Question 1

The free-rider problem arises because:

Accepted Answer

A)  Private goods are not available. 
B)  Most public goods involve illegal activity. 
C)  People prefer private goods. 
D)  Public goods can be jointly consumed. 
A)  Private goods are not available. 
B)  Most public goods involve illegal activity. 
C)  People prefer private goods. 
D)  Public goods can be jointly consumed.

Question 2

Social costs are:

Accepted Answer

A)  The full resource costs of an economic activity. 
B)  Usually less than private costs. 
C)  The costs of an economic activity borne by the producer. 
D)  Always less than private costs. 
A)  The full resource costs of an economic activity. 
B)  Usually less than private costs. 
C)  The costs of an economic activity borne by the producer. 
D)  Always less than private costs.

Question 3

In order to reduce pollution,the government can use all of the following except:

Accepted Answer

A)  Income transfers. 
B)  Emissions charges. 
C)  Forced recycling. 
D)  Regulatory standards. 
A)  Income transfers. 
B)  Emissions charges. 
C)  Forced recycling. 
D)  Regulatory standards.

Question 4

Figure 9.3:    
-In Figure 9.3,if the rate of output is 200 units:

Accepted Answer

A)  The firm absorbs all the costs of production. 
B)  There are external costs that society must absorb. 
C)  Too much of the good is being produced. 
D)  Too little output is being produced. 
A)  The firm absorbs all the costs of production. 
B)  There are external costs that society must absorb. 
C)  Too much of the good is being produced. 
D)  Too little output is being produced.

Question 5

Market failure means that the economy is definitely producing:

Accepted Answer

A)  A suboptimal mix of output. 
B)  At a point beyond the production possibilities curve. 
C)  At a point inside the production possibilities curve. 
D)  Zero output. 
A)  A suboptimal mix of output. 
B)  At a point beyond the production possibilities curve. 
C)  At a point inside the production possibilities curve. 
D)  Zero output.

Question 6

Social costs:

Accepted Answer

A)  Are less than private costs. 
B)  Include private costs. 
C)  Are unrelated to private costs. 
D)  Do not affect society. 
A)  Are less than private costs. 
B)  Include private costs. 
C)  Are unrelated to private costs. 
D)  Do not affect society.

Question 7

According to the text,what type of market failure provided the justification for the antitrust case against Microsoft?

Accepted Answer

A)  Externalities. 
B)  Inequity. 
C)  Market power. 
D)  Public goods. 
A)  Externalities. 
B)  Inequity. 
C)  Market power. 
D)  Public goods.

Question 8

A firm that incurs an emissions charge for polluting will install more pollution control equipment only if the:

Accepted Answer

A)  Equipment cost is less than the marginal cost of production. 
B)  Equipment will reduce pollution. 
C)  Emissions charge exceeds the increased cost of installing the equipment. 
D)  Emissions charge falls. 
A)  Equipment cost is less than the marginal cost of production. 
B)  Equipment will reduce pollution. 
C)  Emissions charge exceeds the increased cost of installing the equipment. 
D)  Emissions charge falls.

Question 9

The first antitrust act to prohibit "conspiracies in restraint of trade" was:

Accepted Answer

A)  The Sherman Act. 
B)  The Clayton Act. 
C)  The Federal Trade Commission Act. 
D)  Case decisions such as those for AT&T and Microsoft. 
A)  The Sherman Act. 
B)  The Clayton Act. 
C)  The Federal Trade Commission Act. 
D)  Case decisions such as those for AT&T and Microsoft.

Question 10

Goods produced by the federal,state and local governments are known as public goods.

Accepted Answer

A) True 
 B)False

Question 11

External costs exist when the market demand is less than the social demand.

Accepted Answer

A) True 
 B)False

Question 12

If most people are inoculated against chicken pox and even though you are not inoculated your chances of getting the disease are reduced,this is an example of a negative externality.

Accepted Answer

A) True 
 B)False

Question 13

Government antitrust activity led to the breakup of AT&T in the 1980s because,among other things,it felt that AT&T had too much control over the telecommunications market.What type of market failure was most likely involved?

Accepted Answer

A)  Inequity 
B)  Public goods 
C)  Externalities 
D)  Market power 
A)  Inequity 
B)  Public goods 
C)  Externalities 
D)  Market power

Question 14

Figure 9.1:  
-Using Figure 9.1,assume point D represents the optimal mix of output.The market mechanism is likely to produce the mix of output represented by point:

Accepted Answer

A)  C because the market mechanism tends to under produces public goods. 
B)  E because the market mechanism tends to under produces private goods. 
C)  D because the market mechanism is efficient. 
D)  A because full employment can never be reached. 
A)  C because the market mechanism tends to under produces public goods. 
B)  E because the market mechanism tends to under produces private goods. 
C)  D because the market mechanism is efficient. 
D)  A because full employment can never be reached.

Question 15

An emission charge increases private marginal cost and encourages lower output.

Accepted Answer

A) True 
 B)False

Question 16

Social demand exceeds market demand whenever:

Accepted Answer

A)  Private costs exist. 
B)  External costs exist. 
C)  Private benefits exist. 
D)  External benefits exist. 
A)  Private costs exist. 
B)  External costs exist. 
C)  Private benefits exist. 
D)  External benefits exist.

Question 17

According to the public confidence survey presented in the text,the public:

Accepted Answer

A)  Has substantial doubts about the ability of government to correct market failures. 
B)  Believes the government can be very effective in correcting market failures. 
C)  Expects government intervention to solve the problem of market power. 
D)  Believes government intervention will never improve market outcomes. 
A)  Has substantial doubts about the ability of government to correct market failures. 
B)  Believes the government can be very effective in correcting market failures. 
C)  Expects government intervention to solve the problem of market power. 
D)  Believes government intervention will never improve market outcomes.

Question 18

A distinguishing characteristic about public goods is that they can be jointly consumed.

Accepted Answer

A) True 
 B)False

Question 19

Government intervention in the economy:

Accepted Answer

A)  Always fixes macroeconomic market failures. 
B)  Always fixes microeconomic market failures. 
C)  Always makes the economy worse off. 
D)  May fix market failures or make the economy worse off. 
A)  Always fixes macroeconomic market failures. 
B)  Always fixes microeconomic market failures. 
C)  Always makes the economy worse off. 
D)  May fix market failures or make the economy worse off.

Question 20

Figure 9.2:   
-In Figure 9.2,at price P1:

Accepted Answer

A)  The market demands 1000 packs of cigarettes. 
B)  Society desires 1000 packs of cigarettes. 
C)  The market demand understates the social benefits of cigarette smoking. 
D)  Society demands 2400 packs of cigarettes. 
A)  The market demands 1000 packs of cigarettes. 
B)  Society desires 1000 packs of cigarettes. 
C)  The market demand understates the social benefits of cigarette smoking. 
D)  Society demands 2400 packs of cigarettes.

The free-rider problem arises because:

Social costs are:

In order to reduce pollution,the government can use all of the following except:

Figure 9.3: -In Figure 9.3,if the rate of output is 200 units:

Market failure means that the economy is definitely producing:

Social costs:

According to the text,what type of market failure provided the justification for the antitrust case against Microsoft?

A firm that incurs an emissions charge for polluting will install more pollution control equipment only if the:

The first antitrust act to prohibit "conspiracies in restraint of trade" was:

Goods produced by the federal,state and local governments are known as public goods.

External costs exist when the market demand is less than the social demand.

If most people are inoculated against chicken pox and even though you are not inoculated your chances of getting the disease are reduced,this is an example of a negative externality.

Government antitrust activity led to the breakup of AT&T in the 1980s because,among other things,it felt that AT&T had too much control over the telecommunications market.What type of market failure was most likely involved?

Figure 9.1: -Using Figure 9.1,assume point D represents the optimal mix of output.The market mechanism is likely to produce the mix of output represented by point:

An emission charge increases private marginal cost and encourages lower output.

Social demand exceeds market demand whenever:

According to the public confidence survey presented in the text,the public:

A distinguishing characteristic about public goods is that they can be jointly consumed.

Government intervention in the economy:

Figure 9.2: -In Figure 9.2,at price P₁:

The Challenge of Economics

The US Economy

Supply and Demand

Consumer Demand

Supply Decisions

Competition

Monopoly

The Labor Market

The Business Cycle

Aggregate Supply and Demand

Fiscal Policy

Money and Banks

Monetary Policy

Economic Growth

Theory and Reality

International Trade

Filters

Exam 9: Government Intervention

The free-rider problem arises because:

Social costs are:

In order to reduce pollution,the government can use all of the following except:

Figure 9.3: -In Figure 9.3,if the rate of output is 200 units:

Market failure means that the economy is definitely producing:

Social costs:

According to the text,what type of market failure provided the justification for the antitrust case against Microsoft?

A firm that incurs an emissions charge for polluting will install more pollution control equipment only if the:

The first antitrust act to prohibit "conspiracies in restraint of trade" was:

Goods produced by the federal,state and local governments are known as public goods.

External costs exist when the market demand is less than the social demand.

If most people are inoculated against chicken pox and even though you are not inoculated your chances of getting the disease are reduced,this is an example of a negative externality.

Government antitrust activity led to the breakup of AT&T in the 1980s because,among other things,it felt that AT&T had too much control over the telecommunications market.What type of market failure was most likely involved?

Figure 9.1: -Using Figure 9.1,assume point D represents the optimal mix of output.The market mechanism is likely to produce the mix of output represented by point:

An emission charge increases private marginal cost and encourages lower output.

Social demand exceeds market demand whenever:

According to the public confidence survey presented in the text,the public:

A distinguishing characteristic about public goods is that they can be jointly consumed.

Government intervention in the economy:

Figure 9.2: -In Figure 9.2,at price P1:

The Challenge of Economics

The US Economy

Supply and Demand

Consumer Demand

Supply Decisions

Competition

Monopoly

The Labor Market

The Business Cycle

Aggregate Supply and Demand

Fiscal Policy

Money and Banks

Monetary Policy

Economic Growth

Theory and Reality

International Trade

Filters

Figure 9.2: -In Figure 9.2,at price P₁: