QUESTION 17

An argument that some economists make against the minimum wage is that:

A.

All of the above are valid arguments against the minimum wage.

B.

It will cause too many workers to be demanded.

C.

If it is too high, it will cause fewer workers to be demanded.

D.

It will decrease production costs and ultimately make the price of the product they produce too low.

QUESTION 18

Suppose you were shopping and saw a widget you'd like to buy - but there was no price tag. After some consideration, you determined that you'd spend as much as $25 to buy the widget. When you inquired about the price to a sales clerk, he said the price was $7. The difference between the two values is known as:

A.

Producer surplus

B.

Deadweight gain

C.

Consumer surplus

D.

Deadweight loss

QUESTION 19

The society as a whole is better off when:

A.

The sum of producer and consumer surplus is zero.

B.

Producer surplus has been maximized and consumer surplus has been minimized

C.

Consumer surplus has been mazimized and producer surplus has been minimized.

D.

The sum of producer and consumer surplus has been maximized

QUESTION 20

Market failure is said to occur whenever:

A.

prices rise.

B.

government intervenes in the functioning of private markets.

C.

private markets do not allocate resources in the most economically desirable way.

D.

some consumers who want a good do not obtain it because the price is higher than they are willing to pay.

QUESTION 21

Which of the following is an example of market failure?

A.

Negative externalities.

B.

Positive externalities.

C.

Public goods.

D.

All of these.

QUESTION 22

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:

A.

government failure.

B.

supply-side market failure.

C.

negative externality.

D.

demand-side market failure.

QUESTION 23

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:

A.

maximizes the net benefit to society.

B.

costs more to produce than it provides in benefits.

C.

produces a benefit exactly equal to the cost of producing the last unit.

D.

generates more of a benefit than it costs to produce.

QUESTION 24

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?

A.

Positive externality.

B.

Demand-side market failure.

C.

Supply-side market failure.

D.

All of these.

QUESTION 25

The two main characteristics of a public good are:

A.

nonrivalry and nonexcludability.

B.

nonrivalry and large negative externalities.

C.

production at constant marginal cost and rising demand.

D.

nonexcludability and production at rising marginal cost.

QUESTION 26

Which of the following is an example of a public good?

A.

A sofa.

B.

A bottle of soda.

C.

A weather warning system.

D.

A television set.

QUESTION 27

The market system does not produce public goods because:

A.

their production seriously distorts the distribution of income.

B.

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.

C.

there is no need or demand for such goods.

D.

public enterprises can produce such goods at lower cost than can private enterprises.

QUESTION 28

Which of the following is a key difference between the economic activities of government and those of private firms?

A.

Government has the legal right to force people to do things; private firms do not.

B.

Private economic activities create externalities; government activities do not.

C.

Government focuses primarily on equity; private firms focus only on efficiency.

D.

Private firms face the constraint of scarcity; government does not.

QUESTION 29

The government of Southland wants to improve resource allocation in the country. Which of the following actions by the Southland government is most likely to accomplish this?

A.

Weakening enforcement of laws and contracts.

B.

Coercing all firms to innovate and invest.

C.

Taxing polluters and subsidizing firms that are creating significant positive externalities.

D.

Promising to cover every risk of loss for private firms.

QUESTION 30

The many layers of the federal government in the United States:

A.

better allow the invisible hand to direct government resources to their best uses.

B.

enhance government's ability make effective decisions quickly.

C.

lead to economic inefficiencies because of difficulty aggregating and conveying information.

D.

improve accountability of government officials, thus leading to more efficient policies.

QUESTION 31

Individual accountability within the government bureaucracy:

A.

tends to be lacking because of civil service protections and the complexity of government.

B.

tends to be greater than in private firms, making government more efficient than private firms.

C.

is not a problem because government bureaucrats are not affected by the self-interest that affects private sector individuals.

D.

is easy to monitor because of the small size and scope of government.

QUESTION 32

The idea of government failure includes all of the following except:

A.

special-interest effect.

B.

extensive positive externalities from public and quasi-public goods.

C.

bureaucratic inefficiency.

D.

pressure by special-interest groups.

QUESTION 33

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of:

A.

logrolling.

B.

the principal-agent problem.

C.

moral hazard.

D.

rent-seeking behavior.

QUESTION 34

The political tendency to favor spending priorities with immediate benefits but deferred costs results in:

A.

chronic budget deficits.

B.

misdirection of stabilization policy.

C.

unfunded liabilities.

D.

all of these.

QUESTION 35

Chronic budget deficits can be attributed to:

A.

unfunded liabilities.

B.

inappropriate monetary policy.

C.

state budget laws.

D.

voters wanting government programs but not wanting to pay taxes.

QUESTION 36

The U.S. federal government's largest unfunded liability is:

A.

Medicare.

B.

Social Security.

C.

national defense.

D.

unemployment insurance.