MULTIPLE CHOICE. Choose the one alternative that best ...

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) When producers do not produce the efficient amount of a product because they are

1)

unable to charge consumers what they are willing to pay for it, then we have a:

A) Supply-side market failure

B) Monopolistic market

C) Demand-side market failure

D) Competitive market

2) Which of the following statements about market failure is not true:

2)

A) Market failure can come from causes on the demand-side or the supply-side of a

market

B) Market failure can result from the number of sellers in a market being too few to

ensure competition

C) Market failure causes an inefficient allocation of resources, even in a competitive

market

D) Market failure always results from some government action or policy in a market

3) When producers do not produce the efficient amount of a product because they are

3)

unable to charge consumers what they are willing to pay for it, then we have a:

A) Demand-side market failure

B) Monopolistic market

C) Competitive market

D) Supply-side market failure

4) When producers (say, of roads) are not able to make all consumers pay for enjoying

4)

their product (i.e., the roads), they tend to see a:

A) Marginal cost of production that is too high, and there is a supply-side market

failure

B) Marginal benefit of production that is too high, and there is a demand-side

market failure

C) Marginal cost of production that is too low, and there is a supply-side market

failure

D) Marginal benefit of production that is too low, and there is a demand-side market

failure

5) A competitive market can produce economically efficient outcomes if these conditions 5) are met, except: A) The market produces only units for which costs are at least equal to benefits B) The market produces only units for which benefits are at least equal to cost C) The market supply curve reflects all costs of production D) The market demand curve reflects the buyers' full willingness to pay

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6) The difference between the maximum price a consumer is willing to pay for a product 6)

and the actual price the consumer pays is called:

A) Market failure

B) Consumer Surplus

C) Utility

D) Consumer Demand

7) Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, 7)

then his consumer surplus is

A) $90.

B) $19.

C) $0.90.

D) $1.

8) If the price of a product increases:

8)

A) Consumer surplus will increase

B) Total revenue will definitely increase

C) Total revenue will definitely decrease

D) Consumer surplus will decrease

9) The equilibrium point in the market is where S and D curve intersect.

9)

Refer to the graph above. At equilibrium, consumer surplus would be represented by

the area:

A) a + b

B) a

C) a + b + c

D) b + c

10) The difference between the actual price that a producer receives and the minimum

10)

acceptable price the producer is willing to accept is called the producer:

A) Utility

B) Surplus

C) Costs

D) Revenues

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11) The market supply curve indicates the:

11)

A) Total amount that buyers will pay in buying a given quantity of the product

B) Total revenues that sellers would receive from selling various quantities of the

product

C) Minimum acceptable prices that sellers are willing to accept for the product

D) Maximum prices that buyers are willing and able to pay for the product

12) When economic efficiency is attained, it implies all of the following, except:

12)

A) Total consumer and producer surplus is at a maximum

B) The gap between marginal benefits and marginal costs of production is at

maximum

C) Allocative efficiency is achieved

D) Per-unit cost of output produced is at minimum

13) Street entertainers face the free-rider problem when they perform because of the:

13)

A) Diminishing marginal utility

B) Nonexcludability characteristic

C) Law of Demand

D) Rivalry characteristic

14) Government can reallocate resources away from private goods towards public goods, 14)

usually through:

A) Import tariffs and quotas

B) Taxes and government spending

C) Positive and negative externalities

D) The laws of supply and demand

15) When the production of a good generates external costs, the firm's supply curve will be: 15)

A) Horizontal

B) Below the true-cost supply curve

C) Vertical

D) Above the true-cost supply curve

16) In the market for a particular pair of shoes, Jena is willing to pay $75 for a pair while 16)

Jane is willing to pay $85 for a pair. The actual price that each has to pay for a pair of

shoes is $65. What is the combined amount of consumer surplus of Jena and Jane?

A) $30

B) $215

C) $130

D) $10

17) The minimum acceptable price for a product that producer Sam is willing to receive is 17)

$15. The price he could get for the product in the market is $18. How much is Sam's

producer surplus?

A) $3

B) $270

C) $45

D) $33

18) If a good that generates negative externalities were priced to take these negative

18)

externalities into account, then its:

A) Price would increase but its output would remain constant

B) Output would increase but its price would remain constant

C) Price would increase and its output would decrease

D) Price would decrease and its output would increase

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19) If there are external benefits associated with the consumption of a good or service:

19)

A) The market demand curve will be the vertical summation of the individual

demand costs

B) The private demand curve will overestimate the true demand curve

C) Consumers will be willing to pay for all these benefits in private markets

D) The private demand curve will underestimate the true demand curve

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

20) In a well-functioning "cap-and-trade system" for pollution rights, society benefits

20)

because pollution will be brought down to insignificant levels.

21) The Coase Theorem suggests that the government does not have to be involved at all in 21) resolving a market failure due to externalities.

22) An example of an adverse selection problem is in insurance, where the people most

22)

likely to claim insurance payouts are the people who will seek to buy the most generous

policies.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

23) Asymmetric information in a market transaction occurs when there is unequal

23)

knowledge possessed by the:

A) Buyer and the seller

B) Taxpayer and the government

C) Seller and the government

D) Buyer and the government

24) When sellers are unable to distinguish "good" buyers from "bad" ones, they face the 24)

problem of:

A) Externalities

B) Diminishing utility

C) Moral hazard

D) Adverse selection

25) If Congress decreases the amount of government insurance on bank deposits, then this 25) action would: A) Create an adverse selection problem B) Reduce a moral hazard problem C) Reduce an adverse selection problem D) Create a moral hazard problem

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