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1 | |
In the insurance industry, high-risk customers are more likely to take out insurance. This is an example of |
| | A) | moral hazard |
| | B) | risk aversion |
| | C) | adverse selection |
| | D) | a poor gamble |
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2 | |
Moral hazard means that the act of insuring _____________that the desired outcome will occur |
| | A) | reduces the likelihood |
| | B) | increases the likelihood |
| | C) | guarantees |
| | D) | none of the above |
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3 | |
An allocation is Pareto-efficient if no reallocation of resources would make some people ____________ without making others ______________ |
| | A) | worse off, worse off |
| | B) | better off, better off |
| | C) | better off, worse off |
| | D) | equal, unequal |
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4 | |
A competitive equilibrium is Pareto-efficient |
| | A) | TRUE |
| | B) | FALSE |
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5 | |
We cannot say whether one allocation of resources is better than another allocation because |
| | A) | some people cant count |
| | B) | some people may not be permanent residents |
| | C) | not all economic activity is legal |
| | D) | we cant make value judgements to compare different people's welfare |
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6 | |
A competitive equilibrium is Pareto-efficient because |
| | A) | producers are price takers |
| | B) | consumers and producers face the same prices |
| | C) | marginal costs and benefits are equal |
| | D) | prices equal marginal cost and benefit |
| | E) | all of the above |
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7 | |
The allocation of resources is not efficient if ____________ |
| | A) | the marginal cost of production does not equal society's marginal benefit |
| | B) | the distribution is inequitable |
| | C) | economic growth is low |
| | D) | unemployment is high |
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8 | |
If my neighbour burns garden waste causing my house to fill with smoke this is an example of _______________ |
| | A) | a production externality |
| | B) | a second-best solution |
| | C) | transaction costs |
| | D) | a consumption externality |
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9 | |
Externalities arise because there is a divergence between __________ and ___________ |
| | A) | private costs, private benefits |
| | B) | private costs, social costs or benefits |
| | C) | social costs, social benefit |
| | D) | insiders, outsiders |
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10 | |
Market failure may arise because of |
| | A) | imperfect competition |
| | B) | taxation |
| | C) | externalities |
| | D) | missing markets |
| | E) | all of the above |
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11 | |
Markets sometimes fail to exist because of |
| | A) | externalities |
| | B) | the free-rider problem |
| | C) | poor transport |
| | D) | a and b |
| | E) | a and c |
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12 | |
A good example of a public good is ___________ |
| | A) | public transport |
| | B) | the national health service |
| | C) | national defence |
| | D) | rail transport |
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13 | |
If the consumption of a good by one person does not reduce the quantity available by others and nobody can be easily excluded from consumption, we are referring to a |
| | A) | private good |
| | B) | merit good |
| | C) | public good |
| | D) | abundant good |
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14 | |
Satellite television subscription and television detection devices are ways in which broadcasting companies address the ____________ problem |
| | A) | externality |
| | B) | market imperfection |
| | C) | deadweight burden |
| | D) | free-rider |
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15 | |
Taxes to offset externalities are distortionary |
| | A) | TRUE |
| | B) | FALSE |
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16 | |
Except for taxes to offset ____________, taxes are _____________ |
| | A) | imperfect competition, popular |
| | B) | externalities, distortionary |
| | C) | inequality, a first best option |
| | D) | poor health, unnecessary |
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17 | |
Taxes create a wedge between the sales price and purchase price that prevents the price system equating _________ and ____________ |
| | A) | marginal costs, marginal benefits |
| | B) | demand, supply |
| | C) | marginal cost, marginal revenue |
| | D) | marginal cost, average cost |
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18 | |
The effect of a tax to offset a negative externality will be to ___________ price and ____________ quantity |
| | A) | reduce, reduce |
| | B) | increase, increase |
| | C) | increase, reduce |
| | D) | reduce, increase |
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19 | |
The social costs of monopoly power arises because ________________ |
| | A) | marginal cost is set equal to marginal revenue |
| | B) | price is less than marginal cost |
| | C) | marginal consumer benefit is less than marginal revenue |
| | D) | there is too little output at too high a cost |
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20 | |
The Competition Commission in the UK starts with the presumption that monopoly is bad |
| | A) | TRUE |
| | B) | FALSE |
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21 | |
If two firms doing the same thing in the same industry join together, this is known as a ____________ |
| | A) | vertical merger |
| | B) | horizontal merger |
| | C) | conglomerate merger |
| | D) | hostile takeover |
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22 | |
In the UK mergers can be referred to the Competition Commission if they create a firm with ___________ of the market |
| | A) | 15% |
| | B) | 20% |
| | C) | 25% |
| | D) | 30% |
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23 | |
The problem posed by a natural monopoly is that it faces a ___________ . This means that ____________ |
| | A) | increasing average cost curve, marginal cost lies above average cost |
| | B) | increasing average cost curve, marginal cost lies below average cost |
| | C) | decreasing average cost curve, marginal cost lies above average cost |
| | D) | decreasing average cost curve, marginal cost lies below average cost |
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