Question 1

Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers?

Accepted Answer

A) The franchiser has a monopoly on the sale of products in his industry. 
B) If quality is not maintained,the franchiser will be limited in his ability to sell other franchises and collect franchise fees. 
C) If quality is not maintained,the government will prohibit future sales of the franchises. 
D) Franchisers do not gain financially by maintaining quality,but they generally maintain quality anyway because they are consumers as well as producers.

Question 2

When market failure is present,

Accepted Answer

A) democratic political decision-making can be counted on to improve the efficiency of resource allocation. 
B) market allocation will achieve idealized economic efficiency. 
C) the conditions implied by idealized efficient allocation of resources will be absent,but it does not follow that political action will improve the situation. 
D) democratic political decision-making will never be able to improve the efficiency of resource allocation.

Question 3

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units.How does this outcome compare to the efficient,ideal equilibrium?

Accepted Answer

A) The efficient price would be higher than $62. 
B) The efficient price would be lower than $62. 
C) The efficient price would also be $62. 
D) The efficient output would be less than 3,000 units.

Question 4

It is difficult for the market process to provide public goods because

Accepted Answer

A) private firms generally cannot undertake large-scale projects. 
B) it will be difficult to get potential consumers to pay for such goods because there is not a direct link between payment for and receipt of the good. 
C) consumers do not really want public goods,even though such goods are best for them. 
D) individuals are generally made worse off by the production of public goods.

Question 5

Suppose external benefits are present in a market which results in the actual market price of $34 and market output of 126 units.How does this outcome compare to the efficient,ideal equilibrium?

Accepted Answer

A) The efficient outcome would be greater than 126 units. 
B) The efficient outcome would be less than 126 units. 
C) The efficient outcome would also be 126 units. 
D) The efficient price would be less than $34.

Question 6

A good is considered nonexcludable if

Accepted Answer

A) many individuals can share in the consumption of the same unit of the good. 
B) the consumption of the good by one individual lowers the amount available for others. 
C) it is impossible or very costly to exclude nonpaying customers from receiving the good. 
D) its production is financed through tax revenue rather than market prices.

Question 7

If it is impossible or very costly to exclude nonpaying customers from receiving a good,the good is considered to be

Accepted Answer

A) freeware. 
B) nonexcludable. 
C) a common good. 
D) a receiving good.

Question 8

Markets fail when externalities are present

Accepted Answer

A) because all of the costs and benefits of producing a good are reflected in the market price. 
B) because some of the costs and benefits of producing a good are not reflected in the market price. 
C) only if they are negative;positive externalities are not market failures. 
D) because profits are not maximized. 
E) if the positive externalities are less than the negative externalities.

Question 9

Many external costs occur because

Accepted Answer

A) people do not pay the true cost of using a resource. 
B) people do not pay the private cost of using a resource. 
C) companies do not pay the market price for natural resources. 
D) companies pay more than the true cost of using a resource.

Question 10

Markets fail to allocate resources efficiently when

Accepted Answer

A) prices fluctuate. 
B) people who have property rights abuse their privileges. 
C) property rights are poorly enforced or not well established. 
D) the government refuses to intervene in private markets.

Question 11

The spillover effects of actions that affect the well-being of nonconsenting third parties are called

Accepted Answer

A) side components. 
B) externalities. 
C) free riders. 
D) internalizations.

Question 12

Which of the following best explains why making air travel completely safe is not efficient?

Accepted Answer

A) After some level of safety is reached,making airplanes even safer is not worth the opportunity cost that would be incurred. 
B) Because one can't put a price on human life,airplane safety generally doesn't matter economically. 
C) The benefit from additional airplane safety will generally rise as airplanes are made safer,more than offsetting the opportunity cost involved. 
D) The question is misleading--making airplanes safer is always efficient.

Question 13

A good is considered nonrival-in-consumption if

Accepted Answer

A) many individuals can share in the consumption of the same unit of the good. 
B) the consumption of the good by one individual lowers the amount available for others. 
C) even nonpaying customers can receive the full benefit from the good. 
D) its production is financed through tax revenue rather than market prices.

Question 14

National defense is considered a public good because there appears to be no limits to the nonrivalry-in-consumption characteristic,and exclusion of nonpayers is impossible.Are there any other goods that so perfectly meet both public goods criteria?

Accepted Answer

The answer of National defense is considered a public good...

Question 15

Which of the following is the best example of a public good?

Accepted Answer

A) long distance telephone service 
B) national defense 
C) an amusement park 
D) the electric service of a public utility

Question 16

Relative to a competitive situation,if a market lacks competition,economic theory suggests that

Accepted Answer

A) output will be lower and price higher. 
B) output will be higher and price lower. 
C) both output and price will be higher. 
D) both output and price will be lower.

Question 17

Which of the following is the best example of a public good?

Accepted Answer

A) a government-run health care system 
B) the Walt Disney World amusement park 
C) national defense 
D) long-distance telephone service

Question 18

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units.How does this outcome compare to the efficient,ideal equilibrium?

Accepted Answer

A) The efficient price would be higher than $84. 
B) The efficient price would be lower than $84. 
C) The efficient price would also be $84. 
D) The efficient output would be greater than 320 units.

Question 19

Suppose external costs are present in a market which results in the actual market price of $50 and market output of 800 units.How does this outcome compare to the efficient,ideal equilibrium?

Accepted Answer

A) The efficient outcome would be greater than 800 units. 
B) The efficient outcome would be less than 800 units. 
C) The efficient outcome would also be 800 units. 
D) The efficient price would be less than $50.

Question 20

The absence of well-defined and enforceable private property rights often

Accepted Answer

A) causes people to work together for the common good. 
B) improves society because it avoids the selfish actions of private property owners. 
C) causes difficulties for society due to externalities. 
D) brings about efficiency by providing incentives to conserve resources.

Exam 5: Difficult Cases for the Market and the Role of Government

Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers?

When market failure is present,

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units.How does this outcome compare to the efficient,ideal equilibrium?

It is difficult for the market process to provide public goods because

Suppose external benefits are present in a market which results in the actual market price of $34 and market output of 126 units.How does this outcome compare to the efficient,ideal equilibrium?

A good is considered nonexcludable if

If it is impossible or very costly to exclude nonpaying customers from receiving a good,the good is considered to be

Markets fail when externalities are present

Many external costs occur because

Markets fail to allocate resources efficiently when

The spillover effects of actions that affect the well-being of nonconsenting third parties are called

Which of the following best explains why making air travel completely safe is not efficient?

A good is considered nonrival-in-consumption if

National defense is considered a public good because there appears to be no limits to the nonrivalry-in-consumption characteristic,and exclusion of nonpayers is impossible.Are there any other goods that so perfectly meet both public goods criteria?

Which of the following is the best example of a public good?

Relative to a competitive situation,if a market lacks competition,economic theory suggests that

Which of the following is the best example of a public good?

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units.How does this outcome compare to the efficient,ideal equilibrium?

Suppose external costs are present in a market which results in the actual market price of $50 and market output of 800 units.How does this outcome compare to the efficient,ideal equilibrium?

The absence of well-defined and enforceable private property rights often