1. Although some economists believe network externalities are important barriers to entry, other economists disagree because ________.

Select one:

a.

they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of the efficiency of firms in offering products that satisfy consumer preferences

b.

they believe that most examples of network externalities are really barriers to entry caused by the control of a key resource

c.

network externalities are really negative externalities

d.

they believe that the dominant positions of firms that are supposedly due to network externalities are to a greater extent the result of economies of scale

2. If a restaurant was a natural monopoly, dividing the restaurant equally into two separate restaurants would ________.

Select one:

a.

raise average total cost

b.

decrease marginal cost

c.

increase total revenue

d.

make marginal revenue less elastic

3. If the economy were in a recession, we would expect government expenditure to be _________.

Select one:

a.

high and tax revenues to be high, probably leading to a budget deficit

b.

high and tax revenues to be low, probably leading to a budget deficit

c.

low and tax revenues to be low, probably leading to a budget surplus

d.

high and tax revenues to be low, probably leading to a budget surplus

4. An increase in the supply of cash on the overnight money market will lead to a( n) ____________ in interest rates and a( n)_________ in investment expenditure.

Select one:

a.

decrease; decrease

b.

increase; decrease

c.

decrease; increase

d.

increase; increase

5. A period of expansion in the business cycle ends when ________.

Select one:

a.

real GDP is equal to potential GDP

b.

the business cycle reaches its peak

c.

the business cycle reaches its trough

d.

real GDP is less than potential GDP

6. If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost, ________.

Select one:

a.

further reductions will make society better off

b.

further reductions will make society worse off

c.

pollution taxes should be imposed on producers to pay for further reductions

d.

economic efficiency will be increased if further reductions are made

7. Which of the following causes the official measure of the unemployment rate to understate the true extent of joblessness?

Select one:

a.

Many full-time workers really want to be part-time workers.

b.

People who collect unemployment benefits report themselves to be searching for a job.

c.

Discouraged workers are not counted as unemployed.

d.

Discouraged workers are counted as unemployed.

8.As the economy nears the end of an expansion, interest rates usually ________ and wages rise more ________ than prices.

Select one:

a.

fall; slowly

b.

rise; slowly

c.

fall; rapidly

d.

rise; rapidly

9. Governments grant patents to encourage ________.

Select one:

a.

research and development of new products

b.

competition

c.

low prices

d.

firms to form public enterprises

10. Which of the following must be present to reach a private solution to an externality problem?

Select one:

a.

A majority of the parties affected by the externality must agree to a solution.

b.

The transaction costs to negotiate a solution must be relatively low.

c.

The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution.

d.

The government must approve the solution for it to be a legal solution.