Question 1

The market system fails to provide the efficient output of public goods because:

Accepted Answer

A) people place no value on public goods. 
B) private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them. 
C) public enterprises can produce those goods at lower cost than private firms. 
D) public goods create widespread spillover costs. 
A) people place no value on public goods. 
B) private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them. 
C) public enterprises can produce those goods at lower cost than private firms. 
D) public goods create widespread spillover costs.

Question 2

You have been hired by the city to determine whether or not an increase in the price of tickets for the mass transit system would raise system revenues.The debate has been heated and the city council seems to be divided.One side argues that in order to increase revenues from the transit system, prices must be increased.The opposing side argues that a price increase at this time will lower revenues.What assumptions are each side making about the price elasticity of demand, and how might you determine the best course of action?

Accepted Answer

The side that is arguing that revenues w

Question 3

Which of the following is an example of moral hazard?

Accepted Answer

A) There are likely more cars of low quality than of high quality offered for sale without warranties in the used car market. 
B) An individual who eats well and exercises regularly chooses not to purchase health insurance. 
C) An individual drives less cautiously after obtaining automobile insurance. 
D) A car salesman offers a full warranty on a used car for 90 days. 
A) There are likely more cars of low quality than of high quality offered for sale without warranties in the used car market. 
B) An individual who eats well and exercises regularly chooses not to purchase health insurance. 
C) An individual drives less cautiously after obtaining automobile insurance. 
D) A car salesman offers a full warranty on a used car for 90 days.

Question 4

What is the difference between private and social costs?

Accepted Answer

Social costs are those that ac

Question 5

In a competitive market,

Accepted Answer

A) demand will always reflect all spillover costs. 
B) demand will always reflect all spillover benefits. 
C) supply will always reflect all spillover costs. 
D) supply will always reflect all spillover benefits. 
E) none of the above are true. 
A) demand will always reflect all spillover costs. 
B) demand will always reflect all spillover benefits. 
C) supply will always reflect all spillover costs. 
D) supply will always reflect all spillover benefits. 
E) none of the above are true.

Question 6

Differentiate between a public good and common resources.

Accepted Answer

A public good is neither rival nor exclu

Question 7

If there is a ceiling price below the equilibrium level, a decrease in demand will worsen the shortage.

Accepted Answer

A) True 
 B)False

Question 8

If two people had identical demand curves, but one was able to purchase at a lower price than the other, the one facing the lower price would receive more consumer surplus.

Accepted Answer

A) True 
 B)False

Question 9

Figure 5-C  
-Refer to Figure 5-C.The supply curve S social includes the following costs.

Accepted Answer

A) Private costs only 
B) Private costs and external costs 
C) External costs and public costs 
D) Costs of capital, entrepreneurship, land, and labor 
A) Private costs only 
B) Private costs and external costs 
C) External costs and public costs 
D) Costs of capital, entrepreneurship, land, and labor

Question 10

Public goods, like national defense, are usually funded through government because:

Accepted Answer

A) no one cares about them, because they are public. 
B) it is prohibitively difficult to withhold national defense from someone unwilling to pay for it. 
C) they cost too much for private firms to produce them. 
D) they provide benefits only to individuals, and not firms. 
A) no one cares about them, because they are public. 
B) it is prohibitively difficult to withhold national defense from someone unwilling to pay for it. 
C) they cost too much for private firms to produce them. 
D) they provide benefits only to individuals, and not firms.

Question 11

Which of the following is most likely to be an example of asymmetric information?

Accepted Answer

A) a soft drink purchased in a vending machine 
B) a car wash to benefit the local high school band 
C) a collectible baseball card purchased on eBay 
D) wireless service that includes unlimited minutes and texting 
A) a soft drink purchased in a vending machine 
B) a car wash to benefit the local high school band 
C) a collectible baseball card purchased on eBay 
D) wireless service that includes unlimited minutes and texting

Question 12

The free rider problem suggests that an individual will tend to:

Accepted Answer

A) produce more than the optimal quantity of a public good. 
B) produce less than the optimal quantity of a public good. 
C) produce the optimal quantity of a public good if it is funded out of tax revenue. 
D) do none of the above. 
A) produce more than the optimal quantity of a public good. 
B) produce less than the optimal quantity of a public good. 
C) produce the optimal quantity of a public good if it is funded out of tax revenue. 
D) do none of the above.

Question 13

Based upon the following estimates of price elasticity of demand, which markets are the best markets to tax if the government's goal is to raise tax revenue? Why?
 $\begin{array} { l c } 
\text { Praduct } & \text { Price Elasticity of Demand } \
\text { Gasoline } & 0.8 \
\text { Paper towels } & 2.2 \
\text { Strawberries } & 1.5 \
\text { Alcohol } & 0.6 \
\text { Yachts } & 3.2
\end{array}$

Accepted Answer

If the government's goal is to increase

Question 14

A public good is:

Accepted Answer

A) a good or service for which it is relatively easy to exclude nonpaying customers from consumption. 
B) a good or service that is consumed by both the paying and nonpaying customers. 
C) any good or service that is produced by the government. 
D) a good or service that is consumed by private individuals and financed by private contributions. 
A) a good or service for which it is relatively easy to exclude nonpaying customers from consumption. 
B) a good or service that is consumed by both the paying and nonpaying customers. 
C) any good or service that is produced by the government. 
D) a good or service that is consumed by private individuals and financed by private contributions.

Question 15

An example of a positive externality is:

Accepted Answer

A) freeway congestion. 
B) pollution in a resort lake. 
C) airport noise. 
D) beautiful trees on property along a parkway. 
A) freeway congestion. 
B) pollution in a resort lake. 
C) airport noise. 
D) beautiful trees on property along a parkway.

Question 16

Figure 5-B  
-Refer to Figure 5-B.Suppose that education provides spillover benefits to the community as illustrated in the diagram.Based on this information, we can say that:

Accepted Answer

A) the market would fall short of the desirable level of education, Q0. 
B) education is overproduced by Q1 minus Q0 units. 
C) the socially optimal quantity of education is Q1 units. 
D) the socially optimal quantity of education is Q0 units. 
A) the market would fall short of the desirable level of education, Q0. 
B) education is overproduced by Q1 minus Q0 units. 
C) the socially optimal quantity of education is Q1 units. 
D) the socially optimal quantity of education is Q0 units.

Question 17

Explain the impact of:
 1. A rent ceiling set below the equulharium price
2. A price floor set above the equilibrium price.

Accepted Answer

A rent ceiling set below the e

Question 18

Public choice theory assumes that each voter will tend to favor the political candidate who offers:

Accepted Answer

A) programs with the largest social benefits. 
B) equality of government-provided benefits across all citizens. 
C) programs that will yield the greatest personal benefits net of personal cost. 
D) a plan requiring the least amount of tax dollars, regardless of the level of benefits provided. 
A) programs with the largest social benefits. 
B) equality of government-provided benefits across all citizens. 
C) programs that will yield the greatest personal benefits net of personal cost. 
D) a plan requiring the least amount of tax dollars, regardless of the level of benefits provided.

Question 19

Public choice theory applies ____ principles to politics.

Accepted Answer

A) altruistic 
B) ceteris paribus 
C) economic 
D) the fallacy of composition 
E) Marxist 
A) altruistic 
B) ceteris paribus 
C) economic 
D) the fallacy of composition 
E) Marxist

Question 20

Figure 6-F  
-An example of a public good is a flood control project that protects all the homes and properties near a river.

Accepted Answer

A) True 
 B)False

The market system fails to provide the efficient output of public goods because:

Which of the following is an example of moral hazard?

What is the difference between private and social costs?

In a competitive market,

Differentiate between a public good and common resources.

If there is a ceiling price below the equilibrium level, a decrease in demand will worsen the shortage.

If two people had identical demand curves, but one was able to purchase at a lower price than the other, the one facing the lower price would receive more consumer surplus.

Figure 5-C -Refer to Figure 5-C.The supply curve S social includes the following costs.

Public goods, like national defense, are usually funded through government because:

Which of the following is most likely to be an example of asymmetric information?

The free rider problem suggests that an individual will tend to:

Based upon the following estimates of price elasticity of demand, which markets are the best markets to tax if the government's goal is to raise tax revenue? Why? Praduct Price Elasticity of Demand Gasoline 0.8 Paper towels 2.2 Strawberries 1.5 Alcohol 0.6 Yachts 3.2

A public good is:

An example of a positive externality is:

Figure 5-B -Refer to Figure 5-B.Suppose that education provides spillover benefits to the community as illustrated in the diagram.Based on this information, we can say that:

Explain the impact of: 1. A rent ceiling set below the equulharium price 2. A price floor set above the equilibrium price.

Public choice theory assumes that each voter will tend to favor the political candidate who offers:

Public choice theory applies ____ principles to politics.

Figure 6-F -An example of a public good is a flood control project that protects all the homes and properties near a river.

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

The market system fails to provide the efficient output of public goods because:

Which of the following is an example of moral hazard?

What is the difference between private and social costs?

In a competitive market,

Differentiate between a public good and common resources.

If there is a ceiling price below the equilibrium level, a decrease in demand will worsen the shortage.

If two people had identical demand curves, but one was able to purchase at a lower price than the other, the one facing the lower price would receive more consumer surplus.

Figure 5-C -Refer to Figure 5-C.The supply curve S social includes the following costs.

Public goods, like national defense, are usually funded through government because:

Which of the following is most likely to be an example of asymmetric information?

The free rider problem suggests that an individual will tend to:

Based upon the following estimates of price elasticity of demand, which markets are the best markets to tax if the government's goal is to raise tax revenue? Why? Praduct Price Elasticity of Demand Gasoline 0.8 Paper towels 2.2 Strawberries 1.5 Alcohol 0.6 Yachts 3.2

A public good is:

An example of a positive externality is:

Figure 5-B -Refer to Figure 5-B.Suppose that education provides spillover benefits to the community as illustrated in the diagram.Based on this information, we can say that:

Explain the impact of: 1. A rent ceiling set below the equulharium price 2. A price floor set above the equilibrium price.

Public choice theory assumes that each voter will tend to favor the political candidate who offers:

Public choice theory applies ____ principles to politics.

Figure 6-F -An example of a public good is a flood control project that protects all the homes and properties near a river.

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