Question 1

What is the principal-agent problem?

Accepted Answer

A)  It is a problem caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way. 
B)  It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them. 
C)  It is a problem of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat. 
D)  It is a problem that exists when a person (principal) has more information about the task than the agent he hires to perform the task. 
A)  It is a problem caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way. 
B)  It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them. 
C)  It is a problem of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat. 
D)  It is a problem that exists when a person (principal) has more information about the task than the agent he hires to perform the task.

Question 2

What is the principle-agent problem?

Accepted Answer

The principle-agent problem is

Question 3

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms 'rivalry' and 'excludability' as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

Accepted Answer

Rivalry occurs when one person's consumi

Question 4

-Refer to Figure 14-2. How much is Amit willing to pay to have 4 street lights installed?

Accepted Answer

A)  $3600 
B)  $2700 
C)  $1800 
D)  $900 
A)  $3600 
B)  $2700 
C)  $1800 
D)  $900

Question 5

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production, and the sum of consumer surplus and producer surplus is maximised.

Accepted Answer

A) True 
 B)False

Question 6

The supply curve of a public goods shows

Accepted Answer

A)  the total quantities that all producers are willing and able to supply at each price. 
B)  the maximum amount suppliers require to produce each quantity of the good. 
C)  the total cost of producing each unit of the good. 
D)  the marginal cost of producing each unit of the good. 
A)  the total quantities that all producers are willing and able to supply at each price. 
B)  the maximum amount suppliers require to produce each quantity of the good. 
C)  the total cost of producing each unit of the good. 
D)  the marginal cost of producing each unit of the good.

Question 7

Which of the following statements about rent seeking is false?

Accepted Answer

A)  Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for. 
B)  A person is engaging in rent-seeking behaviour when he uses the political process to acquire ownership of a resource that belongs to the public. 
C)  Because rent seeking redistributes society's resources, anyone engaging in such behaviour is violating the law. 
D)  If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market. 
A)  Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for. 
B)  A person is engaging in rent-seeking behaviour when he uses the political process to acquire ownership of a resource that belongs to the public. 
C)  Because rent seeking redistributes society's resources, anyone engaging in such behaviour is violating the law. 
D)  If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.

Question 8

-Refer to Figure 14-2. How much is Bree willing to pay to have 4 street lights installed?

Accepted Answer

A)  $1500 
B)  $1800 
C)  $2700 
D)  $7200 
A)  $1500 
B)  $1800 
C)  $2700 
D)  $7200

Question 9

Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.

Accepted Answer

A) True 
 B)False

Question 10

Why are many companies concerned about brand management?

Accepted Answer

Firms are concerned about bran

Question 11

Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.

Accepted Answer

A) True 
 B)False

Question 12

The 'tragedy of the commons' refers to the phenomenon where

Accepted Answer

A)  individuals are free riders. 
B)  people overuse a common resource. 
C)  people do not internalise an externality. 
D)  there is rivalry in consumption. 
A)  individuals are free riders. 
B)  people overuse a common resource. 
C)  people do not internalise an externality. 
D)  there is rivalry in consumption.

Question 13

-Refer to Figure 14-1. The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $9,

Accepted Answer

A)  the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low. 
B)  producers should lower the price to $3 in order to sell the quantity demanded of 4000. 
C)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high. 
D)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low. 
A)  the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low. 
B)  producers should lower the price to $3 in order to sell the quantity demanded of 4000. 
C)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high. 
D)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low.

Question 14

-Refer to Figure 14-1. The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $3,

Accepted Answer

A)  the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low. 
B)  producers should raise the price to $9 in order to sell the quantity demanded of 12 000. 
C)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high. 
D)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low. 
A)  the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low. 
B)  producers should raise the price to $9 in order to sell the quantity demanded of 12 000. 
C)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high. 
D)  the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low.

Question 15

Economic rent refers to the price of a factor of production which is fixed in supply.

Accepted Answer

A) True 
 B)False

Question 16

The market demand for a public good can be determined by

Accepted Answer

A)  adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B)  adding up how much each citizen expects to consume at each possible price. 
C)  adding up how much each consumer is willing to pay for each unit of the public good. 
D)  estimating the value of the benefit that each unit provides and multiplying that by the number of consumers. 
A)  adding up the total private benefits and external benefits that each quantity provides the citizens of a country. 
B)  adding up how much each citizen expects to consume at each possible price. 
C)  adding up how much each consumer is willing to pay for each unit of the public good. 
D)  estimating the value of the benefit that each unit provides and multiplying that by the number of consumers.

Question 17

Rent-seeking behaviour, unlike profit maximising behaviour in competitive markets, wastes society's scarce resources.

Accepted Answer

A) True 
 B)False

Question 18

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

Accepted Answer

A) True 
 B)False

Question 19

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,

Accepted Answer

A)  most patients will continue to buy the drugs from the same firms because their doctors recommend they buy brand-name drugs. 
B)  prices remain high without patent protection because of a lack of competition. Firms that are not granted patents cannot compete with firms that are granted patents. 
C)  other firms are free to produce chemically identical drugs. Competition reduces the profits that had been earned by the firms that received patents. 
D)  firms will find ways to obtain additional patent protection-often by making cosmetic changes in drugs that were patented-so that they can continue charging high prices. 
A)  most patients will continue to buy the drugs from the same firms because their doctors recommend they buy brand-name drugs. 
B)  prices remain high without patent protection because of a lack of competition. Firms that are not granted patents cannot compete with firms that are granted patents. 
C)  other firms are free to produce chemically identical drugs. Competition reduces the profits that had been earned by the firms that received patents. 
D)  firms will find ways to obtain additional patent protection-often by making cosmetic changes in drugs that were patented-so that they can continue charging high prices.

Question 20

The price of a factor of production that is in fixed supply is called

Accepted Answer

A)  economic rent. 
B)  economic profit. 
C)  a compensating differential. 
D)  opportunity cost. 
A)  economic rent. 
B)  economic profit. 
C)  a compensating differential. 
D)  opportunity cost.

What is the principal-agent problem?

What is the principle-agent problem?

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms 'rivalry' and 'excludability' as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

-Refer to Figure 14-2. How much is Amit willing to pay to have 4 street lights installed?

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production, and the sum of consumer surplus and producer surplus is maximised.

The supply curve of a public goods shows

Which of the following statements about rent seeking is false?

-Refer to Figure 14-2. How much is Bree willing to pay to have 4 street lights installed?

Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.

Why are many companies concerned about brand management?

Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.

The 'tragedy of the commons' refers to the phenomenon where

-Refer to Figure 14-1. The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $9,

-Refer to Figure 14-1. The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $3,

Economic rent refers to the price of a factor of production which is fixed in supply.

The market demand for a public good can be determined by

Rent-seeking behaviour, unlike profit maximising behaviour in competitive markets, wastes society's scarce resources.

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,

The price of a factor of production that is in fixed supply is called

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Firms in Perfectly Compitive Markets

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 14: Government Intervention in the Market

What is the principal-agent problem?

What is the principle-agent problem?

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms 'rivalry' and 'excludability' as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

-Refer to Figure 14-2. How much is Amit willing to pay to have 4 street lights installed?

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production, and the sum of consumer surplus and producer surplus is maximised.

The supply curve of a public goods shows

Which of the following statements about rent seeking is false?

-Refer to Figure 14-2. How much is Bree willing to pay to have 4 street lights installed?

Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.

Why are many companies concerned about brand management?

Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.

The 'tragedy of the commons' refers to the phenomenon where

-Refer to Figure 14-1. The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $9,

-Refer to Figure 14-1. The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $3,

Economic rent refers to the price of a factor of production which is fixed in supply.

The market demand for a public good can be determined by

Rent-seeking behaviour, unlike profit maximising behaviour in competitive markets, wastes society's scarce resources.

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

Experience with patents in the pharmaceutical industry shows that when patents on drugs expire,

The price of a factor of production that is in fixed supply is called

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Firms in Perfectly Compitive Markets

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters