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C.
positive externalities.
128.
TripAdvisor provides online reviews of hotels, restaurants, and attractions at tourist
destinations around the world. When a traveler is planning a vacation, TripAdvisor helps the
traveler avoid
True / False Questions
129.
The adverse selection problem is the tendency for insured drivers to drive recklessly.
4-62
130.
The moral hazard problem is the tendency of some parties to a contract to alter their
behavior as a result of the contract in ways that are costly to the other party.
131.
Professor Gullible agreed to cancel the final examination if students promised to study for
it anyway. The concept of moral hazard would predict that it is unlikely that students will study
for the exam.
132.
Asymmetric information always results in adverse selection.
133.
Insurance co-pays and deductibles are methods used by insurance companies to reduce
moral hazard.
Multiple Choice Questions
134.
Which of the following is an example of a market failure?
A.
There are not enough tickets available to concerts of extremely popular performers and
135.
Which of the following situations is not an example of market failure?
A.
Ben's Department Store cannot charge passers-by for using the sidewalk outside the store.
4-64
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D i f f i c u l t y :
03 Hard
Learning Objective: 04-01 Differentiate between demand-side market failures and supply-side
market failures.
Test Bank: II
Topic:
Market Failures in Competitive Markets
136.
Which of the following statements about market failure is not true?
A.
Market failure causes an inefficient allocation of resources, even in a competitive market.
137.
If many people in a community get flu shots, the whole community benefits, including those
that did not get flu shots. Therefore, not enough people may decide to get the shots. This is one
illustration of
A.
the market allocating resources efficiently.
138.
When producers do not produce the efficient amount of a product because they are unable
to charge consumers what they need to get in order to produce the efficient amount, then we
have a
4-65
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A.
demand-side market failure.
B.
supply-side market failure.
C.
competitive market.
D.
monopolistic market.
139.
When producers do not have to pay the full cost of producing a product, they tend to
A.
overproduce the product because of a demand-side market failure.
140.
When producers (say, of roads) are not able to make all consumers pay for enjoying their
product (i.e., the roads), they tend to see a
4-66
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
market failures.
Test Bank: II
To p ic:
Market Failures in Competitive Markets
141.
A competitive market produces the economically efficient outcome if the following
conditions are met, except
A.
the market produces only units for which benefits are at least equal to cost.
142.
The difference between the maximum price a consumer is willing to pay for a product and
the actual price the consumer pays is called
143.
The value that consumers get (from consuming a product) over and above what they
actually paid for the product is called
A.
consumer utility.
4-67
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B.
consumption expenditures.
C. consumer surplus.
D. consumer demand.
144.
Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt,
then his consumer surplus is
145.
In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair, while Jane
is willing to pay $85 for a pair. The actual price that each has to pay for a pair of these shoes is
$65. What is the total amount of the two girls’ combined consumer surplus?
4-68
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D i f f i c u l t y :
02 Medium
Learning Objective: 04-02 Explain the origin of both consumer surplus and producer surplus,
and explain how properly functioning markets maximize their sum, total surplus, while
optimally allocating resources.
Test Bank: II
To p ic:
Efficiently Functioning Markets
146.
Consumer surplus arises in a market because
147.
If the unit price of a product is P, then the amount of money buyers would need to pay for a
given quantity Q is equal to
148.
If the market price of a product increases, then the total
4-69
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A.
consumer surplus will decrease.
B.
consumer surplus will increase.
C.
revenues of sellers will definitely increase.
D.
revenues of sellers will definitely decrease.
149.
In the provided graph, the equilibrium point in the market is where the S and D curves intersect.
At equilibrium, consumer surplus would be represented by the area
4-70
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 04-02 Explain the origin of both consumer surplus and producer surplus,
and explain how properly functioning markets maximize their sum, total surplus, while
optimally allocating resources.
Test Bank: II
Topic:
Efficiently Functioning Markets
150.
In the provided graph, the equilibrium point in the market is where the S and D curves intersect.
At equilibrium, the total amount of spending that consumers would be paying for the product is
represented by the area
4-71
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: II
To p ic:
Efficiently Functioning Markets
151.
In the provided graph, the equilibrium point in the market is where the S and D curves intersect.
At equilibrium, the total maximum amount that consumers would have been willing to pay for
the product is represented by the area
152.
The difference between the actual price that a producer receives and the minimum
acceptable price the producer is willing to take is called the producer
153.
The minimum acceptable price for a product that producer Sam is willing to receive is $15.
The price he could get for the product in the market is $18. How much is Sam's producer
surplus?
154.
The amount of revenue that sellers actually receive over and above the minimum
acceptable amount that they are willing to receive for selling a product is called
4-73
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 04-02 Explain the origin of both consumer surplus and producer surplus,
and explain how properly functioning markets maximize their sum, total surplus, while
optimally allocating resources.
Test Bank: II
Topic:
Efficiently Functioning Markets
155.
If the unit price of a product is P and buyers buy a given quantity Q, then sellers would
collect total revenues equal to
156.
The market supply curve indicates the
157.
At equilibrium in a market for a product, the total revenues received by sellers equal the
158.
In the provided graph, the equilibrium point in the market is where the S and D curves intersect.
At equilibrium, the producer surplus would be represented by the area
4-75
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 04-02 Explain the origin of both consumer surplus and producer surplus,
and explain how properly functioning markets maximize their sum, total surplus, while
optimally allocating resources.
Test Bank: II
Topic:
Efficiently Functioning Markets
159.
In the provided graph, the equilibrium point in the market is where the S and D curves intersect.
At equilibrium, the total revenues received by sellers would be represented by the area
4-76
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Efficiently Functioning Markets
160.
In the provided graph, the equilibrium point in the market is where the S and D curves intersect.
At equilibrium, the minimum acceptable total revenue that sellers would have been willing to
receive is represented by the area
161.
Product
Minimum Acceptable Price
Actual Price (Equilibrium Price)
A
$6
$13
B
7
13
C
9
13
D
11
13
Refer to the provided table. The producer surplus is $4 for producer
162.
Product
Minimum Acceptable Price
Actual Price (Equilibrium Price)
A
$6
$13
B
7
13
C
9
13
D
11
13
Refer to the provided table. What is the producer surplus for all producers A, B, C, and D?
4-78
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 04-02 Explain the origin of both consumer surplus and producer surplus,
and explain how properly functioning markets maximize their sum, total surplus, while
optimally allocating resources.
Test Bank: II
Topic:
Efficiently Functioning Markets
163.
Product
Minimum Acceptable Price
Actual Price (Equilibrium Price)
A
$6
$13
B
7
13
C
9
13
D
11
13
Refer to the provided table. If the equilibrium price increases, then the
164.
When economic efficiency is attained, it implies all of the following, except
4-79
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 04-02 Explain the origin of both consumer surplus and producer surplus,
and explain how properly functioning markets maximize their sum, total surplus, while
optimally allocating resources.
Test Bank: II
Topic:
Efficiently Functioning Markets
165.
When a competitive market achieves allocative efficiency, it implies that
166.
Deadweight losses occur when the quantity of an output produced is
167.
When there is overproduction of a good,
168.
When the marginal benefit of an output exceeds the marginal cost,
