Question 1

What is moral hazard?

Accepted Answer

A)  It refers to the private, self-interested actions that people pursue, which, when taken collectively, lead to a loss in economic surplus. 
B)  It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off. 
C)  It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. 
D)  It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction. 
A)  It refers to the private, self-interested actions that people pursue, which, when taken collectively, lead to a loss in economic surplus. 
B)  It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off. 
C)  It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. 
D)  It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.

Question 2

The private cost of a good or service is the cost borne by the producer.

Accepted Answer

A) True 
 B)False

Question 3

A tragedy of the commons occurs when a resource is

Accepted Answer

A)  rival and excludable. 
B)  rival and non-excludable. 
C)  non-rival and non-excludable. 
D)  non-rival and excludable. 
A)  rival and excludable. 
B)  rival and non-excludable. 
C)  non-rival and non-excludable. 
D)  non-rival and excludable.

Question 4

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 5

Pollution is an example of a

Accepted Answer

A)  public good. 
B)  positive externality. 
C)  private cost. 
D)  negative externality. 
A)  public good. 
B)  positive externality. 
C)  private cost. 
D)  negative externality.

Question 6

Should the level of pollution be reduced to zero and,if not,then to what level?

Accepted Answer

No,the level of pollution should not be

Question 7

The 20-year protection period from generic competition for drug manufacturers is a form of

Accepted Answer

A)  copyright. 
B)  trademark. 
C)  hallmark. 
D)  patent. 
A)  copyright. 
B)  trademark. 
C)  hallmark. 
D)  patent.

Question 8

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production,and the sum of consumer surplus and producer surplus is maximised.

Accepted Answer

A) True 
 B)False

Question 9

Explain how mandatory seat belt laws may reduce the negative externalities of risky behaviour.

Accepted Answer

Mandatory seat belt laws are designed to

Question 10

Consider a used car market in which half the cars are good and half are bad (lemons).A rational buyer in this market should

Accepted Answer

A)  offer to pay a price equal to the most she would pay for a good car. 
B)  offer to pay a price equal to the most she would pay for a lemon. 
C)  offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon. 
D)  save up and buy a new car. 
A)  offer to pay a price equal to the most she would pay for a good car. 
B)  offer to pay a price equal to the most she would pay for a lemon. 
C)  offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon. 
D)  save up and buy a new car.

Question 11

Which of the following is not an example of rent-seeking behaviour?

Accepted Answer

A)  Competition for subsidies 
B)  Lobbying the government to impose tariffs on certain imported products 
C)  Competition for the exclusive right to import a product 
D)  Engaging in aggressive advertising that slams a competitor's product 
A)  Competition for subsidies 
B)  Lobbying the government to impose tariffs on certain imported products 
C)  Competition for the exclusive right to import a product 
D)  Engaging in aggressive advertising that slams a competitor's product

Question 12

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

Accepted Answer

A)  externalise the externality. 
B)  result in a marginal social benefit greater than the marginal cost of the electricity. 
C)  be an example of supply side economic policy. 
D)  internalise the externality. 
A)  externalise the externality. 
B)  result in a marginal social benefit greater than the marginal cost of the electricity. 
C)  be an example of supply side economic policy. 
D)  internalise the externality.

Question 13

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 Therapeutic Goods 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 Therapeutic Goods 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 14

Figure 11-10   Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes, the firm can install pollution abatement devices. Figure 11-10 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions.
-Refer to Figure 11-10.Suppose the emissions reduction target is currently established at 8 million tons.Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?

Accepted Answer

A)  No, because there is a net cost represented by the area B + C. 
B)  Yes, because the marginal benefit exceeds the marginal costs. 
C)  Yes, because toxic fumes are dangerous and must be eliminated at any cost. 
D)  No, because the firms will pass the additional cost on to consumers. 
A)  No, because there is a net cost represented by the area B + C. 
B)  Yes, because the marginal benefit exceeds the marginal costs. 
C)  Yes, because toxic fumes are dangerous and must be eliminated at any cost. 
D)  No, because the firms will pass the additional cost on to consumers.

Question 15

A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.

Accepted Answer

A) True 
 B)False

Question 16

In economics,the term 'free rider' refers to

Accepted Answer

A)  a person who evades taxes. 
B)  a supervisor who delegates menial time-consuming activities to others. 
C)  one who volunteers her services. 
D)  one who waits for others to produce a good and then enjoys its benefits without paying for it. 
A)  a person who evades taxes. 
B)  a supervisor who delegates menial time-consuming activities to others. 
C)  one who volunteers her services. 
D)  one who waits for others to produce a good and then enjoys its benefits without paying for it.

Question 17

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Accepted Answer

A)  The private cost of production 
B)  The social cost of production 
C)  The external cost of production 
D)  The explicit cost of production 
A)  The private cost of production 
B)  The social cost of production 
C)  The external cost of production 
D)  The explicit cost of production

Question 18

Because producers do not bear the external cost of pollution,

Accepted Answer

A)  the economically efficient level of production is achieved. 
B)  private production is below the economically efficient level. 
C)  private production exceeds the economically efficient level. 
D)  the market price is too high. 
A)  the economically efficient level of production is achieved. 
B)  private production is below the economically efficient level. 
C)  private production exceeds the economically efficient level. 
D)  the market price is too high.

Question 19

Due to adverse selection,very few lemons will be sold in the market for used cars.

Accepted Answer

A) True 
 B)False

Question 20

Figure 11-3   Figure 11-3 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 11-3.If,because of an externality,the economically efficient output is Q2 and not the current equilibrium output of Q1,what does S2 represent?

Accepted Answer

A)  The market supply curve reflecting private cost. 
B)  The market supply curve reflecting social cost. 
C)  The market supply curve reflecting external cost. 
D)  The market supply curve reflecting implicit cost. 
A)  The market supply curve reflecting private cost. 
B)  The market supply curve reflecting social cost. 
C)  The market supply curve reflecting external cost. 
D)  The market supply curve reflecting implicit cost.

What is moral hazard?

The private cost of a good or service is the cost borne by the producer.

A tragedy of the commons occurs when a resource 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

Pollution is an example of a

Should the level of pollution be reduced to zero and,if not,then to what level?

The 20-year protection period from generic competition for drug manufacturers is a form of

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production,and the sum of consumer surplus and producer surplus is maximised.

Explain how mandatory seat belt laws may reduce the negative externalities of risky behaviour.

Consider a used car market in which half the cars are good and half are bad (lemons).A rational buyer in this market should

Which of the following is not an example of rent-seeking behaviour?

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

One reason patent protection is vitally important to pharmaceutical firms is

A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.

In economics,the term 'free rider' refers to

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Because producers do not bear the external cost of pollution,

Due to adverse selection,very few lemons will be sold in the market for used cars.

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

What is moral hazard?

The private cost of a good or service is the cost borne by the producer.

A tragedy of the commons occurs when a resource 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

Pollution is an example of a

Should the level of pollution be reduced to zero and,if not,then to what level?

The 20-year protection period from generic competition for drug manufacturers is a form of

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production,and the sum of consumer surplus and producer surplus is maximised.

Explain how mandatory seat belt laws may reduce the negative externalities of risky behaviour.

Consider a used car market in which half the cars are good and half are bad (lemons).A rational buyer in this market should

Which of the following is not an example of rent-seeking behaviour?

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the cost of the acid rain,the government's action would

One reason patent protection is vitally important to pharmaceutical firms is

A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.

In economics,the term 'free rider' refers to

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Because producers do not bear the external cost of pollution,

Due to adverse selection,very few lemons will be sold in the market for used cars.

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