Question 1

Consumer surplus equals the quantity supplied minus the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 2

Consumer surplus increases whenever the price of a good decreases due to a rightward shift of the supply curve.

Accepted Answer

A) True 
 B)False

Question 3

If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be:

Accepted Answer

A) an increase in production. 
B) a decrease in production. 
C) a greater misallocation of resources. 
D) a decrease in the market price of the product. 
A) an increase in production. 
B) a decrease in production. 
C) a greater misallocation of resources. 
D) a decrease in the market price of the product.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:

Accepted Answer

A) impose a tax on production of the good in order to increase production. 
B) impose a tax on production of the good in order to decrease production. 
C) offer a subsidy for production of the good in order to increase production. 
D) offer a subsidy for production of the good in order to decrease production. 
A) impose a tax on production of the good in order to increase production. 
B) impose a tax on production of the good in order to decrease production. 
C) offer a subsidy for production of the good in order to increase production. 
D) offer a subsidy for production of the good in order to decrease production.

Question 6

Public goods are:

Accepted Answer

A) any goods or services several members of the public would like produced 
B) those goods for which natural monopolies exist. 
C) goods which cannot be successfully produced by private firms. 
D) goods which cannot be easily financed through the market system. 
E) goods which cannot be either successfully produced by private firms or easily financed through the market system. 
A) any goods or services several members of the public would like produced 
B) those goods for which natural monopolies exist. 
C) goods which cannot be successfully produced by private firms. 
D) goods which cannot be easily financed through the market system. 
E) goods which cannot be either successfully produced by private firms or easily financed through the market system.

Question 7

A decrease in price will cause a firm's total revenue to decrease if demand is price inelastic.

Accepted Answer

A) True 
 B)False

Question 8

The main purpose of government price controls is to keep prices from rising above their equilibrium levels.

Accepted Answer

A) True 
 B)False

Question 9

Figure 6-F  
-Someone who does not contribute toward covering the cost of a good he desires, and yet he cannot be excluded from receiving the good, is called a free rider.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is false?

Accepted Answer

A) Product liability laws can make it unprofitable to sell shoddy merchandise, providing a substantial incentive to provide safe products independent of government regulations. 
B) Asymmetric information exists when the available information is initially distributed in favor of one party to a transaction relative to another. 
C) In adverse selection situations, it is rational for a seller with more information about a product to provide a truthful and complete disclosure and make that fact known to a potential buyer. 
D) Moral hazard arises from the fact that it is costly for an insurer to monitor the behaviors of the insured party. 
E) Warranty agreements that limit the responsibility of the insurer in certain situations are one method of controlling moral hazard problems. 
A) Product liability laws can make it unprofitable to sell shoddy merchandise, providing a substantial incentive to provide safe products independent of government regulations. 
B) Asymmetric information exists when the available information is initially distributed in favor of one party to a transaction relative to another. 
C) In adverse selection situations, it is rational for a seller with more information about a product to provide a truthful and complete disclosure and make that fact known to a potential buyer. 
D) Moral hazard arises from the fact that it is costly for an insurer to monitor the behaviors of the insured party. 
E) Warranty agreements that limit the responsibility of the insurer in certain situations are one method of controlling moral hazard problems.

Question 11

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

Accepted Answer

A) The benefit to a consumer from watching a film on DVD. 
B) The reduction in air quality resulting from industrial development in an urban area. 
C) The increase in the value of property belonging to your neighbors when you hire a landscaper to beautify your front yard. 
D) The reduction in property values when a new airport is built in a neighborhood. 
A) The benefit to a consumer from watching a film on DVD. 
B) The reduction in air quality resulting from industrial development in an urban area. 
C) The increase in the value of property belonging to your neighbors when you hire a landscaper to beautify your front yard. 
D) The reduction in property values when a new airport is built in a neighborhood.

Question 12

Voters will gather information on voting alternatives:

Accepted Answer

A) when the cost of acquiring such information is exorbitantly high. 
B) as long as the marginal benefit to them of acquiring additional information exceeds the marginal cost to them. 
C) as long as the marginal benefit to them of the information is less than the marginal cost to them of gathering the information. 
D) because the welfare of the community is always perceived to be more important than the welfare of the individual. 
A) when the cost of acquiring such information is exorbitantly high. 
B) as long as the marginal benefit to them of acquiring additional information exceeds the marginal cost to them. 
C) as long as the marginal benefit to them of the information is less than the marginal cost to them of gathering the information. 
D) because the welfare of the community is always perceived to be more important than the welfare of the individual.

Question 13

If the production of a good creates large spillover benefits on others, the government might correct for the:

Accepted Answer

A) overallocation of resources to its production by subsidizing it. 
B) overallocation of resources to its production by imposing a tax on it. 
C) underallocation of resources to its production by subsidizing it. 
D) underallocation of resources to its production by imposing a tax on it. 
A) overallocation of resources to its production by subsidizing it. 
B) overallocation of resources to its production by imposing a tax on it. 
C) underallocation of resources to its production by subsidizing it. 
D) underallocation of resources to its production by imposing a tax on it.

Question 14

Consumer surplus increases whenever the price of a good increases due to a leftward shift of the supply curve.

Accepted Answer

A) True 
 B)False

Question 15

In a competitive economy with no government sector:

Accepted Answer

A) goods with spillover benefits will not be produced at all. 
B) there will be too few public goods produced. 
C) goods with spillover costs will be underproduced. 
D) too few resources be allocated to each industry. 
A) goods with spillover benefits will not be produced at all. 
B) there will be too few public goods produced. 
C) goods with spillover costs will be underproduced. 
D) too few resources be allocated to each industry.

Question 16

When a 9% increase in price leads to a 6% increase in quantity supplied, supply is relatively inelastic.

Accepted Answer

A) True 
 B)False

Question 17

Figure 6-F  
-Positive externalities include benefits received the seller but not benefits received by the buyer.

Accepted Answer

A) True 
 B)False

Question 18

If there are important spillover benefits from consumption of a good,

Accepted Answer

A) government should prohibit its production. 
B) taxes should be imposed on producers of the product. 
C) the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production. 
D) the market demand curve for the good overstates the value of the product to society and resources are therefore overallocated to its production. 
A) government should prohibit its production. 
B) taxes should be imposed on producers of the product. 
C) the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production. 
D) the market demand curve for the good overstates the value of the product to society and resources are therefore overallocated to its production.

Question 19

Which of the following is true?

Accepted Answer

A) Consumption of a public good by one individual reduces the availability of the good for others. 
B) It is extremely difficult to limit the benefits of a public good to the people who pay for it. 
C) Public goods are free whenever the government produces them. 
D) From an efficiency standpoint, a market economy will generally supply too much of a public good. 
E) None of the above are correct. 
A) Consumption of a public good by one individual reduces the availability of the good for others. 
B) It is extremely difficult to limit the benefits of a public good to the people who pay for it. 
C) Public goods are free whenever the government produces them. 
D) From an efficiency standpoint, a market economy will generally supply too much of a public good. 
E) None of the above are correct.

Question 20

A special interest issue is best described as:

Accepted Answer

A) one in which both sides utilize paid lobbyists to represent them. 
B) one which one party strongly supports and the other party strongly opposes. 
C) one in which a large number will each suffer small costs and a small number will each receive large benefits. 
D) one decided in a special session of the legislature. 
A) one in which both sides utilize paid lobbyists to represent them. 
B) one which one party strongly supports and the other party strongly opposes. 
C) one in which a large number will each suffer small costs and a small number will each receive large benefits. 
D) one decided in a special session of the legislature.

Consumer surplus equals the quantity supplied minus the quantity demanded.

Consumer surplus increases whenever the price of a good decreases due to a rightward shift of the supply curve.

If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be:

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

If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:

Public goods are:

A decrease in price will cause a firm's total revenue to decrease if demand is price inelastic.

The main purpose of government price controls is to keep prices from rising above their equilibrium levels.

Figure 6-F -Someone who does not contribute toward covering the cost of a good he desires, and yet he cannot be excluded from receiving the good, is called a free rider.

Which of the following is false?

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

Voters will gather information on voting alternatives:

If the production of a good creates large spillover benefits on others, the government might correct for the:

Consumer surplus increases whenever the price of a good increases due to a leftward shift of the supply curve.

In a competitive economy with no government sector:

When a 9% increase in price leads to a 6% increase in quantity supplied, supply is relatively inelastic.

Figure 6-F -Positive externalities include benefits received the seller but not benefits received by the buyer.

If there are important spillover benefits from consumption of a good,

Which of the following is true?

A special interest issue is best described as:

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

Consumer surplus equals the quantity supplied minus the quantity demanded.

Consumer surplus increases whenever the price of a good decreases due to a rightward shift of the supply curve.

If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be:

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

If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:

Public goods are:

A decrease in price will cause a firm's total revenue to decrease if demand is price inelastic.

The main purpose of government price controls is to keep prices from rising above their equilibrium levels.

Figure 6-F -Someone who does not contribute toward covering the cost of a good he desires, and yet he cannot be excluded from receiving the good, is called a free rider.

Which of the following is false?

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

Voters will gather information on voting alternatives:

If the production of a good creates large spillover benefits on others, the government might correct for the:

Consumer surplus increases whenever the price of a good increases due to a leftward shift of the supply curve.

In a competitive economy with no government sector:

When a 9% increase in price leads to a 6% increase in quantity supplied, supply is relatively inelastic.

Figure 6-F -Positive externalities include benefits received the seller but not benefits received by the buyer.

If there are important spillover benefits from consumption of a good,

Which of the following is true?

A special interest issue is best described as:

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