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

A) an output of the product that exceeds the amount consistent with ideal economic efficiency.
B) an output of the product that is less than the amount consistent with ideal economic efficiency.
C) an output of the product that equals the amount consistent with ideal economic efficiency.
D) product prices that are below the cost of production.

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A) indicates that people are irrational because it never makes sense to pay a higher price when a product is cheaper elsewhere.
B) is one in which the national franchise provides uninformed consumers with valuable information that reduces their risk of being unsatisfied with the purchase.
C) reflects the greater elasticity of supply for food at Manny's Bar-n-Grill relative to the nationally franchised restaurant.
D) is inconsistent with the basic postulates that underlie the economic way of thinking.

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A) private markets are incapable of producing public goods.
B) free-riders make it difficult for private markets to supply the efficient quantity.
C) markets are always better off with some government oversight.
D) external benefits will accrue to private producers.

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A) market failure is present.
B) democratic political decision-making will lead to the ideal efficient outcome.
C) government action, however well intended, cannot improve the situation.
D) government failure is present.

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To a student, the book seems close to a ...

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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.

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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.

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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.

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

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A) The price will be too high, and the output will be too large.
B) The price will be too low, and the output will be too large.
C) The price will be too low, and the output will be too small.
D) The price will be too high, and the output will be too small.

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A) Consumption of a public good by one individual reduces the availability of the good for others.
B) It is extremely difficult to limit the benefits of a public good to only the people who pay for it.
C) Public goods are free to a society when they are produced by the government.
D) From an efficiency standpoint, a market will generally supply too much of a public good.

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A) legal enforcement of contracts and rules against fraud
B) undertaking income redistribution
C) providing national parks
D) providing a stable monetary system

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A) public good.
B) joint good.
C) excludable good.
D) national good.

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A) result in a price that is lower than the efficient price for both goods.
B) result in a price that is higher than the efficient price for both goods.
C) result in a price that is lower than the efficient price for the good with an external benefit and a price that is higher than the efficient price for the good with an external cost.
D) result in a price that is higher than the efficient price for the good with an external benefit and a price that is lower than the efficient price for the good with an external cost.

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A) is a good produced by the government sector.
B) is both nonrival-in-consumption and nonexcludable.
C) benefits only a small group of consumers but is very costly to produce.
D) is a good whose production is financed by tax revenue.

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A) constitutional restrictions block government action that is favored by the majority of voters.
B) political decision-makers try to serve the general public rather than their personal interest.
C) the structure of incentives encourages political decision-makers to undertake actions that conflict with the efficient allocation of resources.
D) the political decision-makers are motivated by something other than good intentions; if they have good intentions, political action will allocate resources efficiently.

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A) protection of the rights of individuals to their person and property and the provision of goods that cannot easily be provided through markets.
B) redistribution of income from some individuals to others and the waging of war to expand the nation's territory.
C) production of postal services and cable television.
D) taxation of goods that are generally considered immoral or bad and the regulation of large corporations.

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A) receives the benefit of a good without contributing to its costs of production.
B) purchases an item during a "buy one, get one free" sale.
C) lives in a town in which the city provides free bus service.
D) pays for exactly what they receive.

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