micro chapter 5 study guide questions 14e

8/13/2019 Micro Chapter 5 Study Guide Questions 14e

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Micro Chapter 5 Study Guide Questions 13e

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. Which one of the following would reduce the efficiency of the market process?a. promoting competitive markets

b. protecting persons from fraud and theft

c. providing a stable monetary environment

d. protecting consumers by imposing legally mandated price ceilings

____ 2. It is difficult for the market process to provide public goods because

a. private firms generally cannot undertake large-scale projects.

b. it will be difficult to get potential consumers to pay for such goods because there is not a

direct link between payment for and receipt of the good.

c. consumers do not really want public goods, even though such goods are best for them.

d. individuals are generally made worse off by the production of public goods.

____ 3. Which of the following are ways in which the private market provides consumers with valuable information

to help them make better decisions?

a. brand names

b. franchising

c. private sector certification firms and consumer report magazines

d. all of the above

____ 4. Which of the following are the four major factors that may undermine the ability of the invisible hand to

produce market efficiency?

a. externalities, private goods, poorly informed buyers or sellers, lack of competition

b. public goods, externalities, lack of competition, poorly informed buyers or sellers

c. competition, poorly informed buyers or sellers, externalities, public goods

d. public goods, lack of competition, well-informed buyers and sellers, externalities

____ 5. Which of the following activities is least likely to give rise to external costs or benefits?

a. spraying to control mosquitos in your backyard

b. driving one's car during rush hour

c. inoculating your children during a flu epidemic

d. buying a hamburger and eating it for lunch

____ 6. Driving your automobile in Los Angeles during the rush hour causes externalities because

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.

____ 7. Criteria of ideal economic efficiency requires that (I) all actions generating more social benefit than cost be

undertaken and (II) no actions generating more social cost than social benefit be undertaken.

a. Both I and II are true.

b. Both I and II are false.

c. I is true; II is false.

d. II is true; I is false.


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____ 8. Which of the following "goods" is the best example of a pure public good?

a. highways

b. national defense

c. mail delivery

d. welfare programs

____ 9. In the absence of government intervention, goods with external costs tend to bea. overproduced.

b. underproduced.

c. efficiently produced.

d. offset by goods generating external benefits.

____ 10. The absence of well-defined and enforceable private property rights often

a. causes people to work together for the common good.

b. improves society because it avoids the selfish actions of private property owners.

c. causes difficulties for society due to externalities.

d. brings about efficiency by providing incentives to conserve resources.

____ 11. The major distinction between private and public goods is that

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.

____ 12. A public good is defined as a good with which of the following characteristics?

a. non-rivalry, rivalry

b. excludability, rivalry

c. non-rivalry, non-excludability

d. rivalry, non-excludability

____ 13. Which of the following correctly describes an external benefit resulting from an individual's purchase of a

winter flu shot?

a. The flu shot is cheaper than the cost of treatment when you get the flu.

b. The income of doctors increases when you get the flu shot.

c. The flu shot reduces the likelihood of others catching the flu.

d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore,

you will earn more income.

____ 14. Consider two goods--one that generates external benefits and another that generates external costs. A

competitive market economy would tend to produce too

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.


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____ 15. Externalities are due to which of the following?

a. poorly defined or enforced private property rights

b. individuals not caring sufficiently about the welfare of others

c. the choice of a capitalist, rather than socialist, economy

d. poor information on the part of buyers and sellers

____ 16. The problem created when it is difficult to exclude nonpaying customers is called thea. consumption-payment link problem.

b. free-rider problem.

c. public sector dilemma.

d. asymmetric information problem.

Critical Thinking and Application 17. National defense is considered a public good because there appears to be no limits to the nonrivalry-in-

consumption characteristic, and exclusion of nonpayers is impossible. Are there any other goods that so

perfectly meet both public goods criteria?

18. How does the text define economic efficiency? Is this an absolute or a relative definition? Would another typeof definition be preferable? Why or why not?

19. 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?

20. Is education a public good? Focus on whether it meets the two criteria for being a public good.

21. Anne has just purchased a new house in a lovely neighborhood. Her neighbors are friendly and even brought

her house-warming gifts. Anne, however, has a problem. Her neighbors have cats, and Anne hates cats. Even

though the city has a law requiring all outdoor pets to be on a leash, her neighbors ignore it, and the cats roamall over Anne's property. How would an economist describe this situation? Is there anything Anne can do?


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Micro Chapter 5 Study Guide Questions 13e

Answer Section

MULTIPLE CHOICE

1. D

2. B

3. D

4. B

5. D

6. A

7. A

8. B

9. A

10. C

11. D 12. C

13. C

14. D

15. A

16. B

micro chapter 5 study guide questions 14e

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