Question 1

-The "Public Choice" school of economists argue that:

Accepted Answer

A) the invisible hand of the market is inefficient in allocating resources to their best uses. 
B) the government often does not take correct economic decisions as it is run by self-interested politicians. 
C) the government takes correct decisions as it is run by conscious and educated individuals. 
D) the market fails to maximize social efficiency. 
E) the government is a non-profit making organization which works to maximize social efficiency. 
A) the invisible hand of the market is inefficient in allocating resources to their best uses. 
B) the government often does not take correct economic decisions as it is run by self-interested politicians. 
C) the government takes correct decisions as it is run by conscious and educated individuals. 
D) the market fails to maximize social efficiency. 
E) the government is a non-profit making organization which works to maximize social efficiency. B

Question 2

-When consumers have perfect information about the quality of the products they purchase, the problem of adverse selection is likely to arise.

Accepted Answer

A) True 
 B)False  False

Question 3

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
  
-The good for which neither the principle of mutual excludability nor the principle of rivalry applies is referred to as a:

Accepted Answer

A) public good. 
B) commons good. 
C) club good. 
D) normal good. 
E) private good. 
A) public good. 
B) commons good. 
C) club good. 
D) normal good. 
E) private good. A

Question 4

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
  
-Why do market failures arise in case of public goods?

Accepted Answer

A) The quantity produced is much more than is actually required by the people. 
B) The quality of these goods is not good enough. 
C) The quantity produced is too less from the society's point of view. 
D) The government wastes a lot of resources for producing a public good. 
E) The users of such goods are required to pay a high price for these goods. 
A) The quantity produced is much more than is actually required by the people. 
B) The quality of these goods is not good enough. 
C) The quantity produced is too less from the society's point of view. 
D) The government wastes a lot of resources for producing a public good. 
E) The users of such goods are required to pay a high price for these goods.

Question 5

-One cause of market failure may be the absence of clearly defined property rights.

Accepted Answer

A) True 
 B)False

Question 6

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
  
-The existence of positive externalities in the consumption of a good implies that:​

Accepted Answer

A) ​the social supply curve of the good lies to the right of the private supply curve. 
B) ​the government will need to provide subsidies to ensure a socially efficient level of consumption. 
C) ​the socially efficient quantity of the good will be less than the market equilibrium quantity. 
D) ​the good generates an external cost. 
E) ​the market equilibrium price of the good will be greater than the social equilibrium price. 
A) ​the social supply curve of the good lies to the right of the private supply curve. 
B) ​the government will need to provide subsidies to ensure a socially efficient level of consumption. 
C) ​the socially efficient quantity of the good will be less than the market equilibrium quantity. 
D) ​the good generates an external cost. 
E) ​the market equilibrium price of the good will be greater than the social equilibrium price.

Question 7

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
  
-The existence of externalities in a market implies that:

Accepted Answer

A) resources are being used efficiently. 
B) there is no other allocation of resources that would make society as a whole better off. 
C) consumers cannot be excluded from consuming the good once it is provided. 
D) resources are not being used in their highest valued activity. 
E) the social welfare is maximized. 
A) resources are being used efficiently. 
B) there is no other allocation of resources that would make society as a whole better off. 
C) consumers cannot be excluded from consuming the good once it is provided. 
D) resources are not being used in their highest valued activity. 
E) the social welfare is maximized.

Question 8

-In which of the following markets adverse selection may not occur?

Accepted Answer

A) The market for pre-owned residential apartments 
B) The lemons market 
C) The market for new sports utility vehicles 
D) The capital market 
E) The market for health insurance 
A) The market for pre-owned residential apartments 
B) The lemons market 
C) The market for new sports utility vehicles 
D) The capital market 
E) The market for health insurance

Question 9

The figure given below shows the demand and supply curves of automobiles.Figure 13.3
In the figure,
D: Demand curve of automobiles
S: Supply of automobiles prior to the tax
S+t: Supply of automobiles after the tax
  
-Which of the following is an example of the command approach to regulation?

Accepted Answer

A) The sale of tradable permits to emit sulfur dioxide in the Chicago Mercantile Exchange 
B) Enforcing private property rights and private ownership of elephants in Africa 
C) Zoning in many areas that restricts the types of buildings that can be built 
D) The government providing subsidies for public education 
E) A Pigouvian tax 
A) The sale of tradable permits to emit sulfur dioxide in the Chicago Mercantile Exchange 
B) Enforcing private property rights and private ownership of elephants in Africa 
C) Zoning in many areas that restricts the types of buildings that can be built 
D) The government providing subsidies for public education 
E) A Pigouvian tax

Question 10

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing. The fishermen were charged $50 on each boat they sent out for fishing. The following table shows the total pounds of fish caught per hour and the number of boats used for fishing.Table 13.2
  
-One of the reasons that communism failed in the Soviet Union is that, under communism:

Accepted Answer

A) no one had property rights, so there was little incentive to use resources efficiently. 
B) there were high rates of unemployment and homelessness accompanied by a high rate of inflation. 
C) planners did not have all the information necessary to make efficient decisions. 
D) there was a high degree of political freedom. 
E) there was a high degree of economic freedom. 
A) no one had property rights, so there was little incentive to use resources efficiently. 
B) there were high rates of unemployment and homelessness accompanied by a high rate of inflation. 
C) planners did not have all the information necessary to make efficient decisions. 
D) there was a high degree of political freedom. 
E) there was a high degree of economic freedom.

Question 11

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing. The fishermen were charged $50 on each boat they sent out for fishing. The following table shows the total pounds of fish caught per hour and the number of boats used for fishing.Table 13.2
  
-Refer to Table 13.2. Suppose fish sells for $1 per pound. What is the socially optimal number of boats that will maximize the profit earned by the fishermen?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
E) 5 
A) 1 
B) 2 
C) 3 
D) 4 
E) 5

Question 12

The figure given below shows the demand and supply curves of steel. SS1U1B1pS1U1B0 is the private supply curve, and SS1U1B1sS1U1B0 is the social supply curve that includes both private costs and external costs.Figure 13.2
  
-In Figure 13.2, external costs are equal to _____.

Accepted Answer

A) Ps − Pp 
B) da 
C) Qp − Qs 
D) ab 
E) bc 
A) Ps − Pp 
B) da 
C) Qp − Qs 
D) ab 
E) bc

Question 13

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
  
-For which of the following goods will the free rider problem arise?

Accepted Answer

A) Private golf course 
B) Cable television 
C) Privately owned apartment 
D) National defense 
E) Movie theatres 
A) Private golf course 
B) Cable television 
C) Privately owned apartment 
D) National defense 
E) Movie theatres

Question 14

-Both the principles of rivalry and mutual excludability apply for club goods.

Accepted Answer

A) True 
 B)False

Question 15

-If a gas station selling gasoline is asked to incorporate the pollution costs, its supply curve will shift to the right.

Accepted Answer

A) True 
 B)False

Question 16

-Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

Accepted Answer

A) True 
 B)False

Question 17

The figure given below shows the demand and supply curves of automobiles.Figure 13.3
In the figure,
D: Demand curve of automobiles
S: Supply of automobiles prior to the tax
S+t: Supply of automobiles after the tax
  
-Figure 13.3 represents a situation of:

Accepted Answer

A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) the commons problem. 
E) the free rider problem. 
A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) the commons problem. 
E) the free rider problem.

Question 18

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
  
-The free rider problem occurs because:

Accepted Answer

A) it is easy to exclude others from consuming a good. 
B) consumption is rivalrous, so the consumption of a product by one individual diminishes the amount available for others. 
C) exclusion is costly or impossible, so a consumer or producer can use a good without having to pay for it. 
D) external costs are imposed on others not directly involved in the transaction. 
E) individuals are not required to pay for those goods which do not yield any utility to them. 
A) it is easy to exclude others from consuming a good. 
B) consumption is rivalrous, so the consumption of a product by one individual diminishes the amount available for others. 
C) exclusion is costly or impossible, so a consumer or producer can use a good without having to pay for it. 
D) external costs are imposed on others not directly involved in the transaction. 
E) individuals are not required to pay for those goods which do not yield any utility to them.

Question 19

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing. The fishermen were charged $50 on each boat they sent out for fishing. The following table shows the total pounds of fish caught per hour and the number of boats used for fishing.Table 13.2
  
-Refer to Table 13.2. Suppose fish sells for $1 per pound. If each fisherman decides whether or not to fish based on the average catch, what is the profit that each fisherman earns?

Accepted Answer

A) $500 
B) $1,000 
C) $3,000 
D) $5,000 
E) 0 
A) $500 
B) $1,000 
C) $3,000 
D) $5,000 
E) 0

Question 20

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing. The fishermen were charged $50 on each boat they sent out for fishing. The following table shows the total pounds of fish caught per hour and the number of boats used for fishing.Table 13.2
  
-If the government is successful in internalizing the external costs of production in a market, then:

Accepted Answer

A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero. 
A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero.

-The "Public Choice" school of economists argue that:

-When consumers have perfect information about the quality of the products they purchase, the problem of adverse selection is likely to arise.

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -Why do market failures arise in case of public goods?

-One cause of market failure may be the absence of clearly defined property rights.

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -The existence of externalities in a market implies that:

-In which of the following markets adverse selection may not occur?

The figure given below shows the demand and supply curves of automobiles.Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax -Which of the following is an example of the command approach to regulation?

The figure given below shows the demand and supply curves of steel. S_p is the private supply curve, and S_s is the social supply curve that includes both private costs and external costs.Figure 13.2 -In Figure 13.2, external costs are equal to _____.

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -For which of the following goods will the free rider problem arise?

-Both the principles of rivalry and mutual excludability apply for club goods.

-If a gas station selling gasoline is asked to incorporate the pollution costs, its supply curve will shift to the right.

-Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

The figure given below shows the demand and supply curves of automobiles.Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax -Figure 13.3 represents a situation of:

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -The free rider problem occurs because:

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

Markets and the Price System

The Aggregate Economy

Using Economics to Understand the World Around You

Elasticity: Demand and Supply

Demand: Consumer Choice

Supply: the Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Resource Markets

The Labor Market

The Capital Market

The Land Market and Natural Resources

Current Issues: Income, Income Distribution, Poverty, and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Exam 13: Markets and Government

-The "Public Choice" school of economists argue that:

-When consumers have perfect information about the quality of the products they purchase, the problem of adverse selection is likely to arise.

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -Why do market failures arise in case of public goods?

-One cause of market failure may be the absence of clearly defined property rights.

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -The existence of externalities in a market implies that:

-In which of the following markets adverse selection may not occur?

The figure given below shows the demand and supply curves of automobiles.Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax -Which of the following is an example of the command approach to regulation?

The figure given below shows the demand and supply curves of steel. Sp is the private supply curve, and Ss is the social supply curve that includes both private costs and external costs.Figure 13.2 -In Figure 13.2, external costs are equal to _____.

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -For which of the following goods will the free rider problem arise?

-Both the principles of rivalry and mutual excludability apply for club goods.

-If a gas station selling gasoline is asked to incorporate the pollution costs, its supply curve will shift to the right.

-Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

The figure given below shows the demand and supply curves of automobiles.Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax -Figure 13.3 represents a situation of:

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2 -The free rider problem occurs because:

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

Markets and the Price System

The Aggregate Economy

Using Economics to Understand the World Around You

Elasticity: Demand and Supply

Demand: Consumer Choice

Supply: the Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Resource Markets

The Labor Market

The Capital Market

The Land Market and Natural Resources

Current Issues: Income, Income Distribution, Poverty, and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The figure given below shows the demand and supply curves of steel. S_p is the private supply curve, and S_s is the social supply curve that includes both private costs and external costs.Figure 13.2 -In Figure 13.2, external costs are equal to _____.