Question 1

It is difficult for a private market to provide the economically efficient quantity of a public good because

Accepted Answer

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

Question 2

Medical research that ends in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

Accepted Answer

A)  At equilibrium, less than the economically efficient quantity of medical research is produced. 
B)  A deadweight loss occurs because, at equilibrium, the marginal social cost of medical research is greater than the marginal social benefit. 
C)  At equilibrium, more than the economically efficient quantity of medical research is produced. 
D)  A deadweight loss occurs because at equilibrium, the marginal social cost equals the marginal social benefit. 
A)  At equilibrium, less than the economically efficient quantity of medical research is produced. 
B)  A deadweight loss occurs because, at equilibrium, the marginal social cost of medical research is greater than the marginal social benefit. 
C)  At equilibrium, more than the economically efficient quantity of medical research is produced. 
D)  A deadweight loss occurs because at equilibrium, the marginal social cost equals the marginal social benefit.

Question 3

In a competitive market equilibrium,

Accepted Answer

A)  total consumer surplus equals total producer surplus. 
B)  marginal benefit and marginal cost are maximised. 
C)  consumers and producers benefit equally. 
D)  the marginal benefit equals the marginal cost of the last unit sold. 
A)  total consumer surplus equals total producer surplus. 
B)  marginal benefit and marginal cost are maximised. 
C)  consumers and producers benefit equally. 
D)  the marginal benefit equals the marginal cost of the last unit sold.

Question 4

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 5

Figure 11-5  
-Refer to Figure 11-5.The size of marginal external benefits can be determined by

Accepted Answer

A)  the demand curve D2. 
B)  D2 + D1 at each output level 
C)  D2 - D1 at each output level. 
D)  the demand curve D1. 
A)  the demand curve D2. 
B)  D2 + D1 at each output level 
C)  D2 - D1 at each output level. 
D)  the demand curve D1.

Question 6

A market demand curve reflects the

Accepted Answer

A)  private benefits of consuming a product. 
B)  external benefits of consuming a product. 
C)  social benefits of consuming a product. 
D)  the sum of the private and social benefits of consuming a product. 
A)  private benefits of consuming a product. 
B)  external benefits of consuming a product. 
C)  social benefits of consuming a product. 
D)  the sum of the private and social benefits of consuming a product.

Question 7

If marginal benefit is greater than marginal cost,output is inefficiently high.

Accepted Answer

A) True 
 B)False

Question 8

An advantage of imposing a tax on the producer that generates pollution is that

Accepted Answer

A)  it forces the polluting producer to internalise the external cost of the pollution. 
B)  the government can keep tabs on exactly what is produced in an industry. 
C)  it will eliminate pollution. 
D)  a producer can pass the cost of the pollution to consumers. 
A)  it forces the polluting producer to internalise the external cost of the pollution. 
B)  the government can keep tabs on exactly what is produced in an industry. 
C)  it will eliminate pollution. 
D)  a producer can pass the cost of the pollution to consumers.

Question 9

For-profit producers will produce only private goods because

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 be willing to pay for the goods since the benefits are 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 be willing to pay for the goods since the benefits are excludable. 
D)  all external benefits can be internalised using market prices.

Question 10

Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured.In other words,the automobile insurance market is subject to

Accepted Answer

A)  asymmetric information. 
B)  market signalling. 
C)  moral hazard. 
D)  adverse selection. 
A)  asymmetric information. 
B)  market signalling. 
C)  moral hazard. 
D)  adverse selection.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities.Which of the following describes Coase's work?

Accepted Answer

A)  Coase argued that government intervention is necessary to achieve economic efficiency in markets that are affected by externalities. 
B)  Coase proved that economic efficiency cannot be achieved in a market that is affected by positive or negative externalities. 
C)  Coase argued that, under some circumstances, private solutions to the problems of externalities will occur. 
D)  Coase proved that a competitive market achieved a greater degree of economic efficiency than a non-competitive market when externalities occur. 
A)  Coase argued that government intervention is necessary to achieve economic efficiency in markets that are affected by externalities. 
B)  Coase proved that economic efficiency cannot be achieved in a market that is affected by positive or negative externalities. 
C)  Coase argued that, under some circumstances, private solutions to the problems of externalities will occur. 
D)  Coase proved that a competitive market achieved a greater degree of economic efficiency than a non-competitive market when externalities occur.

Question 13

Figure 11-14   University education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry. Thus, the social benefits of university education exceed the private benefits for any level of university education. This is illustrated in Figure 11-14.
-Refer to Figure 11-14.One way to obtain the economically efficient amount of university education is for governments to subsidise university education.What is the size of the per-student Pigovian subsidy that the government must provide to internalise the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example,through low-interest student loans.)

Accepted Answer

A)  P2 - P0 
B)  P2 - P1 
C)  P0 - P1 
D)  P1 
A)  P2 - P0 
B)  P2 - P1 
C)  P0 - P1 
D)  P1

Question 14

What is a market failure?

Accepted Answer

A)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
B)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
D)  It refers to a breakdown in a market economy because of widespread corruption in government. 
A)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. 
B)  It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. 
C)  It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. 
D)  It refers to a breakdown in a market economy because of widespread corruption in government.

Question 15

Adverse selection occurs in the market for used cars because used car buyers

Accepted Answer

A)  have more information than used car sellers. 
B)  have less information than used car sellers. 
C)  have less incentive to maintain the value of their cars than new car buyers. 
D)  tend to have more accidents than new car buyers. 
A)  have more information than used car sellers. 
B)  have less information than used car sellers. 
C)  have less incentive to maintain the value of their cars than new car buyers. 
D)  tend to have more accidents than new car buyers.

Question 16

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 17

Figure 11-1  
-Refer to Figure 11-1.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 18

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 19

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 $9,what changes in the market would result in an economically efficient output?

Accepted Answer

A)  The price would decrease, the quantity supplied would decrease and the quantity demanded would increase. 
B)  The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would decrease. 
C)  The price would decrease, the demand would increase and the supply would decrease. 
D)  The price would increase, the quantity demanded would decrease and the quantity supplied would increase. 
A)  The price would decrease, the quantity supplied would decrease and the quantity demanded would increase. 
B)  The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would decrease. 
C)  The price would decrease, the demand would increase and the supply would decrease. 
D)  The price would increase, the quantity demanded would decrease and the quantity supplied would increase.

Question 20

The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is

Accepted Answer

A)  inefficient market hypothesis. 
B)  moral hazard. 
C)  information disparity. 
D)  asymmetric information. 
A)  inefficient market hypothesis. 
B)  moral hazard. 
C)  information disparity. 
D)  asymmetric information.

It is difficult for a private market to provide the economically efficient quantity of a public good because

Medical research that ends in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

In a competitive market equilibrium,

Which of the following statements about rent seeking is false?

Figure 11-5 -Refer to Figure 11-5.The size of marginal external benefits can be determined by

A market demand curve reflects the

If marginal benefit is greater than marginal cost,output is inefficiently high.

An advantage of imposing a tax on the producer that generates pollution is that

For-profit producers will produce only private goods because

Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured.In other words,the automobile insurance market is subject to

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

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities.Which of the following describes Coase's work?

What is a market failure?

Adverse selection occurs in the market for used cars because used car buyers

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.

Figure 11-1 -Refer to Figure 11-1.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $3,

In economics,the optimal level of pollution 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 $9,what changes in the market would result in an economically efficient output?

The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is

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

It is difficult for a private market to provide the economically efficient quantity of a public good because

Medical research that ends in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

In a competitive market equilibrium,

Which of the following statements about rent seeking is false?

Figure 11-5 -Refer to Figure 11-5.The size of marginal external benefits can be determined by

A market demand curve reflects the

If marginal benefit is greater than marginal cost,output is inefficiently high.

An advantage of imposing a tax on the producer that generates pollution is that

For-profit producers will produce only private goods because

Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured.In other words,the automobile insurance market is subject to

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

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities.Which of the following describes Coase's work?

What is a market failure?

Adverse selection occurs in the market for used cars because used car buyers

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.

Figure 11-1 -Refer to Figure 11-1.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $3,

In economics,the optimal level of pollution 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 $9,what changes in the market would result in an economically efficient output?

The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is

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