Question 1

When the commons are converted into privately owned resources:

Accepted Answer

A) utilization is increased, and benefits to the society declines. 
B) utilization is increased, and the benefits to the society also increases. 
C) utilization is decreased, and the benefits to the society also decreases. 
D) utilization remains unchanged, and the benefits to the society increases. 
E) utilization is decreased, and the benefits to the society increases. 
A) utilization is increased, and benefits to the society declines. 
B) utilization is increased, and the benefits to the society also increases. 
C) utilization is decreased, and the benefits to the society also decreases. 
D) utilization remains unchanged, and the benefits to the society increases. 
E) utilization is decreased, and the benefits to the society increases.

Question 2

The owner of a good has the right to decide how that good is used and to restrict others from using that good.This idea is known as:

Accepted Answer

A) the principle of mutual excludability. 
B) the principle of comparative advantage. 
C) the principle of public ownership. 
D) the principle of negative externalities. 
E) the law of demand. 
A) the principle of mutual excludability. 
B) the principle of comparative advantage. 
C) the principle of public ownership. 
D) the principle of negative externalities. 
E) the law of demand.

Question 3

Under a marketable permit system, if the government reduces the quantity of permits, the price of each permit will increase.

Accepted Answer

A) True 
 B)False

Question 4

The free-rider problem occurs because:

Accepted Answer

A) it is easy to exclude others from consuming the good. 
B) consumption is rivalrous, so that the consumption of a product by one individual diminishes that available for others. 
C) exclusion is costly or impossible, so that a consumer or producer can use the good without having to pay for it. 
D) costs are imposed on others not directly involved in the transaction. 
E) individuals are not required to pay for those goods which do not yield any utility to them. 
A) it is easy to exclude others from consuming the good. 
B) consumption is rivalrous, so that the consumption of a product by one individual diminishes that available for others. 
C) exclusion is costly or impossible, so that a consumer or producer can use the good without having to pay for it. 
D) costs are imposed on others not directly involved in the transaction. 
E) individuals are not required to pay for those goods which do not yield any utility to them.

Question 5

When economic resources are devoted to transferring wealth from one sector of the economy to another rather than being used for productive purposes, the process is known as:

Accepted Answer

A) rent seeking. 
B) logrolling. 
C) central planning. 
D) negative externalities. 
E) deficit financing. 
A) rent seeking. 
B) logrolling. 
C) central planning. 
D) negative externalities. 
E) deficit financing.

Question 6

When a divergence between social costs and private costs exists, then:

Accepted Answer

A) markets will always provide an efficient allocation of resources. 
B) there will be too much or too little production and consumption in the market. 
C) there will be an acute shortage of goods and services in the market. 
D) there will be an excess demand for goods and services in the market. 
E) private costs must be greater than social costs. 
A) markets will always provide an efficient allocation of resources. 
B) there will be too much or too little production and consumption in the market. 
C) there will be an acute shortage of goods and services in the market. 
D) there will be an excess demand for goods and services in the market. 
E) private costs must be greater than social costs.

Question 7

A market failure occurs when:

Accepted Answer

A) the market outcome is viewed as unfair by a majority of consumers. 
B) a market fails to provide the good at a zero price. 
C) quantity demanded exceeds quantity supplied. 
D) the market outcome is not the socially efficient outcome. 
E) prices are determined by the interaction of the forces of demand and supply and not through central planning. 
A) the market outcome is viewed as unfair by a majority of consumers. 
B) a market fails to provide the good at a zero price. 
C) quantity demanded exceeds quantity supplied. 
D) the market outcome is not the socially efficient outcome. 
E) prices are determined by the interaction of the forces of demand and supply and not through central planning.

Question 8

When consumers or producers do not bear the full cost of their economic decisions, they tend to produce or consume more than they otherwise would.

Accepted Answer

A) True 
 B)False

Question 9

Why does network externality arise?

Accepted Answer

A) Each additional unit of a good sold reduces the value of the previously sold units. 
B) As more and more units of a good are produced, the average cost declines. 
C) Consumption of a good by one user does not affect the consumption of subsequent users. 
D) The firms enjoy economies of scale in the long run. 
E) Each additional unit of the good sold increases the value of the previously sold units. 
A) Each additional unit of a good sold reduces the value of the previously sold units. 
B) As more and more units of a good are produced, the average cost declines. 
C) Consumption of a good by one user does not affect the consumption of subsequent users. 
D) The firms enjoy economies of scale in the long run. 
E) Each additional unit of the good sold increases the value of the previously sold units.

Question 10

If the government is successful in internalizing the external costs of production in a market, then:

Accepted Answer

A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero. 
A) social costs will equal private costs. 
B) an inefficient level of output will be produced. 
C) social costs will exceed private costs. 
D) social costs will be less than private costs. 
E) social costs will fall to zero.

Question 11

Co-payments and deductibles provide a means of reducing moral hazard problems because they allow each party in the transaction to share in the costs.

Accepted Answer

A) True 
 B)False

Question 12

Social cost is negative in case of a negative externality.

Accepted Answer

A) True 
 B)False

Question 13

When increase in capital is accompanied by new knowledge and by increasing number of laborers, the producer experiences increasing returns.

Accepted Answer

A) True 
 B)False

Question 14

Economists like Joseph Stiglitz regard market as:

Accepted Answer

A) an effective mechanism of allocating resources. 
B) an invisible hand which often takes correct price-quantity decisions. 
C) an efficient way of maximizing social welfare. 
D) as an inefficient mechanism of resource allocation and emphasized on the positive role of the government. 
E) a much superior mechanism compared to central planning. 
A) an effective mechanism of allocating resources. 
B) an invisible hand which often takes correct price-quantity decisions. 
C) an efficient way of maximizing social welfare. 
D) as an inefficient mechanism of resource allocation and emphasized on the positive role of the government. 
E) a much superior mechanism compared to central planning.

Question 15

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing.The fisherman were charged $50 on each boat they sent out for fishing.The following table shows the total pounds of fish caught per hour and the number of boats used for fishing. Table 13.2
  Refer to Table 13.2.Suppose fish sells for $1 per pound.What is the socially optimal number of boats that will maximize the profit earned by the fishermen?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
E) 5 
A) 1 
B) 2 
C) 3 
D) 4 
E) 5

Question 16

Suppose the current price of a marketable permit to emit one ton of sulfur dioxide is $100.If the marginal cost for a firm to reduce one ton of sulfur dioxide is $80, then:

Accepted Answer

A) the firm will buy the permit and emit one more ton of sulfur dioxide. 
B) the firm will reduce its emissions of sulfur dioxide by one ton. 
C) the firm will buy the permit and increase its emissions by 20 tons. 
D) the firm will shut down. 
E) the firm will be willing to pay up to $200 for a permit. 
A) the firm will buy the permit and emit one more ton of sulfur dioxide. 
B) the firm will reduce its emissions of sulfur dioxide by one ton. 
C) the firm will buy the permit and increase its emissions by 20 tons. 
D) the firm will shut down. 
E) the firm will be willing to pay up to $200 for a permit.

Question 17

Asymmetric information arises when:

Accepted Answer

A) both the parties to an exchange have perfect information about the good. 
B) none of the parties to exchange have any information about the good. 
C) one party to an exchange knows more than the other party. 
D) a good is provided by the government. 
E) the market is perfectly competitive. 
A) both the parties to an exchange have perfect information about the good. 
B) none of the parties to exchange have any information about the good. 
C) one party to an exchange knows more than the other party. 
D) a good is provided by the government. 
E) the market is perfectly competitive.

Question 18

When the people creating an externality are made to pay for the externality by the government, the externality is said to be internalized.

Accepted Answer

A) True 
 B)False

Question 19

When each additional resource adds increasing amounts of additional output, it refers to a situation of:

Accepted Answer

A) constant returns. 
B) economies of scale. 
C) diseconomies of scale. 
D) diminishing returns. 
E) increasing returns. 
A) constant returns. 
B) economies of scale. 
C) diseconomies of scale. 
D) diminishing returns. 
E) increasing returns.

Question 20

Why do market failures arise in case of public goods?

Accepted Answer

A) The quantity produced is much more than is actually required by the people. 
B) The quality of these goods are not good enough. 
C) The quantity produced is too less from the society's point of view. 
D) The government wastes a lot of resources for producing a public good. 
E) The users of such goods are required to pay a high price for these goods. 
A) The quantity produced is much more than is actually required by the people. 
B) The quality of these goods are not good enough. 
C) The quantity produced is too less from the society's point of view. 
D) The government wastes a lot of resources for producing a public good. 
E) The users of such goods are required to pay a high price for these goods.

Exam 21: Market Failures, Government Failures, and Rent Seeking

When the commons are converted into privately owned resources:

The owner of a good has the right to decide how that good is used and to restrict others from using that good.This idea is known as:

Under a marketable permit system, if the government reduces the quantity of permits, the price of each permit will increase.

The free-rider problem occurs because:

When economic resources are devoted to transferring wealth from one sector of the economy to another rather than being used for productive purposes, the process is known as:

When a divergence between social costs and private costs exists, then:

A market failure occurs when:

When consumers or producers do not bear the full cost of their economic decisions, they tend to produce or consume more than they otherwise would.

Why does network externality arise?

If the government is successful in internalizing the external costs of production in a market, then:

Co-payments and deductibles provide a means of reducing moral hazard problems because they allow each party in the transaction to share in the costs.

Social cost is negative in case of a negative externality.

When increase in capital is accompanied by new knowledge and by increasing number of laborers, the producer experiences increasing returns.

Economists like Joseph Stiglitz regard market as:

Suppose the current price of a marketable permit to emit one ton of sulfur dioxide is $100.If the marginal cost for a firm to reduce one ton of sulfur dioxide is $80, then:

Asymmetric information arises when:

When the people creating an externality are made to pay for the externality by the government, the externality is said to be internalized.

When each additional resource adds increasing amounts of additional output, it refers to a situation of:

Why do market failures arise in case of public goods?

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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