Question 1(1 point)

Government can help eliminate all the following problems EXCEPT

a	underprovision of public goods.
b	economic inequality.
c	externalities.
d	scarcity.

Question 2(1 point)

An externality can be a

a	marginal cost but not a total cost.
b	benefit but not a cost.
c	cost or a benefit.
d	cost but not a benefit.

Question 3(1 point)

An externality is a cost or a benefit from an economic transaction that falls on

a	producers of the good but not consumers.
b	both consumers and producers of the good.
c	consumers of the good but not producers.
d	people who did not participate in the transaction.

Question 4(1 point)

The external cost of a good

a	equals its total cost minus its total surplus.
b	is the cost from a transaction imposed on people who did not participate in the transaction.
c	equals its total cost minus its consumer surplus.
d	equals its total cost minus its producer surplus.

Question 5(1 point)

The external benefit of a good

a	equals its consumer surplus.
b	is the gain from a transaction falling on people who did not participate in the transaction.
c	equals its producer surplus.
d	equals its total surplus.

Question 6(1 point)

An example of an activity that generates an external cost is

a	dumping soapsuds into a trout stream.
b	eating an apple.
c	national defense services.
d	planting flowers along an interstate highway.

Question 7(1 point)

An example of an externality occurs when a chemical factory

a	produces fertilizers that kill plants rather than feed them.
b	produces fertilizers that do not help plants grow.
c	dumps waste in a river upstream from a popular fishing spot.
d	overworks its employees.

Question 8(1 point)

When people decorate the exteriors of their homes with colored lights, they create ________ for the motorists who pass by.

a	an excludable good
b	an external benefit
c	a competitive good
d	a public good

Question 9(1 point)

Market failures can result from

a	external benefits but not external costs.
b	external benefits and external costs.
c	external costs but not external benefits.
d	neither external benefits nor external costs.

Question 10(1 point)

When a private market uses resources inefficiently, ________ exists.

a	monopoly always
b	perfect competition
c	resource failure
d	market failure

Question 11(1 point)

The theory of public choice

a	explains the allocation of private goods.
b	is the theory of the political marketplace.
c	is the theory of the consumer marketplace.
d	explains the allocation of a good among free riders.

Question 12(1 point)

Regulation refers to

a	the formation of monopolies.
b	cartelization of a competitive industry.
c	the discipline of the marketplace.
d	rules administered by a government agency.

Question 13(1 point)

Antitrust laws attempt to

a	support prices.
b	establish minimum wages.
c	enforce fair trade laws.
d	prevent monopolies or collusion.

Question 14(1 point)

The supply of economic regulation will increase when

a	there is a small benefit spread over a large number of people.
b	there is an increase in the benefit per buyer created by the regulation.
c	there is a decrease in the benefit per buyer created by the regulation.
d	there is a decrease in the benefit per seller created by the regulation.

Question 15(1 point)

The social interest theory of regulation predicts that the

a	deadweight loss is eliminated, whereas the capture theory predicts that consumer surplus will be maximized.
b	producer surplus will be maximized, whereas capture theory predicts that consumer surplus will be maximized.
c	deadweight loss is eliminated, whereas the capture theory predicts that producer surplus will be maximized.
d	consumer surplus will be maximized, whereas the capture theory predicts that producer surplus will be maximized.

Question 16(1 point)

The social interest theory of regulation predicts that the political process will seek to minimize

a	producer surplus.
b	deadweight loss.
c	consumer surplus.
d	total surplus.

Question 17(1 point)

The social interest theory of regulation assumes that

a	public officials favor consumers over producers.
b	regulations promote the attainment of competitive output.
c	regulations favor voters over producers.
d	public officials seek to keep their jobs.

Question 18(1 point)

The capture theory of regulation implies that regulations maximize

a	total surplus.
b	external surplus.
c	consumer surplus.
d	producer surplus.

Question 19(1 point)

In some states, barbers and beauticians cannot care for hair without passing an examination testing such specialized knowledge as the location of the sphenoid bone and how to do finger waves. The regulation benefits barbers and beauticians who are already licensed. This requirement best illustrates

a	the effect of the Sherman Act.
b	the capture theory of regulation.
c	the effect of the Clayton Act.
d	the social interest theory of regulation.

Question 20(1 point)

The first national economic regulatory agency in the United States was created in the

a	1880s.
b	1910s.
c	1930s
d	1960s.

Question 21(1 point)

The 1930s, the years of the Great Depression, saw

a	a sharp increase in federal regulation.
b	a sharp reduction in federal regulation.
c	the repeal of the Sherman Act.
d	the extension of the Sherman Act to transportation and communications.

Question 22(1 point)

The tendency to deregulate the U.S. economy began in the late

a	1930s.
b	1990s.
c	1970s.
d	1910s.

Question 23(1 point)

In a regulated industry, individual firms are free to determine

a	neither the markets they serve nor the quantities they sell.
b	the markets they serve but not the quantities they sell.
c	the quantities they sell but not the markets they serve.
d	the quantities they sell and the markets they serve.

Question 24(1 point)

The key decision makers in federal regulatory agencies are generally selected by

a	consumers.
b	the President or Congress.
c	business.
d	consumers and business together.

Question 25(1 point)

A natural monopoly

a	is a firm than can supply the market at lower cost than two or more firms.
b	has no externalities.
c	sets price equal to marginal revenue.
d	sells to a single buyer.

Question 26(1 point)

Today, you might be buying from a regulated natural monopoly when you purchase

a	a car, a truck, or a bicycle.
b	a computer, a phone, or a camera.
c	natural gas or electricity.
d	a house, a condominium, or a plot of land.

Question 27(1 point)

Regulation of a natural monopoly will maximize the sum of consumer surplus and producer surplus if it follows

a	All of the above answers are correct.
b	an average cost pricing rule.
c	rate of return regulation.
d	a marginal cost pricing rule.

Question 28(1 point)

An average cost pricing rule for a natural monopoly sets the price ________ the marginal cost, thereby ________ a deadweight loss.

a	below; creating
b	below; avoiding
c	above; avoiding
d	above; creating

Question 29(1 point)

An unregulated natural monopoly maximizes its profit by producing the output at which

a	external revenue equals external cost.
b	total revenue equals total cost.
c	marginal revenue equals marginal cost.
d	average revenue equals average cost.

Question 30(1 point) (same graph till question 40)

Price and costs ( dollars per unit) - N W A GO V OO OO ATC MC MR D O 2 3 4 5 6 Quantity (millions of units)500 450 400 Price and costs (dollars per trip) 350 300 250 200 150 ATC 100 MC 50 MR D 2 3 4 5 6 Quantity (hundreds of trips per month)100 Price (cents per bottle) 80 60 40 20 D O 2 3 4 5 Quantity (thousands of bottles per month)55 50 Price (cents per kwh) 45 40 35 30 25 CL 20 b ATC 10 C MC 5 g D O 100 200 300 400 500 MR Quantity (kilo-watt hours)