57. For markets to work well, there must be
a.
market power.
b.
a central planner.
c.
property rights.
d.
abundant, not scarce, resources.
58. Prices usually reflect
a.
b.
c.
d.
59. Prices direct economic activity in a market economy by
a.
influencing the actions of buyers and sellers.
b.
reducing scarcity of the goods and services produced.
c.
reducing opportunity cost of goods and services produced.
d.
allocating goods and services in the most equitable way.
60. A friend of yours asks you why market prices are better than government-determined prices. Because you understand
economic principles, you say that market-determined prices are better because they generally reflect
a.
the value of a good to society, but not the cost of making it.
b.
the cost of making a good to society, but not its value.
c.
both the value of a good to society and the cost of making it.
d.
neither the value of a good to society nor the cost of making it.
61. If the government were to intervene in a market economy and fix the price of visiting a health care provider below the
market price, then we would expect, relative to the market outcome,
a.
an increase in the number of visits people want to make and an increase in the number of visits health care
providers want to provide.
b.
an increase in the number of visits people want to make and a decrease in the number of visits health care
providers want to provide.
c.
a decrease in the number of visits people want to make and an increase in the number of visits health care
providers want to provide.
d.
a decrease in the number of visits people want to make and a decrease in the number of visits health care
providers want to provide.
62. If the government were to intervene and set the rent for apartments in New York City below the market rent, then we
would expect, relative to the market outcome,
a.
an increase in the number of people wanting to live in apartments in New York City.
b.
a decrease in the number of people wanting to live in apartments in New York City.
c.
an increase in the number of apartments available for rent in New York City.
d.
None of the above is correct.
63. If the government were to intervene and set the price of a dozen eggs above the market price, then we would expect,
relative to the market outcome,
a.
an increase in the number of eggs people want to buy and an increase in the number of eggs farmers want to
sell.
b.
an increase in the number of eggs people want to buy and a decrease in the number of eggs farmers want to
sell.
c.
a decrease in the number of eggs people want to buy and an increase in the number of eggs farmers want to
sell.
d.
a decrease in the number of eggs people want to buy and a decrease in the number of eggs farmers want to
sell.
64. If the government were to intervene and set a wage for unskilled labor above the market wage, then we would expect,
relative to the market outcome,
a.
an increase in the number of unskilled jobs available.
b.
a decrease in the number of unskilled jobs available.
c.
a decrease in the number of workers wanting unskilled jobs.
d.
None of the above is correct.
65. When the government prevents prices from adjusting naturally to supply and demand,
a.
it equates the amount buyers want to buy with the amount sellers want to sell.
b.
it adversely affects the allocation of resources.
c.
it improves equality and efficiency.
d.
it improves efficiency but reduces equality.
66. One reason we need government, even in a market economy, is that
a.
there is insufficient market power in the absence of government.
b.
property rights are too strong in the absence of government.
c.
the invisible hand is not perfect.
d.
Both a and b are correct.
67. The ability of an individual to own and exercise control over scarce resources is called
a.
market failure.
b.
property rights.
c.
externality.
d.
market power.
68. The government enforces property rights by
a.
requiring property owners to pay property taxes.
b.
providing police and courts.
c.
forcing people to own property.
d.
providing public parks and recreation facilities.
69. A company that formerly produced music CDs went out of business because too many potential customers bought
illegally-produced copies of the CDs instead of buying the product directly from the company. This instance serves as an
example of
a.
market power.
b.
inefficient trade.
c.
inadequate enforcement of property rights.
d.
the invisible hand at work.
70. For which of the following problems can well-designed public policy enhance economic efficiency?
a.
both externalities and market power
b.
externalities, but not market power
c.
market power, but not externalities
d.
neither externalities nor market power
71. Public policies
a.
may be able to improve either economic efficiency or equality.
b.
may be able to improve economic efficiency but cannot improve equality.
c.
may be able to improve equality but cannot improve economic efficiency.
d.
cannot improve either equality or economic efficiency.
72. To say that government intervenes in the economy to promote efficiency is to say that government is attempting to
a.
create a more fair distribution of income.
b.
change the way in which the economic pie is divided.
c.
enlarge the economic pie.
d.
All of the above are correct.
73. To say that government intervenes in the economy to promote equality is to say that government is aiming to
a.
create a more fair distribution of income.
b.
change the ingredients that are used to “bake” the economic pie.
c.
enlarge the economic pie.
d.
All of the above are correct.
74. Which of the following could reduce economic efficiency?
a.
laws that encourage lawsuits
b.
policies that redistribute income
c.
policies that impose significant restrictions on international trade
d.
All of the above are correct
75. A rationale for government involvement in a market economy is
a.
markets sometimes fail to produce a fair distribution of economic well-being.
b.
markets sometimes fail to produce an efficient allocation of resources.
c.
property rights have to be enforced.
d.
All of the above are correct.
76. The term used to describe a situation in which markets do not allocate resources efficiently is
a.
economic meltdown.
b.
market failure.
c.
equilibrium.
d.
the effect of the invisible hand.
77. The term market failure refers to
a.
a situation in which the market on its own fails to allocate resources efficiently.
b.
an unsuccessful advertising campaign which reduces demand for a product.
c.
a situation in which competition among firms becomes ruthless.
d.
a firm that is forced out of business because of losses.
78. Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a
market?
a.
to promote efficiency
b.
to promote equality
c.
to enforce property rights
d.
to protect an industry from foreign competition
79. Which of the following can lead to market failure?
a.
externalities and market power
b.
externalities but not market power
c.
market power but not externalities
d.
neither externalities nor market power
80. Causes of market failure include
a.
externalities and market power.
b.
market power and incorrect forecasts of consumer demand.
c.
externalities and foreign competition.
d.
incorrect forecasts of consumer demand and foreign competition.
81. Market failure can be caused by
a.
low consumer demand.
b.
equilibrium prices.
c.
externalities and market power.
d.
high prices and foreign competition.
82. Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of
a.
a market failure caused by an externality.
b.
a market failure caused by market power.
c.
a market failure caused by equality.
d.
There is no market failure in this case.
83. A species of snakes became extinct due to pollution in a river where the snakes once lived. This is an example of
a.
a market failure caused by an externality.
b.
a market failure caused by market power.
c.
a market failure caused by equality.
d.
There is no market failure in this case.
84. The term “market failure”
a.
means the same thing as “market power.”
b.
refers to the dissolution of a market when firms decide to quit producing a certain product.
c.
refers to the failure of a market to produce an efficient allocation of resources.
d.
refers to government’s failure to enforce the property rights of households or firms that participate in a certain
market.
85. If an externality is present in a market, economic efficiency may be enhanced by
a.
government intervention.
b.
a decrease in foreign competition.
c.
fewer market participants.
d.
weaker property rights.
86. An example of an externality is the impact of
a.
bad weather on the income of farmers.
b.
the personal income tax on a person’s ability to purchase goods and services.
c.
pollution from a factory on the health of people in the vicinity of the factory.
d.
increases in health care costs on the health of individuals in society.
87. Which of the following is an example of an externality?
a.
Annie purchases a new dress.
b.
Antonio’s dog barks loudly during the night, waking his neighbors.
c.
Harold sells a book to Cathy, who reads the book and then gives it to James as a gift.
d.
Gloria watches a scary movie.
88. The willingness of citizens to pay for vaccinations does not include the benefit society receives from having
vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is
known as
a.
productivity.
b.
an externality.
c.
market power.
d.
property rights.
89. If an electric power plant does not bear the entire cost of the pollution it emits, it will
a.
not emit any pollution so as to avoid the entire cost of the pollution.
b.
emit lower levels of pollution.
c.
emit an acceptable level of pollution.
d.
emit too much pollution.
90. Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended
to reduce
a.
efficiency.
b.
equality.
c.
externalities.
d.
productivity.
91. Which of the following is an example of an externality?
a.
A paper mill dumps waste into the river.
b.
A neighbor’s loud music disrupts sleep.
c.
A drunk driver causes an accident that injures another person.
d.
All of the above are correct.
92. Which of these activities will most likely impose an external cost?
a.
An athlete works out at a gym.
b.
A secretary smokes a cigarette in a crowded break room.
c.
A young mother pushes her baby in a stroller.
d.
A construction worker eats a hotdog during his lunch break.
93. Which of these activities will most likely impose an external cost?
a.
Betty plants flowers in her garden.
b.
Bonnie gets a flu vaccine.
c.
Bridget drives her car after having too much alcohol to drink.
d.
Becky buys a new flat screen television.
94. Which of these activities will most likely result in an external benefit?
a.
A college student buys a deck of cards to play solitaire in her dorm room.
b.
An elderly woman plants a flower garden on the vacant lot next to her house.
c.
An executive purchases a book to read on a business trip.
d.
A ten-year-old uses his allowance to buy new Nike shoes.
95. Which of these activities will most likely result in an external benefit?
a.
Ted purchases a dilapidated house and cleans up the yard and exterior of the house.
b.
Tim purchases an iPhone and downloads new apps.
c.
Terri purchases a new SUV and drives it to work every day.
d.
Thomas purchases a suit and wears it on his interviews.
96. When a single person (or small group) has the ability to influence market prices, there is
a.
competition.
b.
market power.
c.
an externality.
d.
a lack of property rights.
97. Market power refers to the
a.
power of a single person or small group to influence market prices.
b.
ability of a person or small group to successfully market new products.
c.
power of the government to regulate a market.
d.
importance of a certain market in relation to the overall economy.
98. Which of the following firms is likely to have the greatest market power?
a.
an electric company
b.
a farmer
c.
a grocery store
d.
a local electronics retailer
99. Which of the following firms is most likely to have market power?
a.
a grocery store in a metropolitan area
b.
a convenience store in a suburb
c.
a pub in a college town
d.
the only gasoline station in a rural area
100. An example of a firm with market power is a
a.
delicatessen in New York.
b.
cable TV provider in Tulsa.
c.
clothing store in Chicago.
d.
family farm in Kansas.
101. The price of diamonds is high, in part because the majority of the world’s diamonds are controlled by a single firm.
This is an example of
a.
a market failure caused by an externality.
b.
a market failure caused by market power.
c.
a market failure caused by equality.
d.
There is no market failure in this case.
102. Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of
a.
a market failure caused by an externality.
b.
a market failure caused by market power.
c.
a market failure caused by equality.
d.
There is no market failure in this case.
103. Water pollution from pulp and paper mills harms plants, animals, and humans. This is an example of
a.
a market failure caused by an externality.
b.
a market failure caused by market power.
c.
a market failure caused by equality.
d.
There is no market failure in this case.
104. Mary and Martha both can make cookies and cakes of the same quality, though Mary can make more of both cookies
and cakes per hour than Martha. With the bake-sale quickly approaching, they want to make as many cookies and cakes as
possible. In which of the following situations will the most cookies and cakes be made?
a.
Mary makes as many cookies and cakes as she can, while Martha does nothing.
b.
Martha makes as many cookies and cakes as she can, while Mary does nothing.
c.
Mary and Martha both specialize in what they are better at making.
d.
There is not enough information.
105. Adam Smith’s insight was that prices adjust to guide individual buyers and sellers to reach outcomes where, in many
cases,
a.
opportunity cost is minimized for buyers.
b.
scarcity is reduced for society.
c.
well-being of society is maximized.
d.
opportunity cost of production is maximized.
106. Which of the following is true about how the “invisible hand” influences economic activity through prices when a
product has lower demand than supply?
a.
The price must decrease, causing more buyers to buy and less sellers to sell.
b.
The price must decrease, causing more buyers to buy and more sellers to sell.
c.
The price must increase, causing less buyers to buy and more sellers to sell.
d.
The price must increase, causing less buyers to buy and less sellers to sell.