Question 1

Driving your automobile in Los Angeles during the rush hour causes externalities because

Accepted Answer

A)   it adds congestion and pollution from auto exhaust, reducing the welfare of others.
B)   gasoline is scarce and you must pay for it.
C)   gasoline is a public good.
D)   your actions will benefit others even though you will be unable to charge them for the service.

Question 2

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too

Accepted Answer

A)   much of both goods.
B)   little of both goods.
C)   much of the good that generates external benefits and too little of the good that generates external cost.
D)   little of the good that generates external benefits and too much of the good that generates the external cost.

Question 3

When external costs are present in a market,

Accepted Answer

A)   less of the good will be produced than the amount consistent with economic efficiency.
B)   more of the good will be produced than the amount consistent with economic efficiency.
C)   the amount of the good produced will be equal to the amount consistent with economic efficiency.
D)   corresponding external benefits are always generated.

Question 4

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

Accepted Answer

A)   the curse of advertising.
B)   the imperfect information problem.
C)   the brand name problem.
D)   an open-access resource.

Question 5

Does economic efficiency indicate that all pollution should be eliminated?

Accepted Answer

A)   Yes, pollution is bad; it harms both people and the environment, and therefore, it should be eliminated.
B)   No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost.
C)   No, pollution does not harm most people, and therefore, we should not worry about it.
D)   Partially, pollution caused by business firms should be eliminated, but people should still be allowed to pollute if they want.

Question 6

People who receive the benefit of a good without contributing to its costs of production are called

Accepted Answer

A)   contributors in kind.
B)   free riders.
C)   frequent flyers.
D)   cost maximizers.

Question 7

In which of the following markets are information problems likely to be most serious?

Accepted Answer

A)   automotive repair service
B)   magazines
C)   toothpaste
D)   pencils

Question 8

Externalities

Accepted Answer

A)   are always detrimental.
B)   are always beneficial.
C)   arise when all costs, external and private, are included in production cost.
D)   cause the price system to misallocate resources.

Question 9

Sam lives next to The Party Pub and its outdoor "beer garden" that features live music. An economics major, Sam considers this a positive externality. Dave, another economics student, lives next to The Party Pub too, but he considers the music a negative externality. Which student, if either, is correct? Why?

Accepted Answer

Both students are correct if they are ac...

Question 10

The key explanation for the prevalence of waterway pollution is

Accepted Answer

A)   the inclusion in production of all costs involving use of the waterway.
B)   that there are private costs but no costs to society.
C)   that waterways are often an open access, commonly owned resource.
D)   that waterways are subject to the market's normal control procedures.

Question 11

Which of the following is a true statement regarding why the government produces public goods?

Accepted Answer

A)   Public goods are valued highly by some but not by the majority.
B)   Because of the electoral system, the public sector tends towards producing those goods that help politicians get elected.
C)   Some goods should be produced whether they are economically efficient or not.
D)   Because it is difficult to exclude those who do not pay for public goods.

Question 12

The major distinction between private and public goods is that

Accepted Answer

A)   private goods are goods produced by private firms whereas public goods are goods produced by government--the public sector.
B)   unlike private goods, public goods are nonexcludable--it is difficult or impossible to prevent nonpaying customers from receiving the good.
C)   unlike private goods, public goods are nonrival in consumption--the consumption of a unit by one person does not detract from the amount available to others.
D)   both b and c are correct.

Question 13

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

Accepted Answer

There would certainly appear to be since...

Question 14

Use the figure below to answer the following question(s) .
Figure 5-3
 
-Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?

Accepted Answer

A)   Relative to economic efficiency, output of the good will be too large and the price too low.
B)   Relative to economic efficiency, output of the good will be too large and the price too high.
C)   Relative to economic efficiency, output of the good will be too small and the price too low.
D)   Relative to economic efficiency, output of the good will be too small and the price too high.

Question 15

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 16

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 17

An item purchased often by the same buyer is known as a

Accepted Answer

A)   frequent transaction good.
B)   repeat-purchase item.
C)   free rider good.
D)   public good.

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

Figure 5-4
 
-Refer to Figure 5-4. The efficient price and quantity are

Accepted Answer

A)   $1.90 and 38 units, respectively.
B)   $1.80 and 35 units, respectively.
C)   $1.60 and 42 units, respectively.
D)   $1.35 and 58 units, respectively.

Question 20

A hilly, public golf course is often used by sledders in the winter. One of the sledders was quoted as saying, "This is public property, so we have just as much a right to be on these hills as anyone else. Besides, when it snows, golfers can't use the course anyway. Sledding doesn't harm anything." Is he correct? Why or why not?

Accepted Answer

Sledding can inflict external costs to g...

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

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

Correct Answer
verified

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?

Correct Answer
verified

Does economic efficiency indicate that all pollution should be eliminated?

Correct Answer
verified

The major distinction between private and public goods is that

Correct Answer
verified

Driving your automobile in Los Angeles during the rush hour causes externalities because

Correct Answer
verified

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

Correct Answer
verified

People who receive the benefit of a good without contributing to its costs of production are called

Correct Answer
verified

Correct Answer
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Both students are correct if they are ac...
View Answer

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too

Correct Answer
verified

Externalities

Correct Answer
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In which of the following markets are information problems likely to be most serious?

Correct Answer
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An item purchased often by the same buyer is known as a

Correct Answer
verified

When external costs are present in a market,

Correct Answer
verified

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

Correct Answer
verified

Which of the following is a true statement regarding why the government produces public goods?

Correct Answer
verified

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

Correct Answer
verified
There would certainly appear to be since...
View Answer

The key explanation for the prevalence of waterway pollution is

Correct Answer
verified

Use the figure below to answer the following question(s) . Figure 5-3 -Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?

Correct Answer
verified

Correct Answer
verified
Sledding can inflict external costs to g...
View Answer

Figure 5-4 -Refer to Figure 5-4. The efficient price and quantity are

Correct Answer
verified

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

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Does economic efficiency indicate that all pollution should be eliminated?

Correct AnswerverifiedShow Answer

The major distinction between private and public goods is that

Correct AnswerverifiedShow Answer

Driving your automobile in Los Angeles during the rush hour causes externalities because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

People who receive the benefit of a good without contributing to its costs of production are called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedBoth students are correct if they are ac...View AnswerShow Answer

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too

Correct AnswerverifiedShow Answer

Externalities

Correct AnswerverifiedShow Answer

In which of the following markets are information problems likely to be most serious?

Correct AnswerverifiedShow Answer

An item purchased often by the same buyer is known as a

Correct AnswerverifiedShow Answer

When external costs are present in a market,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is a true statement regarding why the government produces public goods?

Correct AnswerverifiedShow Answer

After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?

Correct AnswerverifiedThere would certainly appear to be since...View AnswerShow Answer

The key explanation for the prevalence of waterway pollution is

Correct AnswerverifiedShow Answer

Use the figure below to answer the following question(s) . Figure 5-3 -Figure 5-3 illustrates the market for a product that generates an external benefit. D₁ is the private market demand curve, while D₂ is the demand curve including the external benefit. Which of the following is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSledding can inflict external costs to g...View AnswerShow Answer

Figure 5-4 -Refer to Figure 5-4. The efficient price and quantity are

Correct AnswerverifiedShow Answer

Correct Answer
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Both students are correct if they are ac...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
There would certainly appear to be since...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Sledding can inflict external costs to g...
View Answer

Correct Answer
verified