pop singer, but her agent discovers that Internet sales of Augi's music have been poor due to Internet piracy. However, concerts are regularly sold out and merchandise (such as T-shirts) sells well. If Augi wants to enhance profits, economists would most likely recommend that she

Accepted Answer

A)  charge more for downloads, concerts, and merchandise. 
B)  cut prices for downloads, concerts, and merchandise. 
C)  only give concerts. 
D)  keep prices of downloads low and raise prices for concerts and merchandise. 
A)  charge more for downloads, concerts, and merchandise. 
B)  cut prices for downloads, concerts, and merchandise. 
C)  only give concerts. 
D)  keep prices of downloads low and raise prices for concerts and merchandise.

Exam 4: Market Failures: Public Goods and Externalities

In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

Along a demand curve, product price and consumer surplus are inversely related.

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Consumer surplus arises in a market because

If the lumber companies are required to internalize the negative externalities of deforestation, then we should expect the equilibrium price of wooden furniture to decrease.

(Consider This) The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

When the total consumer and producer surplus is at a maximum, the deadweight loss in the market is zero.

Other things equal, a fall in the market price caused by a change in supply will

In a situation where an externality occurs, the "third party" refers to those who

The amount of revenue that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called

In the insurance business, the moral hazard problem arises when

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $20 for the fifth unit of a public good; Kara, $15; and Susie, $25. Government should produce the fifth unit of the public good if the marginal cost is less than or equal to

A significant amount of positive consumer surplus is the reason why sometimes a shopper regrets having bought a particular item.

Which of the following is the best example of a supply-side market failure?

According to the marginal-cost-marginal-benefit rule,

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

Antipollution policies can be overaggressively designed and implemented, resulting in

(Consider This) Suppose that a new band, "Balin and the Wolf Riders," tries to sell its music on the Internet. Economists would expect

When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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