Question 1

If Ming is willing to pay $75 to attend the Broadway production of The Lion King but actually pays $40, she receives a consumer surplus of $35.

Accepted Answer

A) True 
 B)False

Question 2

Price elasticity is a measure of the relative responsiveness of the change in quantity demanded to a change in price.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements best summarizes the essence of public choice analysis?

Accepted Answer

A) Public choice analysis demonstrates that there is a significant difference between economic and political concerns. 
B) Public choice analysis applies economic principles to political science issues. 
C) Public choice analysis applies political science principles to traditionally economic issues. 
D) Public choice analysis assumes that government leaders are primarily motivated by what is best for the community, unlike private interest groups. 
A) Public choice analysis demonstrates that there is a significant difference between economic and political concerns. 
B) Public choice analysis applies economic principles to political science issues. 
C) Public choice analysis applies political science principles to traditionally economic issues. 
D) Public choice analysis assumes that government leaders are primarily motivated by what is best for the community, unlike private interest groups.

Question 4

Producer surplus is always the total area below the demand curve and above the supply curve.

Accepted Answer

A) True 
 B)False

Question 5

Joe installs a rain water collection barrel system at the back of his house hidden behind a row of bushes.This is most likely an example of:

Accepted Answer

A) a public good consumed by a private citizen. 
B) a private good consumed by the public sector. 
C) creating a positive externality for others. 
D) creating a negative externality for others. 
A) a public good consumed by a private citizen. 
B) a private good consumed by the public sector. 
C) creating a positive externality for others. 
D) creating a negative externality for others.

Question 6

Which of the following activities, if any, represents an external cost?

Accepted Answer

A) The benefits that accrue to society when an individual receives a college education. 
B) The increase in property values of vacant lots in an area near where a new amusement park is constructed. 
C) The pollination of apple trees that occurs when a beekeeper locates next door to an apple orchard. 
D) The price you pay for a slice of pizza. 
E) None of the above 
A) The benefits that accrue to society when an individual receives a college education. 
B) The increase in property values of vacant lots in an area near where a new amusement park is constructed. 
C) The pollination of apple trees that occurs when a beekeeper locates next door to an apple orchard. 
D) The price you pay for a slice of pizza. 
E) None of the above

Question 7

The idea of rational ignorance implies that people are fully informed about their market purchases but uninformed about political issues.

Accepted Answer

A) True 
 B)False

Question 8

If positive externalities are present in the production of a good, then society will:

Accepted Answer

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

Question 9

Figure 6-F  
-The failure of private incentives to provide adequate maintenance of public resources leads to the tragedy of the commons.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is true?

Accepted Answer

A) The government may be able to overcome the free rider problem with public goods by providing the public goods and imposing taxes to pay for them. 
B) The nature of public goods is such that the government cannot accurately assess the benefits and costs of those affected. 
C) National defense and flood control are illustrations of public goods. 
D) Just as in the case of external benefits, public goods tend to be underprovided by the private sector. 
E) All of the above are true. 
A) The government may be able to overcome the free rider problem with public goods by providing the public goods and imposing taxes to pay for them. 
B) The nature of public goods is such that the government cannot accurately assess the benefits and costs of those affected. 
C) National defense and flood control are illustrations of public goods. 
D) Just as in the case of external benefits, public goods tend to be underprovided by the private sector. 
E) All of the above are true.

Question 11

Public choice theory assumes that voters, politicians, and other political participants are largely motivated by:

Accepted Answer

A) personal self-interest. 
B) altruism. 
C) a desire to promote the general welfare. 
D) a desire to promote allocative economic efficiency. 
A) personal self-interest. 
B) altruism. 
C) a desire to promote the general welfare. 
D) a desire to promote allocative economic efficiency.

Question 12

Medical research helps to develop better treatments for neuromuscular disease.Medical researchers are constantly in search of funds.Many in the public, however, are unwilling to contribute money toward neuromuscular disease research until a member of their own family suffers from a neuromuscular ailment.If left strictly to the private market, it is likely that there will be:

Accepted Answer

A) an overallocation of resources to neuromuscular disease research, relative to the efficient level. 
B) an underallocation of resources to neuromuscular disease research, relative to the efficient level. 
C) an efficient quantity of resources devoted to neuromuscular disease research. 
D) zero dollars devoted to neuromuscular disease research. 
A) an overallocation of resources to neuromuscular disease research, relative to the efficient level. 
B) an underallocation of resources to neuromuscular disease research, relative to the efficient level. 
C) an efficient quantity of resources devoted to neuromuscular disease research. 
D) zero dollars devoted to neuromuscular disease research.

Question 13

Without government intervention, society is likely to get too little production of:

Accepted Answer

A) private goods. 
B) private goods that generate external costs. 
C) private goods that generate external benefits. 
D) public goods. 
E) both private goods that generate external benefits and public goods. 
A) private goods. 
B) private goods that generate external costs. 
C) private goods that generate external benefits. 
D) public goods. 
E) both private goods that generate external benefits and public goods.

Question 14

Figure 6-F  
-One way to overcome an adverse selection problem when buying a used car is to hire an independent mechanic to inspect the car before making a purchase.

Accepted Answer

A) True 
 B)False

Question 15

Refer to Figure 4-F.Identify the areas of consumer and producer surplus when the market price equals $20.

Accepted Answer

Consumer surplus equ

Question 16

The U.S.government establishing a policy that it will bail out troubled financial institutions and a resulting increase in the number of bank failures is an example 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 17

Figure 5-C  
-Refer to Figure 5-C.If the suppliers of steel are not aware of or not responsible for the external costs, they will tend to:

Accepted Answer

A) apply new technology to reduce external costs. 
B) produce too much. 
C) produce too little. 
D) reduce production to Q2. 
A) apply new technology to reduce external costs. 
B) produce too much. 
C) produce too little. 
D) reduce production to Q2.

Question 18

Figure 5-A  
-Refer to Figure 5-A.Currently Q0 of electrical power is being produced.The demand curve is represented by D, and the current market supply is represented by S0.It is discovered that the Rocky Mountain Electrical Co-op and Power Company is discharging waste into the area water supply.As a result, S1 represents ____ and a price of ____ would represent the true internalized cost of production at that level of output.

Accepted Answer

A) the supply curve with external costs included; P2 
B) the supply curve with external costs included; P1 
C) the supply curve with external costs included; P0 
D) There is insufficient information available to provide an accurate answer. 
A) the supply curve with external costs included; P2 
B) the supply curve with external costs included; P1 
C) the supply curve with external costs included; P0 
D) There is insufficient information available to provide an accurate answer.

Question 19

Figure 6-F  
-Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.

Accepted Answer

A) True 
 B)False

Question 20

Price elasticity is a measure of the relative responsiveness of the change in price to a change in quantity demanded.

Accepted Answer

A) True 
 B)False

If Ming is willing to pay $75 to attend the Broadway production of The Lion King but actually pays $40, she receives a consumer surplus of $35.

Price elasticity is a measure of the relative responsiveness of the change in quantity demanded to a change in price.

Which of the following statements best summarizes the essence of public choice analysis?

Producer surplus is always the total area below the demand curve and above the supply curve.

Joe installs a rain water collection barrel system at the back of his house hidden behind a row of bushes.This is most likely an example of:

Which of the following activities, if any, represents an external cost?

The idea of rational ignorance implies that people are fully informed about their market purchases but uninformed about political issues.

If positive externalities are present in the production of a good, then society will:

Figure 6-F -The failure of private incentives to provide adequate maintenance of public resources leads to the tragedy of the commons.

Which of the following is true?

Public choice theory assumes that voters, politicians, and other political participants are largely motivated by:

Without government intervention, society is likely to get too little production of:

Figure 6-F -One way to overcome an adverse selection problem when buying a used car is to hire an independent mechanic to inspect the car before making a purchase.

Refer to Figure 4-F.Identify the areas of consumer and producer surplus when the market price equals $20.

The U.S.government establishing a policy that it will bail out troubled financial institutions and a resulting increase in the number of bank failures is an example of:

Figure 5-C -Refer to Figure 5-C.If the suppliers of steel are not aware of or not responsible for the external costs, they will tend to:

Figure 6-F -Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.

Price elasticity is a measure of the relative responsiveness of the change in price to a change in quantity demanded.

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

If Ming is willing to pay $75 to attend the Broadway production of The Lion King but actually pays $40, she receives a consumer surplus of $35.

Price elasticity is a measure of the relative responsiveness of the change in quantity demanded to a change in price.

Which of the following statements best summarizes the essence of public choice analysis?

Producer surplus is always the total area below the demand curve and above the supply curve.

Joe installs a rain water collection barrel system at the back of his house hidden behind a row of bushes.This is most likely an example of:

Which of the following activities, if any, represents an external cost?

The idea of rational ignorance implies that people are fully informed about their market purchases but uninformed about political issues.

If positive externalities are present in the production of a good, then society will:

Figure 6-F -The failure of private incentives to provide adequate maintenance of public resources leads to the tragedy of the commons.

Which of the following is true?

Public choice theory assumes that voters, politicians, and other political participants are largely motivated by:

Without government intervention, society is likely to get too little production of:

Figure 6-F -One way to overcome an adverse selection problem when buying a used car is to hire an independent mechanic to inspect the car before making a purchase.

Refer to Figure 4-F.Identify the areas of consumer and producer surplus when the market price equals $20.

The U.S.government establishing a policy that it will bail out troubled financial institutions and a resulting increase in the number of bank failures is an example of:

Figure 5-C -Refer to Figure 5-C.If the suppliers of steel are not aware of or not responsible for the external costs, they will tend to:

Figure 6-F -Adverse selection occurs when a fully insured person fails to take as many precautions against risk as she would if uninsured.

Price elasticity is a measure of the relative responsiveness of the change in price to a change in quantity demanded.

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