Questions
Which of the following is an example of an externality? cigarette smoke that permeates an entire restaurant a flu shot that prevents a student from transmitting the virus the beautiful fountain and flowers outside of Old Main All of the above are correct.
Question 2
Which of the following is an example of adverse selection?
a jobless student gets a high interest rate loan to purchase a car to get to school the student texts while driving her newly purchased and insured car because the car is old, it pollutes the air more than a new car would the student gets a job to pay back the loan
Question 3
Which of the following would be an example of a nongovernmental solution to a problem associated with externalities?
society's preference to drive large cars and SUVs new stricter anti-pollution laws a general moral commitment to develop and use green technologies tax credits for the purchase of hybrid autos
Question 4
A tax equal to the external cost of used paper that multiplication firms impose on paper airplane firms would:
provide multiplication firms with the incentive to increase their use of paper.
provide multiplication firms with the incentive to decrease their use of paper.
provide multiplication firms with little incentive to search for alternative production methods that decrease paper use.
both b and c.
Question 5
Which of the following represents a tragedy of the commons?
the branches of the orange tree that hang over my fence near the sidewalk never have any oranges on them
the book you want to check out of the library has already been checked out by someone else
you can't find a parking spot in one of the university's pay-to-park garages
all of the above
Question 6
A special interest group may be successful in getting a project approved even when the potential costs far outweigh the potential benefits because:
they are informed voters on their special interest and will reward politicians who support their interest.
most other voters remain rationally ignorant of the issue; thus, their opinion of the politician remains unchanged.
the cost a single, average taxpayer must pay is less than the cost they would incur if they were to protest the project.
all of the above.
Question 7
The reason why national defense is commonly provided by the government, while food is not, is that food...
is too essential to survival to be provided by a bureaucratic organization.
manufacturers have successfully lobbied the government to stay out of the food industry.
can easily be withheld from those who refuse to pay for it.
provision is subject to a free-rider problem.
Question 8
Which of the following is an example of moral hazard?
There are likely more cars of low quality than of high quality offered for sale without warranties in the used car market.
An individual who eats well and exercises regularly chooses not to purchase health insurance.
An individual drives less cautiously after obtaining automobile insurance.
A car salesman offers a full warranty on a used car for 90 days.
Question 9
Which of the following activities represents a positive externality?
The benefit to a consumer from watching a film on DVD.
An increase in quantity demanded for your product when you put it on sale.
The increase in the value of property belonging to your neighbors when you hire a landscaper to maintain your front yard.
All of the above.
Question 10
Which of the following best illustrates the free-rider problem?
A tollbooth is constructed at the entrance of a privately funded highway.
Individuals contribute toward a national defense program by paying taxes to the government.
Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road.
You erect a locked gate around your swimming pool to keep out unsupervised children.
Question 11
A warranty offered by a seller is one way to overcome:
a positive externality problem.
a negative externality problem.
an adverse selection problem.
a free-rider problem.
Question 12
An example of a negative externality is:
the reduction in profits for your company that occurs when there is a decrease in consumer demand for the product you manufacture.
the sleep you lose when your neighbor throws a loud party next door that keeps you awake.
the additional friends you make when you move into a dorm with a shared bathroom.
all of the above
Question 13
Even with the best of intentions, a government agent may not be able to devise a socially optimal policy due to:
the ever-changing nature of information relevant to the policy
their lack of personal charisma
rationally ignorant voters
insufficient administrative help
Question 14
Which of the following provides an example of an externality?
The air pollution generated when you drive your car.
The view that passersby and neighbors enjoy when observing your Halloween decorations.
The free concerts neighbors hear when an accomplished musician practices at home.
All of the above.
Question 15
Consumers will willingly make less-informed decisions:
if information costs are less than the perceived benefits of gathering information.
if information costs are greater than the perceived benefits of gathering information.
since ignorance always leads to bliss.
whenever acquiring more information requires sacrifice.
Question 16
Which of the following is an example of a common resource?
a city dog park
a dog-walking service
the county's spay and neuter program for stray animals
all of the above
Question 17
Which of the following is the best example of a public good?
a national system of healthcare
an amusement park
city street lights
telephone service
Question 18
Public choice theory assumes that voters, politicians, and other political participants are largely motivated by:
personal self-interest.
altruism.
a desire to promote the general welfare.
a desire to promote economic efficiency.
Question 19
If Don paints the outside of his house in large stripes and polka dots:
he probably has lowered the value of his home, but not that of his neighbors' homes.
he probably has lowered the value of his home and the value of his neighbors' homes.
he probably has lowered the value of his neighbors' homes but not the value of his own home.
none of the above
Question 20
Which of the following is true?
Consumption of a public good by one individual reduces the availability of the good for others.
It is extremely difficult to limit the benefits of a public good to the people who pay for it.
Public goods are free whenever the government produces them.
From an efficiency standpoint, a market economy will generally supply too much of a public good.
Question 21
A special interest issue is one that:
provides large private benefits and large social benefits.
provides small private benefits and large social benefits.
provides large benefits to each of a small number of people and small costs to each of a large number of people.
provides small benefits to each of a small number of people and large costs to each of a large number of people.
Question 22
Nancy loves to landscape her yard, but her neighbor Tom places a low value on his landscaping. When Tom's grass is neglected and gets long, Nancy will mow for Tom. This is an example of:
the fallacy of composition.
a pollution tax.
a private solution to a negative externality problem.
how lazy Tom is.
Question 23
Sellers may choose not to sell in certain markets because:
it is possible to practice price discrimination against customers.
buyers are unable to perceive the high quality of their goods and are, therefore, less willing to pay for them.
they are able to impose negative externalities on third parties.
an above-average profit potential is projected.
Question 24
Voters will gather information on voting alternatives:
when the cost of acquiring such information is exorbitantly high.
as long as the marginal benefit to them of acquiring additional information exceeds the marginal cost to them.
as long as the marginal benefit to them of the information is less than the marginal cost to them of gathering the information.
because the welfare of the community is always perceived to be more important than the welfare of the individual.
Question 25
If productivity of an economy increases then:
the amount of goods and services produced by a worker per hour increases.
the labor force increases.
the real GDP per capita decreases.
the labor force decreases.
Question 26
A country will roughly double its GDP in twenty years if its annual growth rate is:
2.5 percent.
3.5 percent.
7.5 percent.
12 percent.
Question 27
In the long run, the most important source of increase in a nation's standard of living is a:
zero rate of population growth.
high rate of economic growth.
high rate of consumption.
high rate of labor force growth.
Question 28
Changes in the growth rate of real GDP per capita do not reflect which of the following?
changes in the total production of final goods in the economy
changes in the production of final services in the economy
changes in the distribution of income
changes in the size of the population
Question 29
Which of the following is not considered a factor contributing to economic growth?
Growth in the quantity and quality of labor resources used
Growth in physical capital inputs (machines, tools, buildings, and inventories)
Growth in the money supply relative to the growth of final goods and services
Government protection of property rights
Question 30
Which of the following is true?
The Rule of 70 says that the number of years necessary for a nation to double its output is approximately equal to the nation's growth rate divided by 70.
Economic growth is usually measured by the annual percent change in the nominal output of goods and services per capita.
An increase in labor input necessarily increases output per capita.
Neither the initial development process nor the sustained growth of an economy is dependent on a large natural resource base.