Question 1

A market failure arises when an entire sector of the economy (for example,the airline industry)collapses because of some unforeseen event.

Accepted Answer

A) True 
 B)False

Question 2

An important difference between the demand for a private good and the demand for a public good is that

Accepted Answer

A)  individuals reveal their preferences for a public good, but they do not have to reveal their preferences for a private good. 
B)  the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned. 
C)  individuals reveal their preferences for a private good, but they do not have to reveal their preferences for a public good. 
D)  the demand for a private good produces consumption externalities; the demand for a public good produces production externalities. 
A)  individuals reveal their preferences for a public good, but they do not have to reveal their preferences for a private good. 
B)  the resources used to provide public goods are common resources or government owned; the resources used to produce private goods are all privately owned. 
C)  individuals reveal their preferences for a private good, but they do not have to reveal their preferences for a public good. 
D)  the demand for a private good produces consumption externalities; the demand for a public good produces production externalities.

Question 3

In the highly competitive fast-food restaurant market,brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.

Accepted Answer

A) True 
 B)False

Question 4

A public good is

Accepted Answer

A)  a good that is rival and excludable. 
B)  good that is non-rival and non-excludable. 
C)  a good that is non-rival and excludable. 
D)  a good that is rival and non-excludable. 
A)  a good that is rival and excludable. 
B)  good that is non-rival and non-excludable. 
C)  a good that is non-rival and excludable. 
D)  a good that is rival and non-excludable.

Question 5

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

A)  There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C)  The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price, but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D)  The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good, but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. 
A)  There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C)  The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price, but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D)  The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good, but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Question 6

In economics,the optimal level of pollution is

Accepted Answer

A)  zero. 
B)  the level for which the total benefit from reducing the pollution is the greatest. 
C)  the level for which the marginal benefit from reducing the pollution is the greatest. 
D)  the level for which the net benefit from reducing the pollution is the greatest. 
A)  zero. 
B)  the level for which the total benefit from reducing the pollution is the greatest. 
C)  the level for which the marginal benefit from reducing the pollution is the greatest. 
D)  the level for which the net benefit from reducing the pollution is the greatest.

Question 7

What is the relationship between market failure and government failure?
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Accepted Answer

Market failure is a case where the marke

Question 8

When a firm has been granted a trademark,which grants legal protection against other firms using the name of the product that has been granted the trademark,the firm

Accepted Answer

A)  still faces the possibility that the name will become widely used and no longer associated with a specific company. 
B)  does not have to worry about legally enforcing the trademark; this is the responsibility of the legal system. 
C)  still must apply for a copyright and a patent to ensure that no other firm will use the product's name. 
D)  must spend an annual amount on advertising the product each year; the amount it must spend is negotiated by the firm and the government agency that grants the trademark. 
A)  still faces the possibility that the name will become widely used and no longer associated with a specific company. 
B)  does not have to worry about legally enforcing the trademark; this is the responsibility of the legal system. 
C)  still must apply for a copyright and a patent to ensure that no other firm will use the product's name. 
D)  must spend an annual amount on advertising the product each year; the amount it must spend is negotiated by the firm and the government agency that grants the trademark.

Question 9

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good.All of the following will result from the tax except

Accepted Answer

A)  an increase in the equilibrium market price. 
B)  a decrease in the equilibrium quantity produced and consumed. 
C)  a decrease in market supply of the good. 
D)  an increase in the demand for the good. 
A)  an increase in the equilibrium market price. 
B)  a decrease in the equilibrium quantity produced and consumed. 
C)  a decrease in market supply of the good. 
D)  an increase in the demand for the good.

Question 10

Figure 11.7   Figure 11.7 shows a market with an externality. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 11.7.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does D1 represent?

Accepted Answer

A)  The demand curve reflecting external benefits 
B)  The demand curve reflecting social benefits 
C)  The demand curve reflecting private benefits 
D)  The demand curve reflecting the sum of private and social benefits 
A)  The demand curve reflecting external benefits 
B)  The demand curve reflecting social benefits 
C)  The demand curve reflecting private benefits 
D)  The demand curve reflecting the sum of private and social benefits

Question 11

What do economists call policies that mandate the installation of specific pollution control devices?

Accepted Answer

A)  Welfare policies 
B)  Benefit policies 
C)  Command and control policies 
D)  Incentive policies 
A)  Welfare policies 
B)  Benefit policies 
C)  Command and control policies 
D)  Incentive policies

Question 12

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production,and consumer surplus plus producer surplus is maximised,then

Accepted Answer

A)  maximum deadweight loss occurs. 
B)  economic efficiency is achieved. 
C)  profits are maximised. 
D)  costs are minimised. 
A)  maximum deadweight loss occurs. 
B)  economic efficiency is achieved. 
C)  profits are maximised. 
D)  costs are minimised.

Question 13

An insurance company is likely to attract customers like Clancy,who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

Accepted Answer

A)  Moral hazard 
B)  Adverse selection 
C)  Asymmetric information 
D)  Economic irrationality 
A)  Moral hazard 
B)  Adverse selection 
C)  Asymmetric information 
D)  Economic irrationality

Question 14

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 15

Why will for-profit producers not produce public goods?

Accepted Answer

A)  Markets exist for private goods but not for public goods. 
B)  The cost of production can be easily determined. 
C)  Buyers will not be willing to pay for the goods since the benefits are not excludable. 
D)  All external benefits can be internalised using market prices. 
A)  Markets exist for private goods but not for public goods. 
B)  The cost of production can be easily determined. 
C)  Buyers will not be willing to pay for the goods since the benefits are not excludable. 
D)  All external benefits can be internalised using market prices.

Question 16

If there are no externalities,a competitive market achieves economic efficiency.If there is a negative externality,economic efficiency will not be achieved because

Accepted Answer

A)  too little of the good will be produced. 
B)  too much of the good will be produced. 
C)  a deadweight loss will occur that is equal to the area under the demand curve for the good. 
D)  economic surplus is maximised. 
A)  too little of the good will be produced. 
B)  too much of the good will be produced. 
C)  a deadweight loss will occur that is equal to the area under the demand curve for the good. 
D)  economic surplus is maximised.

Question 17

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain,then,according to the Coase theorem,

Accepted Answer

A)  an efficient solution can be reached only if property rights are assigned to the victims of the pollution. 
B)  an efficient solution can be reached only if property rights are assigned to the polluters. 
C)  an efficient solution can be reached regardless of the initial assignment of property rights. 
D)  government intervention is critical to reach an efficient solution. 
A)  an efficient solution can be reached only if property rights are assigned to the victims of the pollution. 
B)  an efficient solution can be reached only if property rights are assigned to the polluters. 
C)  an efficient solution can be reached regardless of the initial assignment of property rights. 
D)  government intervention is critical to reach an efficient solution.

Question 18

The construction of a market demand curve for a private good differs from that for a public good in that

Accepted Answer

A)  there is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  there is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C)  the market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price, but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D)  the market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good, but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. 
A)  there is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
B)  there is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. 
C)  the market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price, but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. 
D)  the market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good, but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.

Question 19

Why is it difficult for a private market to provide the economically efficient quantity of a public good?

Accepted Answer

A)  Because by law, governments cannot use cost-benefit analysis to determine this quantity 
B)  Because individual preferences are not revealed on the market for the good 
C)  Because public goods produce positive and negative externalities 
D)  Because it is too expensive to produce the necessary amount of the good 
A)  Because by law, governments cannot use cost-benefit analysis to determine this quantity 
B)  Because individual preferences are not revealed on the market for the good 
C)  Because public goods produce positive and negative externalities 
D)  Because it is too expensive to produce the necessary amount of the good

Question 20

State the Coase theorem.
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Accepted Answer

The Coase theorem states that if transac

A market failure arises when an entire sector of the economy (for example,the airline industry)collapses because of some unforeseen event.

An important difference between the demand for a private good and the demand for a public good is that

In the highly competitive fast-food restaurant market,brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.

A public good is

How does the construction of a market demand curve for a private good differ from that for a public good?

In economics,the optimal level of pollution is

When a firm has been granted a trademark,which grants legal protection against other firms using the name of the product that has been granted the trademark,the firm

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good.All of the following will result from the tax except

What do economists call policies that mandate the installation of specific pollution control devices?

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production,and consumer surplus plus producer surplus is maximised,then

An insurance company is likely to attract customers like Clancy,who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

The supply curve of a public goods shows

Why will for-profit producers not produce public goods?

If there are no externalities,a competitive market achieves economic efficiency.If there is a negative externality,economic efficiency will not be achieved because

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain,then,according to the Coase theorem,

The construction of a market demand curve for a private good differs from that for a public good in that

Why is it difficult for a private market to provide the economically efficient quantity of a public good?

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

A market failure arises when an entire sector of the economy (for example,the airline industry)collapses because of some unforeseen event.

An important difference between the demand for a private good and the demand for a public good is that

In the highly competitive fast-food restaurant market,brand name restaurants have a strong profit incentive to maintain high sanitary conditions and avoid any negative consequences.

A public good is

How does the construction of a market demand curve for a private good differ from that for a public good?

In economics,the optimal level of pollution is

When a firm has been granted a trademark,which grants legal protection against other firms using the name of the product that has been granted the trademark,the firm

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution-generating good.All of the following will result from the tax except

What do economists call policies that mandate the installation of specific pollution control devices?

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production,and consumer surplus plus producer surplus is maximised,then

An insurance company is likely to attract customers like Clancy,who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

The supply curve of a public goods shows

Why will for-profit producers not produce public goods?

If there are no externalities,a competitive market achieves economic efficiency.If there is a negative externality,economic efficiency will not be achieved because

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain,then,according to the Coase theorem,

The construction of a market demand curve for a private good differs from that for a public good in that

Why is it difficult for a private market to provide the economically efficient quantity of a public good?

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