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Multiple Choice Quiz
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1.
Market failure exists when:
A)stores fail to open late enough to permit us to shop on our way home.
B)there is an imperfection in the market mechanism that prevents markets from getting society to the optimal mix on the production possibilities curve.
C)energy prices rise dramatically in response to extremely cold weather resulting in a failure of families to budget adequately for their utility bill.
D)restaurants fail to give struggling students a student discount on meals.
2.
A public good is any good:
A)that is paid for by tax dollars.
B)for which it is difficult to exclude use, and for which consumption by one person does not subtract from what is available for others.
C)that is consumed by every member of the general public, but use by one person subtracts from what is available for others.
D)that is typically consumed in public places.
3.
The free-rider phenomenon:
A)causes the underproduction of private goods.
B)causes the underproduction of public goods.
C)causes the overproduction of public goods because everyone enjoys a free-ride.
D)explains the problem of how insects travel from one country to another by hitching a ride on cars, boats, and airplanes.
4.
It is clear from both economic theory and practical experience that:
A)national defense is a private good because it often influences our private affairs.
B)national defense is a public good.
C)reducing air pollution is a public good since the entire public benefits, but the regulation of commerce is a private good since only those engaged in commerce benefit.
D)All of the above are true.
5.
When the production of a good is characterized by negative externalities such as pollution:
A)the price is too low and the output is too large relative to the optimal results.
B)profit-maximizing firms do not generally have an incentive to reduce pollution emissions in the absence of regulation.
C)an optimal tax on the pollution could eliminate the inefficiency.
D)All of the above are true.
6.
When the production of a good or service results in a negative externality:
A)social costs are less than private costs.
B)social costs are equal to private costs.
C)social costs can't be compared to private costs.
D)social costs are greater than private costs.
7.
Government regulation of industries characterized by negative externalities such as pollution:
A)always improves economic efficiency.
B)never improves economic efficiency because the government only gets in the way.
C)can improve economic efficiency under some circumstances.
D)None of the above is true.
8.
The primary purpose of the Sherman Act:
A)is to provide a museum to record the history of General Sherman
B)is to facilitate and encourage the development of small businesses.
C)is to alter market structures experiencing inefficiencies due to monopolies or cartels exercising market power.
D)create jobs for economists who need financing for their research.
9.
A(n) ______ is someone who gets direct benefits from another person's purchase of a public good.
A)Externality
B)free rider
C)Economist
D)None of the above is true.
10.
When considering the appropriate mix between reliance on government and reliance on the private sector
A)it is clear that increased reliance on government always represents an improvement.
B)both government and the private sector are imperfect institutions that exhibit examples of failure.
C)there are no private sector failures and government intervention always makes things worse.
D)it is clear that government intervention designed to correct private sector failure will always result in an increase in economic efficiency.
11.
Market failure means:
A)an imperfection in the market that prevents optimal outcomes.
B)not being on the best point on the production-possibilities curve.
C)a suboptimal mix of output.
D)All of the above are true.
12.
Which of the following are sources of microeconomic market failure?
A)Public goods
B)Externalities
C)Market power
D)All of the above are true.
13.
A doughnut is an example of a ______ good.
A)public
B)private
C)nonexistent
D)free
14.
Which of the following is a public good?
A)A cup of coffee
B)A car
C)National defense
D)A restaurant meal
15.
______ are costs or benefits of a market activity experienced by someone outside of the immediate transaction.
A)Externalities
B)Private goods
C)Public goods
D)None of the above is true.
16.
Whenever external benefits exist, ______ demand is greater than ______ demand.
A)market; social
B)social; market
C)private; public
D)None of the above is true.
17.
The purpose of antitrust laws is to ______ concentrations of market power and ______ competition.
A)increase; increase
B)decrease; decrease
C)increase; decrease
D)decrease; increase
18.
Which of the following is an example of a transfer payment?
A)Social Security
B)Welfare
C)unemployment benefits
D)All of the above are true.
19.
An emissions fee will cause a producer to ______ the output of a good.
A)increase
B)decrease
C)not change
D)None of the above is true.
20.
Which of the following prohibits "conspiracies in restraint of trade"?
A)Sherman Act
B)Clayton Act
C)Federal Trade Commission Act
D)None of the above is true.
21.
A(n) _____ is a good or service whose consumption by one person excludes consumption by others.
A)public good
B)private good
C)free rider
D)externality
22.
Which of the following is the largest income transfer program?
A)Social Security
B)Medicare
C)Medicaid
D)Food stamps
23.
In the debate over drilling for oil in the Artic, the opponents argue that _____ costs are too _____.
A)private; low
B)private; high
C)exernal; low
D)external; high
24.
Which of the following Acts prohibits exclusive dealing agreements and interlocking boards of directors among competing firms?
A)Sherman Act
B)Clayton Act
C)Federal Trade Commission Act
D)None of the above is true.
25.
The market alone would distribute only about _____% of total income to the poor. With government taxes and transfer payments the share is about _____%.
A).5; 10
B)1; 5
C)1; 10
D)2; 20
26.
In polls asking how much trust people have in the government to fix market failures, the majority of people answered _____.
A)always.
B)most of the time.
C)only some of the time.
D)never.





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