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Chapter 04 Test Bank Key
1. The most desirable combination of output attainable with existing resources, technology, and
social values is known as the
2. The optimal mix of output is the most desirable combination of output attainable
with existing
3. In a market economy, producers will produce the goods and services that
4. Resources are directed from one industry to another by
5. If production in the economy is efficient, then changes in market prices
6. The term market mechanism refers to
7. The optimal mix of output may not be produced by an economy because of the existence
of
8. Market failure implies that the market mechanism
9. Which of the following is a source of market failure?
10. Market failure leads to
A. An equitable distribution of goods and services.
11. Government intervention may be appropriate to correct market outcomes because of
12. From an economic standpoint, government intervention is justified
13. Any imperfection in the market mechanism that prevents optimal outcomes is known as
14. When market failure occurs, the role of government is to
15.
Using Figure 4.1, suppose that point B represents the optimal mix of output for a society. If
market forces cause society to produce and consume at point C, then
16.
Using Figure 4.1, assume that point C represents the best possible mix or optimal level
of output for this society. If the market fails and produces a suboptimal mix of output,
then it could produce at
17. The optimal mix of output is always the same as the
18. The market
19. Which of the following is possible when the market fails?
20. A private good
21. Which of the following is most likely a private good?
22. Which of the following is an example of a public good?
23. In economics, a public good
24. Which of the following explains why flood control is a public good?
25. The federal government's role as the provider of national defense is justified by
considerations of
26. Which of the following is consumed jointly?
A. A can of Coke.
27. Governments usually build highways because it is difficult to exclude individuals who
don't pay for the highways from using them. What type of market failure is involved?
Topic: MARKET FAILURE
28. A public good
A. Is any good produced by the government.
29. The free-rider problem
30. Which of the following explains what would happen if public goods were marketed like
private goods?
31. The market tends to underproduce public goods because
32. If public goods were marketed like private goods, then
33. A "free rider" is an individual who reaps
A. Indirect benefits from someone else's purchase of a public good.
34.
Using Figure 4.2, suppose point C represents the optimal mix of public and private goods for
a society. The market mechanism is likely to result in a mix of output represented by point
35. The central question in determining whether a good is public or private is whether
36. If public goods were marketed like private goods, then
37. Externalities
38. If Good X has social demand that is less than market demand, then Good X must be a
39. Air pollution best illustrates
40. The government's role in limiting smoking in many buildings is justified by
considerations of
41. Firms in Colorado dump waste into the Colorado River and as a result, people in California
and Mexico cannot use the water. What type of market failure is most likely involved?
42. Which of the following produces external benefits?
43. When external costs result from the production of a good,
44. The market will overproduce goods that have external costs because
45. Which of the following is the government most likely to discourage because of the
existence of externalities?
46. Which of the following is a sound economic reason why the government should subsidize
your college education?
47. If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and
FOR WHOM questions, it tends to
48. Social demand is equal to
49. If the consumption of a good yields external benefits, then
50. An externality affecting demand can be measured graphically as the
51. An externality affecting supply can be measured graphically as the
52. Which of the following justifies the federal government's role in antitrust enforcement?
53. Antitrust activity addresses
54. Government intervention to alter market structure or prevent abuse of market power is
the basic purpose of
55. The development of market power by a firm is considered to be a market failure
because firms with market power will
56. Monopolies
A. Have great productive efficiency and are always beneficial to society.
57. A natural monopoly is
58. A monopoly occurs when
59. The term market power refers to
60. Market power may result from
61. The federal government's role in providing aid to the poor and the aged is justified because
of concerns about
62. The principal mechanism for redistributing incomes is
63. The term transfer payments refers to
A. Federal income taxes.
64. Which of the following is the best example of a government effort to address market failure
in relation to the FOR WHOM to produce question?
A. Antitrust policy.
65. A merit good is
A. Income payments for which no goods or services are exchanged.
66. Which of the following is a merit good?
67. Which of the following is a merit good?
68. When the economy experiences unemployment,
69. When there is a decrease in the unemployment rate,
70. Which of the following occurs when the economy experiences inflation?
A. Government failure.
71. Government intervention can serve to stabilize the macro economy by
72. In the United States, direct expenditures for governments between 1933 and 1943
