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1 | |
When markets are imperfect and exhibit externalities: |
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| | A) | There is an inefficient allocation and use of society's scarce resources. |
| | B) | Government intervention will not improve market performance. |
| | C) | Society's well-being is not affected. |
| | D) | Government intervention will always improve market performance. |
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2 | |
A market failure exists when: |
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| | A) | The price established in the market equals the marginal cost of production. |
| | B) | Resources are optimally allocated. |
| | C) | The price established in the market does not equal the marginal social benefit of a good and the marginal social cost of production. |
| | D) | Competitive markets' clearing price equals both the marginal social cost and marginal social benefits. |
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3 | |
Which one of the following statements is false? |
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| | A) | Any market equilibrium price always generates a social optimum and a proper allocation of resources. |
| | B) | A social optimum is attained when market price equals the marginal social cost of producing the last unit of output sold. |
| | C) | When firms pass on some of their cost of production to society, the market has failed. |
| | D) | If a good is overpriced, there is an underallocation of resources in the production of the good. |
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4 | |
In a market economy, the ideal solution to the problem of externalities would be to: |
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| | A) | Prohibit all production involving spillover costs. |
| | B) | Regulate both the amount people may consume and the price they pay for goods whose production involves spillover costs. |
| | C) | Charge or tax producers of a good the precise marginal cost of the externality generated in production. |
| | D) | Allow producers to produce the output level where both the marginal private benefit and the marginal private cost equal the price. |
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5 | |
If less education is consumed than society deems desirable then: |
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| | A) | The MPB of education is less than the MSB. |
| | B) | The MPB of education is less than the MPC. |
| | C) | The MPC of education is less than the MPB. |
| | D) | The MSB of education is less than the MPB. |
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6 | |
In a free market, goods with negative externalities will: |
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| | A) | Be underproduced in the market place. |
| | B) | Have the marginal valuation of the externality reflected in their price. |
| | C) | Be produced to the point at which the marginal social benefit equals the marginal social cost of the last unit produced. |
| | D) | Be overproduced at the market equilibrium. |
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7 | |
If no one in an economic system can be made better off without making someone else worse off: |
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| | A) | The system is Pareto Efficient. |
| | B) | We should increase the taxes on the wealthy. |
| | C) | We are producing too much. |
| | D) | Some consumers are below their utility possibilities frontier. |
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8 | |
The social cost of monopoly is: |
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| | A) | The industry with the largest deadweight burden. |
| | B) | The failure to maximise the sum of consumer and producer surplus. |
| | C) | High unemployment. |
| | D) | Environmental externalities. |
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9 | |
Where a monopolist faces large economies of scale the introduction of competition may: |
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| | A) | Make society worse off. |
| | B) | Make society better off. |
| | C) | Make no difference to society. |
| | D) | None of the above. |
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10 | |
In the UK a company can be investigated by the Competition Commission if it supplies more than: |
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| | A) | 10% of the market |
| | B) | 20% of the market |
| | C) | 25% of the market |
| | D) | 50% of the market |
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11 | |
Managers are profit maximisers. |
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| | A) | TRUE |
| | B) | FALSE |
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12 | |
Moral hazard is a cost borne by managers pursuing the capitalist ideals of their shareholders. |
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| | A) | TRUE |
| | B) | FALSE |
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13 | |
Satisficing, rather than maximising behaviour results in lower targets being set by managers. |
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| | A) | TRUE |
| | B) | FALSE |
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14 | |
Earnings linked to performance work better if performance is measurable. |
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| | A) | TRUE |
| | B) | FALSE |
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15 | |
A stock option provides managers with the ability to buy company products at a discount. |
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| | A) | TRUE |
| | B) | FALSE |
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16 | |
The separation of ________ from ________ control is a common feature of modern corporations. |
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| | A) | Outputs, input |
| | B) | Ownership, control |
| | C) | Workers, managerial |
| | D) | Revenue, cost |
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17 | |
Stock options _____ the interests of shareholders and managers. |
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| | A) | Reduce |
| | B) | Split |
| | C) | Align |
| | D) | Develop |
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18 | |
Computer viruses are __________. |
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| | A) | A negative externality |
| | B) | A positive externality |
| | C) | Good |
| | D) | An agency costs |
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19 | |
A subsidy should be used to correct a market failure of ________ production. |
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| | A) | Over |
| | B) | Under |
| | C) | Poor |
| | D) | Costly |
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20 | |
Following monopoly control of live TV football rights, increasing the supply of TV channels capable of showing live football games will _________ consumer surplus. |
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| | A) | Transfer |
| | B) | Decrease |
| | C) | Increase |
| | D) | Waste |