Econ 203 Ch 4 Practice Questions

The optimal mix of output is the most desirable combination of output attainable with existing -Resources and products. -Resources, technology, and social values. -Resources, government regulations, and technology. -Technology and business decisions.

The term market mechanism refers to: -The use of market prices and sales to signal desired output. -Resource allocation based on a production possibilities curve. -Resource allocation based on cnsumer needs. -Government laws and regulations concerning how the market should operate.

Market failure implies that the market mechanism: -Leads the economy to a point outside the production possibilities curve. -Leads the economy to the wrong mix of output. -Causes shortages or surpluses in the market. -Causes government failure.

From an economic standpoint, government intervention is justified: -When the market mechanism fails to achieve the optimal mix of output. -Because the governemtn will encourage the production of private goods. -Because the government can increase the level of market power of private businesses. -When the private sector is larger than public sector.

When market failure occurs, the role of government is to: -Eliminate markets. -Push market outcomes closer to the ideal. -Create an alternative to markets. -Do nothing.

The market: -On its own may not always provide the optimal mix of goods and services. -Always provides the optimal mix of goods and services. -Always provides a better mix of goods and services without government intervention than it does with government intervention. -May not produce the optimal mix of output, which is known as government failure.

A private good: -Is consumed by one person and excludes consumption by others. -Experiences free riders. -Results in market failure when provided in markets characterized by laissez faire. -Is provided most efficiently by the government.

Which of the following explains why flood control is a public good? -There are external benefits associated with its consumption. -The private ector usually produces flood control projects. -It is not divisble and therefore cannot be kept from people who do not pay. -Flood control is paid for by taxpayers.

Which of the following explains what would happen if public goods were marketed like private goods? -Public goods would be underproduced. -Many consumers would want to buy the goods. -Public goods would be overproduced. -Government failure would result.

If public goods were marketed like private goods, then: -Public goods would be efficiently produced. -People would wait for others to pay. -Market failure would not occur. -Society would be closer to achieving the optimal mix of output.

If Good X has social demand that is less than market demand, then Good X must be a: -Public good. -Good with an external cost. -Good with an external benefit. -Good suffering from the free-rider problem.

Which of the following produces external benefits?-Garbage dumped in the Atlantic Ocean. -The inoculation of college students against the flu. -Passive smoke in a public building. -All of the choices are correct.

The market will overproduce goods that have external costs because: -producers experience lower costs than society. -Producers experience higher costs than society. -The government is not able to produce these goods. -Producers cannot keep these goods from consumers who do not pay, so they have to produce greater amounts.

Social demand is equal to: -Market demand plus or minus externalities. -Public demand plus or minus externalities. -Tax revenue plus or minus externalities. -Private goods plus or minus externalities.

Which of the following justifies the federal government's role in antitrust enforcement? -Inequity. -Public goods and externalities. -Market power. -Macro failure.

A monopoly occurs when: -A firm gains some level of market power. -A firm charges a price greater than the equilibrium price. -There is only one producer of a particular good or service. -There is an underproduction of a good or service by a firm.

When the economy experiences unemployment, -There is government failure. -There is macro instability. -There is micro instability. -No market failure occurs.

Which of the following occurs when the economy experiences inflation? -Government failure. -Micro instability. -Macro instability. -The free-rider problem.

Suppose that if your income is $100,000, your tax is $20,000, but if your income is $200,000, your tax is $45,000. Such a tax is: -Regressive. -Progressive. -Proportional. -A flat tax.

Suppose that if your income is $20,000, your tax is $4,000, but if your income is $40,000, your tax is $8,000. Such a tax is: -Regressive. -Progressive. -Proportional. -A merit tax.

Suppose that if your income is $50,000, your tax is $5,000, but if your income is $100,000, your tax is $8,000. Such a tax is: -Regressive. -Progressive. -Proportional. -An excise tax.

The four specific sources of market failure are: -Public goods, market power, externalities, and inequity. -Private goods, market power, externalities, and inequity. -Public goods, market goods, externalities, and inequity. -Private goods, market goods, externalities, and inequity.

Market Power may result from all of the following except: -Patents and copyrights. -Control of resources. -Efficiencies of large-scale production. -Low barriers to entry.