Question 1

State the Coase theorem.

Accepted Answer

The Coase theorem states that if transactions costs are low,private bargaining will result in an efficient solution to the problem of externalities,regardless of the initial assignment of property rights.

Question 2

Economic efficiency in a competitive market is achieved when

Accepted Answer

A)  economic surplus is equal to consumer surplus. 
B)  consumers and producers are satisfied. 
C)  the marginal benefit equals the marginal cost from the last unit sold. 
D)  producer surplus equals the total amount firms receive from consumers minus the cost of production. 
A)  economic surplus is equal to consumer surplus. 
B)  consumers and producers are satisfied. 
C)  the marginal benefit equals the marginal cost from the last unit sold. 
D)  producer surplus equals the total amount firms receive from consumers minus the cost of production. C

Question 3

Governments grant patents to

Accepted Answer

A)  compensate firms for research and development costs. 
B)  encourage competition. 
C)  encourage low prices. 
D)  encourage firms to reveal secret production techniques. 
A)  compensate firms for research and development costs. 
B)  encourage competition. 
C)  encourage low prices. 
D)  encourage firms to reveal secret production techniques. A

Question 4

The efficient output level of a public good occurs where the

Accepted Answer

A)  greatest number of free riders occurs. 
B)  marginal cost of producing the last unit is equal to the marginal benefit realised by consumers. 
C)  total cost of production is affordable. 
D)  marginal cost of production is at its lowest. 
A)  greatest number of free riders occurs. 
B)  marginal cost of producing the last unit is equal to the marginal benefit realised by consumers. 
C)  total cost of production is affordable. 
D)  marginal cost of production is at its lowest.

Question 5

For certain public projects such as building a dam on a river or a bridge to an island,what procedure is a government likely to use to determine what quantity of a public good should be supplied?

Accepted Answer

A)  It conducts public surveys to determine if consumers want the product. 
B)  It hires economists to estimate the market demand for the product. 
C)  It takes a vote in Parliament. 
D)  It evaluates the costs and benefits of producing the good. 
A)  It conducts public surveys to determine if consumers want the product. 
B)  It hires economists to estimate the market demand for the product. 
C)  It takes a vote in Parliament. 
D)  It evaluates the costs and benefits of producing the good.

Question 6

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 7

The social cost of cutting trees for firewood in a government forest is

Accepted Answer

A)  the increased likelihood of flooding as more trees are cut. 
B)  the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C)  the opportunity cost to the individual of cutting the wood. 
D)  the marginal costs of cutting the last tree. 
A)  the increased likelihood of flooding as more trees are cut. 
B)  the increased likelihood of flooding as more trees are cut plus the private cost of cutting the trees. 
C)  the opportunity cost to the individual of cutting the wood. 
D)  the marginal costs of cutting the last tree.

Question 8

'When it comes to public goods,individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement.

Accepted Answer

The statement is true.For example,in the

Question 9

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 equitable solution can be reached only if property rights are assigned to the victims of pollution and not the polluters. 
B)  an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution. 
C)  an efficient solution can be reached regardless of the initial assignment of property rights. 
D)  government intervention is necessary to reach an efficient and equitable solution. 
A)  an equitable solution can be reached only if property rights are assigned to the victims of pollution and not the polluters. 
B)  an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution. 
C)  an efficient solution can be reached regardless of the initial assignment of property rights. 
D)  government intervention is necessary to reach an efficient and equitable solution.

Question 10

Figure 11-1  
-Refer to Figure 11-1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

Accepted Answer

A)  If the price of pecans is $3, the output will be economically efficient but there will be a deadweight loss. 
B)  If the price of pecans is $9, consumers will purchase more than the economically efficient output. 
C)  Both 4000 kilograms and 12 000 kilograms are economically inefficient rates of output. 
D)  If the price of pecans is $3, producers will sell 12 000 kilograms of pecans but this output will be economically inefficient. 
A)  If the price of pecans is $3, the output will be economically efficient but there will be a deadweight loss. 
B)  If the price of pecans is $9, consumers will purchase more than the economically efficient output. 
C)  Both 4000 kilograms and 12 000 kilograms are economically inefficient rates of output. 
D)  If the price of pecans is $3, producers will sell 12 000 kilograms of pecans but this output will be economically inefficient.

Question 11

Which of the following is true of trademarks?

Accepted Answer

A)  A successful trademark is one that becomes a generic name for a product, for example, 'Xerox' has become a generic term for making photocopies. 
B)  A successful trademark is one that allows consumers to immediately identify the source or producer of the product. 
C)  If a firm is granted a trademark, then no other firms can legally produce similar products for a given period of time. 
D)  If a firm is granted a trademark, then no other firms can legally sell in the same geographic area for a given period of time. 
A)  A successful trademark is one that becomes a generic name for a product, for example, 'Xerox' has become a generic term for making photocopies. 
B)  A successful trademark is one that allows consumers to immediately identify the source or producer of the product. 
C)  If a firm is granted a trademark, then no other firms can legally produce similar products for a given period of time. 
D)  If a firm is granted a trademark, then no other firms can legally sell in the same geographic area for a given period of time.

Question 12

Figure 11-6   Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 11-6 shows the paper market. Use this Figure to answer the following question(s).
-Refer to Figure 11-6.What does S1 represent?

Accepted Answer

A)  The market supply curve that reflects social cost. 
B)  The market supply curve that reflects only external cost. 
C)  The market supply curve that reflects only private benefit. 
D)  The market supply curve that reflects private cost. 
A)  The market supply curve that reflects social cost. 
B)  The market supply curve that reflects only external cost. 
C)  The market supply curve that reflects only private benefit. 
D)  The market supply curve that reflects private cost.

Question 13

When there is a negative externality,the private cost of production ________ the social cost of production.

Accepted Answer

A)  is greater than 
B)  is equal to 
C)  eliminates 
D)  is less than 
A)  is greater than 
B)  is equal to 
C)  eliminates 
D)  is less than

Question 14

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 D2 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 social and external 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 social and external benefits.

Question 15

Figure 11-16   Figure 11-16 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of QS1U1B11S1U1B0 is not the economically efficient output. The economically efficient output is QS1U1B12S1U1B0.
-Refer to Figure 11-16.Identify the area that shows the deadweight loss from overfishing.

Accepted Answer

A)  egh 
B)  ekh 
C)  efh 
D)  eghk 
A)  egh 
B)  ekh 
C)  efh 
D)  eghk

Question 16

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 17

State whether each of the following goods and services is non-rival,non-excludable or both:
a.A toll road
b.A public park
c.A lighthouse
d.An art museum
e.A radio broadcast of 'A Prairie Home Companion'

Accepted Answer

a.Non-rival,although rivalry could exist

Question 18

If a state requires all drivers to purchase auto insurance,insurance companies still face the problem of

Accepted Answer

A)  correctly pricing their insurance. 
B)  sunk costs. 
C)  adverse selection. 
D)  excess demand for their insurance. 
A)  correctly pricing their insurance. 
B)  sunk costs. 
C)  adverse selection. 
D)  excess demand for their insurance.

Question 19

A key difficulty facing insurance companies is that people know more about their health than do insurance companies,and that those people who are seriously ill are the most likely to want to obtain health insurance.What is this phenomenon called?

Accepted Answer

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

Question 20

When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of

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.

State the Coase theorem.

Economic efficiency in a competitive market is achieved when

Governments grant patents to

The efficient output level of a public good occurs where the

For certain public projects such as building a dam on a river or a bridge to an island,what procedure is a government likely to use to determine what quantity of a public good should be supplied?

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

The social cost of cutting trees for firewood in a government forest is

'When it comes to public goods,individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement.

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

Figure 11-1 -Refer to Figure 11-1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

Which of the following is true of trademarks?

When there is a negative externality,the private cost of production ________ the social cost of production.

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

State whether each of the following goods and services is non-rival,non-excludable or both: a.A toll road b.A public park c.A lighthouse d.An art museum e.A radio broadcast of 'A Prairie Home Companion'

If a state requires all drivers to purchase auto insurance,insurance companies still face the problem of

A key difficulty facing insurance companies is that people know more about their health than do insurance companies,and that those people who are seriously ill are the most likely to want to obtain health insurance.What is this phenomenon called?

When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 11: Monopolistic Competition and Oligopoly

State the Coase theorem.

Economic efficiency in a competitive market is achieved when

Governments grant patents to

The efficient output level of a public good occurs where the

For certain public projects such as building a dam on a river or a bridge to an island,what procedure is a government likely to use to determine what quantity of a public good should be supplied?

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

The social cost of cutting trees for firewood in a government forest is

'When it comes to public goods,individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement.

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

Figure 11-1 -Refer to Figure 11-1.The figure above represents the market for pecans.Assume that this is a competitive market.Which of the following is true?

Which of the following is true of trademarks?

When there is a negative externality,the private cost of production ________ the social cost of production.

Figure 11-16 Figure 11-16 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. -Refer to Figure 11-16.Identify the area that shows the deadweight loss from overfishing.

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

State whether each of the following goods and services is non-rival,non-excludable or both: a.A toll road b.A public park c.A lighthouse d.An art museum e.A radio broadcast of 'A Prairie Home Companion'

If a state requires all drivers to purchase auto insurance,insurance companies still face the problem of

A key difficulty facing insurance companies is that people know more about their health than do insurance companies,and that those people who are seriously ill are the most likely to want to obtain health insurance.What is this phenomenon called?

When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance,the insurance market is said to face the problem of

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters