Question 1

Which of the following is true?

Accepted Answer

A) ​Economic reasoning implies that individuals will acquire all possible information about a choice before making it. 
B) ​It is not rational for people to make decisions that could turn out to be mistaken. 
C) ​Reducing information costs to consumers and suppliers could permit more intelligent market decisions and lead to greater satisfaction. 
D) ​Occupational licensing laws generally act to protect misinformed consumers from getting shoddy services and enhances competition, leading to lower prices. 
A) ​Economic reasoning implies that individuals will acquire all possible information about a choice before making it. 
B) ​It is not rational for people to make decisions that could turn out to be mistaken. 
C) ​Reducing information costs to consumers and suppliers could permit more intelligent market decisions and lead to greater satisfaction. 
D) ​Occupational licensing laws generally act to protect misinformed consumers from getting shoddy services and enhances competition, leading to lower prices.

Question 2

To internalize a negative externality:

Accepted Answer

A) ​a producer's costs could be reduced by an amount equal to the external cost resulting from the production of a good. 
B) ​a producer's costs could be increased by an amount equal to the external cost resulting from the production of a good. 
C) ​a producer could receive a subsidy equal to the external cost resulting from the production of a good. 
D) ​None of the above are correct. 
A) ​a producer's costs could be reduced by an amount equal to the external cost resulting from the production of a good. 
B) ​a producer's costs could be increased by an amount equal to the external cost resulting from the production of a good. 
C) ​a producer could receive a subsidy equal to the external cost resulting from the production of a good. 
D) ​None of the above are correct.

Question 3

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 4

Consumers are generally willing to spend more time researching cars before making a purchase than they do researching paper towels because:

Accepted Answer

A) ​the cost of gathering information about paper towels is very small 
B) ​the cost of gathering information about cars is less than the cost of gathering information about paper towels 
C) ​the cost of gathering information about cars is less than the cost of gathering information about paper towels. 
D) ​the net benefit from gathering additional information about paper towels is likely much greater than the net benefit derived from gathering additional information about cars. 
A) ​the cost of gathering information about paper towels is very small 
B) ​the cost of gathering information about cars is less than the cost of gathering information about paper towels 
C) ​the cost of gathering information about cars is less than the cost of gathering information about paper towels. 
D) ​the net benefit from gathering additional information about paper towels is likely much greater than the net benefit derived from gathering additional information about cars.

Question 5

Cleaning an environment may lead to:

Accepted Answer

A) ​less production. 
B) ​higher prices. 
C) ​lower incomes. 
D) ​all of the above. 
A) ​less production. 
B) ​higher prices. 
C) ​lower incomes. 
D) ​all of the above.

Question 6

The greater the magnitude of the external benefits of production,

Accepted Answer

A) ​The larger is the deadweight loss from underproduction. 
B) ​The greater would be the optimal subsidy. 
C) ​The further the private market solution ignoring those benefits would deviate from the socially efficient level of output. 
D) ​All of the above are true 
A) ​The larger is the deadweight loss from underproduction. 
B) ​The greater would be the optimal subsidy. 
C) ​The further the private market solution ignoring those benefits would deviate from the socially efficient level of output. 
D) ​All of the above are true

Question 7

When a firm creates negative externalities by polluting, in order to achieve the socially efficient outcome:

Accepted Answer

A) ​the firm's production should be prohibited. 
B) ​the firm's production should be increased and the price of its output should be decreased. 
C) ​the firm's production should be increased and the price of its output should be increased. 
D) ​the firm's production should be reduced and the price of its output should be increased. 
A) ​the firm's production should be prohibited. 
B) ​the firm's production should be increased and the price of its output should be decreased. 
C) ​the firm's production should be increased and the price of its output should be increased. 
D) ​the firm's production should be reduced and the price of its output should be increased.

Question 8

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 9

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 10

The concept of the "best" level of pollution suggests that:

Accepted Answer

A) ​increased concerns about pollution control shifted the marginal social cost curve to the left. 
B) ​the opportunity cost of reducing pollution may sometimes exceed the benefit. 
C) ​unregulated markets generally reduce pollution to efficient levels with marginal social cost equal to marginal social benefit. 
D) ​none of the above 
A) ​increased concerns about pollution control shifted the marginal social cost curve to the left. 
B) ​the opportunity cost of reducing pollution may sometimes exceed the benefit. 
C) ​unregulated markets generally reduce pollution to efficient levels with marginal social cost equal to marginal social benefit. 
D) ​none of the above

Question 11

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, there would probably be:

Accepted Answer

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

Question 12

Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defineD.​

Accepted Answer

A) True 
 B)False

Question 13

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 14

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. 
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.

Question 15

If the government overcorrected in a situation of external costs

Accepted Answer

A) ​More than the efficient amount of the good would end up being produced. 
B) ​Less than the efficient amount of the good would end up being produced. 
C) ​It would result in a welfare cost in that market. 
D) Both b and c are would result. 
A) ​More than the efficient amount of the good would end up being produced. 
B) ​Less than the efficient amount of the good would end up being produced. 
C) ​It would result in a welfare cost in that market. 
D) Both b and c are would result.

Question 16

Information supplied to consumers by the government rarely ever helps in making better decisions.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following are true?

Accepted Answer

A) ​Negative externalities are real costs, but, unlike the other resources a firm uses in production, no one owns the air, so a firm does not have to pay for its use. 
B) ​In the case of external costs, firms tend to produce too much from society's standpoint, causing an efficiency loss due to an overallocation of scarce resources to the production of the good. 
C) ​If government could impose a pollution tax equal to the exact size of the external costs imposed by a firm, then the firm would produce at the socially desired level of output. 
D) ​All of the above are true. 
A) ​Negative externalities are real costs, but, unlike the other resources a firm uses in production, no one owns the air, so a firm does not have to pay for its use. 
B) ​In the case of external costs, firms tend to produce too much from society's standpoint, causing an efficiency loss due to an overallocation of scarce resources to the production of the good. 
C) ​If government could impose a pollution tax equal to the exact size of the external costs imposed by a firm, then the firm would produce at the socially desired level of output. 
D) ​All of the above are true.

Question 18

The Coase Theorem suggests that under its assumption, the efficient solution to an externality problem:

Accepted Answer

A) ​depends on who owns property rights to the resources. 
B) ​is enhanced by government involvement in the negotiations. 
C) ​can be enhanced through the use of taxes. 
D) ​does not depend on the distribution of property rights. 
A) ​depends on who owns property rights to the resources. 
B) ​is enhanced by government involvement in the negotiations. 
C) ​can be enhanced through the use of taxes. 
D) ​does not depend on the distribution of property rights.

Question 19

If pollution levels exceed the socially efficient level:

Accepted Answer

A) ​the marginal cost of pollution abatement exceeds the marginal benefit of pollution abatement. 
B) ​the marginal cost of pollution abatement is less than the marginal benefit of pollution abatement. 
C) ​the marginal cost of pollution abatement equals the marginal benefit of pollution abatement. 
D) ​nothing can be said about the relationship between the marginal cost and marginal benefit of pollution abatement. 
A) ​the marginal cost of pollution abatement exceeds the marginal benefit of pollution abatement. 
B) ​the marginal cost of pollution abatement is less than the marginal benefit of pollution abatement. 
C) ​the marginal cost of pollution abatement equals the marginal benefit of pollution abatement. 
D) ​nothing can be said about the relationship between the marginal cost and marginal benefit of pollution abatement.

Question 20

The free rider problem

Accepted Answer

A) ​Exists in the case of public goods 
B) ​Exists in the case of common property resources 
C) ​Is worse the larger the number of people involved for either public goods or common property resources 
D) ​All of the above are true 
A) ​Exists in the case of public goods 
B) ​Exists in the case of common property resources 
C) ​Is worse the larger the number of people involved for either public goods or common property resources 
D) ​All of the above are true

Exam 8: Market Failure

Which of the following is true?

To internalize a negative externality:

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:

Consumers are generally willing to spend more time researching cars before making a purchase than they do researching paper towels because:

Cleaning an environment may lead to:

The greater the magnitude of the external benefits of production,

When a firm creates negative externalities by polluting, in order to achieve the socially efficient outcome:

An example of a positive externality is:

The consumption of public goods is

The concept of the "best" level of pollution suggests that:

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, there would probably be:

Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defineD.​

Which of the following is an example of moral hazard?

Public goods are:

If the government overcorrected in a situation of external costs

Information supplied to consumers by the government rarely ever helps in making better decisions.

Which of the following are true?

The Coase Theorem suggests that under its assumption, the efficient solution to an externality problem:

If pollution levels exceed the socially efficient level:

The free rider problem

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

Since it is difficult to establish and enforce ownership rights over air, people have less incentive to preserve air quality than if its ownership was clearly defineD.