Question 1

Social cost is _____.

Accepted Answer

A) the sum of fixed and variable costs 
B) the difference between the total cost and opportunity cost 
C) the sum of private and external costs 
D) the difference between the private and external cost 
E) sum of fixed costs and opportunity costs 
A) the sum of fixed and variable costs 
B) the difference between the total cost and opportunity cost 
C) the sum of private and external costs 
D) the difference between the private and external cost 
E) sum of fixed costs and opportunity costs

Question 2

The figure given below shows the demand and supply curves of automobiles. Figure 13.3   In the figure,
D: Demand curve of automobiles
S: Supply of automobiles prior to the tax
S+t: Supply of automobiles after the tax
Figure 13.3 represents a situation of:

Accepted Answer

A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) tragedy of commons. 
E) free rider problem. 
A) positive externality. 
B) Pareto efficiency. 
C) negative externality. 
D) tragedy of commons. 
E) free rider problem.

Question 3

A market failure occurs when the market outcome is not the socially efficient outcome.

Accepted Answer

A) True 
 B)False

Question 4

When all costs and benefits of a transaction are borne by the participants of that transaction:

Accepted Answer

A) the market outcome will be inefficient. 
B) then private costs and social costs are identical. 
C) negative externalities exist. 
D) positive externalities exist. 
E) the private costs are more than the social costs. 
A) the market outcome will be inefficient. 
B) then private costs and social costs are identical. 
C) negative externalities exist. 
D) positive externalities exist. 
E) the private costs are more than the social costs.

Question 5

When a firm increases its short-run supplies only by hiring more labor, other inputs remaining unchanged, eventually:

Accepted Answer

A) output will increase at a decreasing rate. 
B) the total cost of producing the good will decline. 
C) the marginal productivity of the fixed inputs will decline. 
D) the average cost of producing the good will decline. 
E) the productivity of laborers will increase. 
A) output will increase at a decreasing rate. 
B) the total cost of producing the good will decline. 
C) the marginal productivity of the fixed inputs will decline. 
D) the average cost of producing the good will decline. 
E) the productivity of laborers will increase.

Question 6

One reason that some whales were hunted close to extinction is that no one can claim ownership of a whale until it is killed.If property rights to the whale population were established:

Accepted Answer

A) then whales would surely be hunted to extinction. 
B) the owners would have the incentive to ensure a sustainable yield of whales, so the whale population could recover. 
C) no one would hunt whales. 
D) the price of whales would be kept artificially low so that trade in whales would become unprofitable. 
E) the whales would be hunted to extinction only when the price is high and it is profitable to trade in whales. 
A) then whales would surely be hunted to extinction. 
B) the owners would have the incentive to ensure a sustainable yield of whales, so the whale population could recover. 
C) no one would hunt whales. 
D) the price of whales would be kept artificially low so that trade in whales would become unprofitable. 
E) the whales would be hunted to extinction only when the price is high and it is profitable to trade in whales.

Question 7

Tragedy of commons refers to:

Accepted Answer

A) a problem that is created when everything is privately owned. 
B) a situation when the resources are owned by the government and the common people have limited access to them. 
C) a problem that arises when government takes incorrect measures which adversely affect common people. 
D) a problem that is created when everyone has an access to a particular resource. 
E) the adverse situation that arises when the government fails to take adequate measures to solve common problems. 
A) a problem that is created when everything is privately owned. 
B) a situation when the resources are owned by the government and the common people have limited access to them. 
C) a problem that arises when government takes incorrect measures which adversely affect common people. 
D) a problem that is created when everyone has an access to a particular resource. 
E) the adverse situation that arises when the government fails to take adequate measures to solve common problems.

Question 8

When social costs of producing or consuming a good exceed private costs:

Accepted Answer

A) a positive externality exists. 
B) an inefficiently high quantity of a good will be produced and consumed. 
C) the direct consumers of the good will bear the external costs. 
D) the individuals involved in the production of the good do not bear the private costs. 
E) the quantity of the good produced will be less than the socially efficient level. 
A) a positive externality exists. 
B) an inefficiently high quantity of a good will be produced and consumed. 
C) the direct consumers of the good will bear the external costs. 
D) the individuals involved in the production of the good do not bear the private costs. 
E) the quantity of the good produced will be less than the socially efficient level.

Question 9

The Coase theorem states that when transactions costs are low, then:

Accepted Answer

A) bargaining will never lead to a socially efficient allocation. 
B) bargaining will lead to a socially optimal allocation only if liability is placed on the polluter. 
C) bargaining will lead to a socially optimal allocation only if liability is placed on the victim of pollution. 
D) bargaining will lead to a socially efficient allocation regardless of where liability is placed. 
E) the governmental intervention becomes absolutely necessary. 
A) bargaining will never lead to a socially efficient allocation. 
B) bargaining will lead to a socially optimal allocation only if liability is placed on the polluter. 
C) bargaining will lead to a socially optimal allocation only if liability is placed on the victim of pollution. 
D) bargaining will lead to a socially efficient allocation regardless of where liability is placed. 
E) the governmental intervention becomes absolutely necessary.

Question 10

Which of the following is an example of government failure?

Accepted Answer

A) Negative externalities 
B) Logrolling 
C) Club goods 
D) Information asymmetries 
E) Moral hazard 
A) Negative externalities 
B) Logrolling 
C) Club goods 
D) Information asymmetries 
E) Moral hazard

Question 11

When there exists a negative externality in case of a particular good and that is not reflected in the price:

Accepted Answer

A) too little of that good is produced and consumed. 
B) too much of that good is produced and consumed. 
C) nothing of that is either produced or consumed. 
D) the government completely prohibits the production of such goods. 
E) the resources are allocated to their highest-valued activity. 
A) too little of that good is produced and consumed. 
B) too much of that good is produced and consumed. 
C) nothing of that is either produced or consumed. 
D) the government completely prohibits the production of such goods. 
E) the resources are allocated to their highest-valued activity.

Question 12

Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

Accepted Answer

A) True 
 B)False

Question 13

The cost borne by an individual user to switch to another network is less if the network which he is using is large.

Accepted Answer

A) True 
 B)False

Question 14

Moral hazard is the term used to describe the situation in which:

Accepted Answer

A) a consumer may buy a low-quality product. 
B) consumers receive a lower price because of a mistake on the part of the clerk. 
C) a consumer is being compensated for a defective product. 
D) people may change their behavior after they have signed a contract or agreed to a specified behavior. 
E) people want to change their behavior after they have signed a contract or agreed to a specified behavior but are unable to do so. 
A) a consumer may buy a low-quality product. 
B) consumers receive a lower price because of a mistake on the part of the clerk. 
C) a consumer is being compensated for a defective product. 
D) people may change their behavior after they have signed a contract or agreed to a specified behavior. 
E) people want to change their behavior after they have signed a contract or agreed to a specified behavior but are unable to do so.

Question 15

The following table shows the costs and benefit of producing a commodity. Table 13.1
  According to Table 13.1, the external cost of producing 5 units of the output is:

Accepted Answer

A) $5. 
B) $6. 
C) $10. 
D) $8. 
E) $4. 
A) $5. 
B) $6. 
C) $10. 
D) $8. 
E) $4.

Question 16

One of the reasons that communism failed in the Soviet Union is that, under communism:

Accepted Answer

A) no one had a property right, so there is little incentive to use resources efficiently. 
B) there were high rates of unemployment and homelessness accompanied by a high rate of inflation. 
C) planners did not have all the information necessary to make efficient decisions. 
D) there was a high degree of political freedom. 
E) there was a high degree of economic freedom. 
A) no one had a property right, so there is little incentive to use resources efficiently. 
B) there were high rates of unemployment and homelessness accompanied by a high rate of inflation. 
C) planners did not have all the information necessary to make efficient decisions. 
D) there was a high degree of political freedom. 
E) there was a high degree of economic freedom.

Question 17

Which of the following is a measure taken by the government to internalize the externalities?

Accepted Answer

A) Value Added Tax 
B) Income Tax 
C) Cap and Trade 
D) Tariffs 
E) Deficit financing 
A) Value Added Tax 
B) Income Tax 
C) Cap and Trade 
D) Tariffs 
E) Deficit financing

Question 18

Under a marketable pollution permit system, property rights to an externality are created so that a more efficient allocation of resources will result.

Accepted Answer

A) True 
 B)False

Question 19

The Clean Air Act of 1972 required some companies to install the "best available" pollution control technologies.This was an example of:

Accepted Answer

A) the government using a subsidy to encourage a negative externality. 
B) the government using the command approach to discourage a negative externality. 
C) the government using the command approach to encourage a positive externality. 
D) a marketable pollution permit. 
E) a pollution tax. 
A) the government using a subsidy to encourage a negative externality. 
B) the government using the command approach to discourage a negative externality. 
C) the government using the command approach to encourage a positive externality. 
D) a marketable pollution permit. 
E) a pollution tax.

Question 20

When a good commodity is driven out of the market by a bad commodity it is called:

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) positive externality. 
D) negative externality. 
E) tragedy of commons. 
A) moral hazard. 
B) adverse selection. 
C) positive externality. 
D) negative externality. 
E) tragedy of commons.

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

Social cost is _____.

The figure given below shows the demand and supply curves of automobiles. Figure 13.3 In the figure, D: Demand curve of automobiles S: Supply of automobiles prior to the tax S+t: Supply of automobiles after the tax Figure 13.3 represents a situation of:

A market failure occurs when the market outcome is not the socially efficient outcome.

When all costs and benefits of a transaction are borne by the participants of that transaction:

When a firm increases its short-run supplies only by hiring more labor, other inputs remaining unchanged, eventually:

One reason that some whales were hunted close to extinction is that no one can claim ownership of a whale until it is killed.If property rights to the whale population were established:

Tragedy of commons refers to:

When social costs of producing or consuming a good exceed private costs:

The Coase theorem states that when transactions costs are low, then:

Which of the following is an example of government failure?

When there exists a negative externality in case of a particular good and that is not reflected in the price:

Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

The cost borne by an individual user to switch to another network is less if the network which he is using is large.

Moral hazard is the term used to describe the situation in which:

The following table shows the costs and benefit of producing a commodity. Table 13.1 According to Table 13.1, the external cost of producing 5 units of the output is:

One of the reasons that communism failed in the Soviet Union is that, under communism:

Which of the following is a measure taken by the government to internalize the externalities?

Under a marketable pollution permit system, property rights to an externality are created so that a more efficient allocation of resources will result.

The Clean Air Act of 1972 required some companies to install the "best available" pollution control technologies.This was an example of:

When a good commodity is driven out of the market by a bad commodity it is called:

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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