Question 1

When market prices do not reflect true production costs,it could indicate

Accepted Answer

A)  resources in an economy are not fully utilised. 
B)  the market price of a product is above the average cost of production. 
C)  there is only a handful of firms competing against each other in an industry. 
D)  a market failure. 
A)  resources in an economy are not fully utilised. 
B)  the market price of a product is above the average cost of production. 
C)  there is only a handful of firms competing against each other in an industry. 
D)  a market failure. D

Question 2

What is a private benefit from consumption? What is a social benefit from consumption? When is the private benefit from consumption equal to the social benefit from consumption?
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Accepted Answer

Private benefit from consumption is the benefit received from the consumer of a good or service.Social benefit from consumption is the total benefit from consuming a good or service,including both the private benefit and any external benefit.The private benefit and the social benefit are equal when no externalities exist.

Question 3

Figure 11.5  
-Refer to Figure 11.5.At the competitive market equilibrium,what is true for the last unit produced?

Accepted Answer

A)  The size of the external benefit is Pm - Po. 
B)  The size of the external cost is Pm - Po. 
C)  The size of the external cost is Pn - Po. 
D)  The size of the external benefit is Pn - Po. 
A)  The size of the external benefit is Pm - Po. 
B)  The size of the external cost is Pm - Po. 
C)  The size of the external cost is Pn - Po. 
D)  The size of the external benefit is Pn - Po. A

Question 4

One reason patent protection is vitally important to pharmaceutical firms is

Accepted Answer

A)  successful new drugs are not profitable. If firms are not granted patents, many would go out of business and health care would be severely diminished. 
B)  the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. 
C)  that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. 
D)  the high salaries pharmaceutical firms pay to scientists and doctors make their labour costs higher than for any other business. Profits from patents are needed to pay these labour costs. 
A)  successful new drugs are not profitable. If firms are not granted patents, many would go out of business and health care would be severely diminished. 
B)  the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process. 
C)  that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes. 
D)  the high salaries pharmaceutical firms pay to scientists and doctors make their labour costs higher than for any other business. Profits from patents are needed to pay these labour costs.

Question 5

Figure 11.1  
-Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3,

Accepted Answer

A)  economic surplus is maximised. 
B)  not enough consumers want to buy pecans. 
C)  the quantity supplied is less than the economically efficient quantity. 
D)  the quantity supplied is economically efficient, but the quantity demanded is economically inefficient. 
A)  economic surplus is maximised. 
B)  not enough consumers want to buy pecans. 
C)  the quantity supplied is less than the economically efficient quantity. 
D)  the quantity supplied is economically efficient, but the quantity demanded is economically inefficient.

Question 6

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.
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Accepted Answer

Rivalry occurs when one person's consumi

Question 7

What is an externality?
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Accepted Answer

An externality is a benefit or

Question 8

Some environmentalists have criticised tradable emissions allowances on the grounds that they give permit holders a license to pollute.Furthermore,environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment.Use economic reasoning to evaluate this criticism.
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Accepted Answer

The criticism ignores one of the central

Question 9

How is economic rent defined?

Accepted Answer

A)  What you pay to rent your apartment or house 
B)  The revenue received by a factor of production with an upward sloping supply curve 
C)  The price of a factor of production that is fixed in supply 
D)  The surplus received by employing a factor of production in its highest valued use 
A)  What you pay to rent your apartment or house 
B)  The revenue received by a factor of production with an upward sloping supply curve 
C)  The price of a factor of production that is fixed in supply 
D)  The surplus received by employing a factor of production in its highest valued use

Question 10

Figure 11.4   Figure 11.4 shows a market with a negative externality.
-Refer to Figure 11.4.The size of marginal external costs can be determined by

Accepted Answer

A)  S2 + S1 at each output level. 
B)  S2 - S1 at each output level. 
C)  the supply curve S2. 
D)  the supply curve S1. 
A)  S2 + S1 at each output level. 
B)  S2 - S1 at each output level. 
C)  the supply curve S2. 
D)  the supply curve S1.

Question 11

When there is a negative externality,the competitive output is more than the economically efficient output level.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Economists argue that the level of pollution should be

Accepted Answer

A)  reduced completely to zero because by definition, it is a negative external effect. 
B)  ignored because it has always been present since the beginning of history. 
C)  reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. 
D)  best determined by elected officials who can speak on behalf of the public. 
A)  reduced completely to zero because by definition, it is a negative external effect. 
B)  ignored because it has always been present since the beginning of history. 
C)  reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society. 
D)  best determined by elected officials who can speak on behalf of the public.

Question 14

Why might a young,healthy person choose not to buy health insurance?
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Accepted Answer

If you are healthy and rarely

Question 15

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Accepted Answer

A)  Does the intervention program reduce pollution to zero using the least costly method? 
B)  Is the intervention program economically efficient? 
C)  Does the intervention program make the amount of economic surplus as large as possible? 
D)  Is the damage to the environment from government intervention as small as possible? 
A)  Does the intervention program reduce pollution to zero using the least costly method? 
B)  Is the intervention program economically efficient? 
C)  Does the intervention program make the amount of economic surplus as large as possible? 
D)  Is the damage to the environment from government intervention as small as possible?

Question 16

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?
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Accepted Answer

Transactions costs refer to the costs in

Question 17

Public goods are distinguished by two primary characteristics.What are they?

Accepted Answer

A)  Non-rivalry and non-excludability 
B)  Government intervention and low prices 
C)  Market failure and high prices 
D)  Rivalry and exclusivity 
A)  Non-rivalry and non-excludability 
B)  Government intervention and low prices 
C)  Market failure and high prices 
D)  Rivalry and exclusivity

Question 18

Figure 11.5  
-Refer to Figure 11.5.What is the efficient output level?

Accepted Answer

A)  Qm 
B)  Qn 
C)  Qo 
D)  Qo - Qm 
A)  Qm 
B)  Qn 
C)  Qo 
D)  Qo - Qm

Question 19

Figure 11.8   Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities.
-Refer to Figure 11.8.What is the economically efficient output level?

Accepted Answer

A)  Q1 
B)  Q1 + Q2 
C)  Q2 - Q1 
D)  Q2 
A)  Q1 
B)  Q1 + Q2 
C)  Q2 - Q1 
D)  Q2

Question 20

Which of the following displays these two characteristics: non-rivalry and non-excludability in consumption?

Accepted Answer

A)  Public goods 
B)  Private goods 
C)  Quasi-public goods 
D)  Common resources 
A)  Public goods 
B)  Private goods 
C)  Quasi-public goods 
D)  Common resources

When market prices do not reflect true production costs,it could indicate

Figure 11.5 -Refer to Figure 11.5.At the competitive market equilibrium,what is true for the last unit produced?

One reason patent protection is vitally important to pharmaceutical firms is

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3,

How is economic rent defined?

Figure 11.4 Figure 11.4 shows a market with a negative externality. -Refer to Figure 11.4.The size of marginal external costs can be determined by

When there is a negative externality,the competitive output is more than the economically efficient output level.

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

Economists argue that the level of pollution should be

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Public goods are distinguished by two primary characteristics.What are they?

Figure 11.5 -Refer to Figure 11.5.What is the efficient output level?

Figure 11.8 Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11.8.What is the economically efficient output level?

Which of the following displays these two characteristics: non-rivalry and non-excludability in consumption?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

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Exam 11: Government Intervention in the Market

When market prices do not reflect true production costs,it could indicate

Figure 11.5 -Refer to Figure 11.5.At the competitive market equilibrium,what is true for the last unit produced?

One reason patent protection is vitally important to pharmaceutical firms is

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $3,

How is economic rent defined?

Figure 11.4 Figure 11.4 shows a market with a negative externality. -Refer to Figure 11.4.The size of marginal external costs can be determined by

When there is a negative externality,the competitive output is more than the economically efficient output level.

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

Economists argue that the level of pollution should be

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Public goods are distinguished by two primary characteristics.What are they?

Figure 11.5 -Refer to Figure 11.5.What is the efficient output level?

Figure 11.8 Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11.8.What is the economically efficient output level?

Which of the following displays these two characteristics: non-rivalry and non-excludability in consumption?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters