Question 1

Given an upward sloping supply curve, the more inelastic is demand, the greater the fraction of the burden of taxation that is borne by the consumer.

Accepted Answer

A) True 
 B)False

Question 2

Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Shell gasoline, and Shell gasoline at a particular gas station.

Accepted Answer

Gasoline is least elastic, since there a

Question 3

If a consumer's total expenditure on a good does not vary with price, then that consumer's demand curve is unit elastic over that range of prices.

Accepted Answer

A) True 
 B)False

Question 4

Price floors get their name from the fact that they represent a minimum price below which the legal price cannot fall.

Accepted Answer

A) True 
 B)False

Question 5

An economist would be most likely to argue that U.S.national defense should be funded through tax revenues because:

Accepted Answer

A) U.S. citizens are not very patriotic. 
B) the government is always a more efficient provider of goods than the private market. 
C) the government always seeks to act benevolently on behalf of its citizens. 
D) individuals who refuse to contribute to a national defense fund cannot be excluded from benefiting from national defense. 
A) U.S. citizens are not very patriotic. 
B) the government is always a more efficient provider of goods than the private market. 
C) the government always seeks to act benevolently on behalf of its citizens. 
D) individuals who refuse to contribute to a national defense fund cannot be excluded from benefiting from national defense.

Question 6

The consumption of public goods is

Accepted Answer

A) excludable and rivalrous 
B) excludable and non-rivalrous 
C) non-excludable and rivalrous 
D) non-excludable and non-rivalrous 
A) excludable and rivalrous 
B) excludable and non-rivalrous 
C) non-excludable and rivalrous 
D) non-excludable and non-rivalrous

Question 7

Moving along an inelastic portion of a demand curve, the change in quantity demanded will always be proportionally less than the change in price.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is true?

Accepted Answer

A) The private market provides too much of goods that generate external benefits. 
B) In the case of external benefits, if we could add the benefits that are derived by non-paying consumers, the supply curve would shift to the right, increasing output. 
C) In the case of external benefits, a tax equal to external benefits would result in an efficient level of output. 
D) In the case of public goods, when people act as free-riders, some goods having benefits greater than costs will not be produced. 
A) The private market provides too much of goods that generate external benefits. 
B) In the case of external benefits, if we could add the benefits that are derived by non-paying consumers, the supply curve would shift to the right, increasing output. 
C) In the case of external benefits, a tax equal to external benefits would result in an efficient level of output. 
D) In the case of public goods, when people act as free-riders, some goods having benefits greater than costs will not be produced.

Question 9

Which of the following best illustrates the free-rider problem?

Accepted Answer

A) A tollbooth is constructed at the entrance of a privately funded highway. 
B) Individuals contribute toward a national defense program by paying taxes to the government. 
C) Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road. 
D) You erect a locked gate around your swimming pool to keep out unsupervised children. 
A) A tollbooth is constructed at the entrance of a privately funded highway. 
B) Individuals contribute toward a national defense program by paying taxes to the government. 
C) Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road. 
D) You erect a locked gate around your swimming pool to keep out unsupervised children.

Question 10

If, after she buys a car with air bags, Maria Andretti starts to drive recklessly, that would be an illustration of:

Accepted Answer

A) the moral hazard problem. 
B) the free rider problem. 
C) the adverse selection problem. 
D) the "lemon" problem. 
A) the moral hazard problem. 
B) the free rider problem. 
C) the adverse selection problem. 
D) the "lemon" problem.

Question 11

Figure 6-F  
-A public good is nonrivalrous and excludable.

Accepted Answer

A) True 
 B)False

Question 12

If the production of a good created both external costs and external benefits, but the external costs were greater, without government intervention, a market economy will:

Accepted Answer

A) not produce the product at all. 
B) overproduce the product. 
C) underproduce the product. 
D) produce the optimal amount of the product. 
A) not produce the product at all. 
B) overproduce the product. 
C) underproduce the product. 
D) produce the optimal amount of the product.

Question 13

Golf course developers who buy the land around the golf course they build are attempting to:

Accepted Answer

A) impose external costs on non-consenting third parties. 
B) internalize external benefits. 
C) turn a private good into a public good. 
D) internalize external costs. 
E) avoid neighbor complaints about noise and traffic by preventing the construction of homes in the area. 
A) impose external costs on non-consenting third parties. 
B) internalize external benefits. 
C) turn a private good into a public good. 
D) internalize external costs. 
E) avoid neighbor complaints about noise and traffic by preventing the construction of homes in the area.

Question 14

An increase in price will cause a firm's total revenue to increase if demand is price elastic.

Accepted Answer

A) True 
 B)False

Question 15

To internalize a positive externality:

Accepted Answer

A) the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good. 
B) a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good. 
C) consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good. 
D) None of the above are correct. 
A) the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good. 
B) a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good. 
C) consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good. 
D) None of the above are correct.

Question 16

Which of the following is the best example of a public good?

Accepted Answer

A) a national system of healthcare 
B) an amusement park 
C) city street lights 
D) telephone service 
A) a national system of healthcare 
B) an amusement park 
C) city street lights 
D) telephone service

Question 17

Figure 6-F  
-Moral hazard occurs when an informed party benefits in an exchange by taking advantage of knowing more than the other party.

Accepted Answer

A) True 
 B)False

Question 18

If negative externalities are created in the production of a good, then society will:

Accepted Answer

A) produce too much of the good since the marginal private cost to firms is less than the marginal social cost. 
B) produce too little of the good since the marginal private cost to firms is less than the marginal social cost. 
C) produce too much of the good since the marginal private cost to firms is greater than the marginal social cost. 
D) produce too little of the good since the marginal private cost to firms is greater than the marginal social cost. 
E) always produce the most efficient quantity of output. 
A) produce too much of the good since the marginal private cost to firms is less than the marginal social cost. 
B) produce too little of the good since the marginal private cost to firms is less than the marginal social cost. 
C) produce too much of the good since the marginal private cost to firms is greater than the marginal social cost. 
D) produce too little of the good since the marginal private cost to firms is greater than the marginal social cost. 
E) always produce the most efficient quantity of output.

Question 19

If there are significant external benefits associated with the consumption of a product, it can be said that the private benefit to the consumer ____ the relative importance of this product to society and output should ____ to move toward the efficient situation.

Accepted Answer

A) overstates; increase 
B) understates; increase 
C) overstates; decrease 
D) understates; decrease 
E) overstates; remain the same 
A) overstates; increase 
B) understates; increase 
C) overstates; decrease 
D) understates; decrease 
E) overstates; remain the same

Question 20

Public goods are those that are consumed:

Accepted Answer

A) only by those who have paid for them. 
B) only by the government that provides them. 
C) by the private group that funds them. 
D) only by free riders. 
E) by the paying and nonpaying public alike. 
A) only by those who have paid for them. 
B) only by the government that provides them. 
C) by the private group that funds them. 
D) only by free riders. 
E) by the paying and nonpaying public alike.

Given an upward sloping supply curve, the more inelastic is demand, the greater the fraction of the burden of taxation that is borne by the consumer.

Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Shell gasoline, and Shell gasoline at a particular gas station.

If a consumer's total expenditure on a good does not vary with price, then that consumer's demand curve is unit elastic over that range of prices.

Price floors get their name from the fact that they represent a minimum price below which the legal price cannot fall.

An economist would be most likely to argue that U.S.national defense should be funded through tax revenues because:

The consumption of public goods is

Moving along an inelastic portion of a demand curve, the change in quantity demanded will always be proportionally less than the change in price.

Which of the following is true?

Which of the following best illustrates the free-rider problem?

If, after she buys a car with air bags, Maria Andretti starts to drive recklessly, that would be an illustration of:

Figure 6-F -A public good is nonrivalrous and excludable.

If the production of a good created both external costs and external benefits, but the external costs were greater, without government intervention, a market economy will:

Golf course developers who buy the land around the golf course they build are attempting to:

An increase in price will cause a firm's total revenue to increase if demand is price elastic.

To internalize a positive externality:

Which of the following is the best example of a public good?

Figure 6-F -Moral hazard occurs when an informed party benefits in an exchange by taking advantage of knowing more than the other party.

If negative externalities are created in the production of a good, then society will:

If there are significant external benefits associated with the consumption of a product, it can be said that the private benefit to the consumer the relative importance of this product to society and output should to move toward the efficient situation.

Public goods are those that are consumed:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Exam 5: Market Failure and Public Choice

Given an upward sloping supply curve, the more inelastic is demand, the greater the fraction of the burden of taxation that is borne by the consumer.

Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Shell gasoline, and Shell gasoline at a particular gas station.

If a consumer's total expenditure on a good does not vary with price, then that consumer's demand curve is unit elastic over that range of prices.

Price floors get their name from the fact that they represent a minimum price below which the legal price cannot fall.

An economist would be most likely to argue that U.S.national defense should be funded through tax revenues because:

The consumption of public goods is

Moving along an inelastic portion of a demand curve, the change in quantity demanded will always be proportionally less than the change in price.

Which of the following is true?

Which of the following best illustrates the free-rider problem?

If, after she buys a car with air bags, Maria Andretti starts to drive recklessly, that would be an illustration of:

Figure 6-F -A public good is nonrivalrous and excludable.

If the production of a good created both external costs and external benefits, but the external costs were greater, without government intervention, a market economy will:

Golf course developers who buy the land around the golf course they build are attempting to:

An increase in price will cause a firm's total revenue to increase if demand is price elastic.

To internalize a positive externality:

Which of the following is the best example of a public good?

Figure 6-F -Moral hazard occurs when an informed party benefits in an exchange by taking advantage of knowing more than the other party.

If negative externalities are created in the production of a good, then society will:

If there are significant external benefits associated with the consumption of a product, it can be said that the private benefit to the consumer ____ the relative importance of this product to society and output should ____ to move toward the efficient situation.

Public goods are those that are consumed:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

If there are significant external benefits associated with the consumption of a product, it can be said that the private benefit to the consumer the relative importance of this product to society and output should to move toward the efficient situation.