A. the unrestrained market economy leads to too few or too many resources going to a specific economic activity.

A. the unrestrained market economy leads to too few or too many resources going to a specific economic activity.

B. the market system fails to allocate resources to each individual according to their abilities.

C. the market system fails to allocate an equal share of resources to all individuals.

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D. the market system fails to allocate resources to each individual according to their needs.

Market failure occurs because

A. the market system does not make individuals responsible for the social costs/benefits of their actions.

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B. the market system does not make individuals responsible for the private costs/benefits of their actions.

C. the market system forces individuals to consider the social consequences of their actions.

D. the market system forces individuals to consider the social and private consequences of their actions.

Suppose the government adopts a policy that forces pesticide producers to bear the social costs of groundwater contamination associated with the use of their product. This policy will _________ the price of pesticides. (Graph, S.S.)

Since orange growers regard the pesticide as a key input in the production of oranges, the market for oranges will obviously be affected.

The government policy on pesticides causes the market price of oranges to ______

The government policy on pesticides causes the equilibrium quantity of oranges to ______

Suppose that repeated application of a pesticide used on orange trees causes harmful contamination of groundwater. The pesticide is applied annually in virtually all of the orange groves throughout the world. Most orange growers regard the pesticide as a key input in their production of oranges. (Graph, S.S.)

In what sense do consumers of oranges now “pay” for dealing with the spillover costs of pesticide production?

A. The price of oranges to consumers is higher.

B. Because of regulation, oranges are of a lower quality.

C. Consumers do not pay since the taxes and/or regulations are imposed on the growers.

D. Orange consumption is higher.

Which of the following government policies might be effective in achieving the amount of orange production that fully reflects all social costs?

A. A tax on growers commensurate with the cost to third parties.

B. Government financing or production of oranges.

C. Regulations that limit the use of pesticides.

D. Both A and C are viable policies.

E. Both A and B are viable policies.

Many people who do not smoke cigars are bothered by the odor of cigar smoke. Use the accompanying diagram of the market for cigars to illustrate the implications of a failure of the market cigar supply curve to reflect the social or spillover costs of cigar smoking. (Graph, S.S.)?

In the absence of any government involvement in the market for cigars, will too many or too few cigars be produced and consumed?

From society’s point of view, will the market price of cigars be too high or too low?

A nation’s government has determined that mass transit, such as bus lines, helps alleviate traffic congestion, thereby benefiting both individual auto commuters and companies that desire to move products and factors of production speedily along streets and highways.

Nevertheless, even though several private bus lines are in service, commuters in the city are failing to take the social benefits of the use of mass transit into account.

The socially efficient use of bus services may be achieved by which of the following government policies?

A. Regulations.

B. Subsidies.

C. Government financing and/or production.

D. Any of the above?

E. None of the above

Consider a nation with a government that does not provide people with property rights for a number of items and that fails to enforce the property rights it does assign for remaining items.

Externalities would be _______ common in this nation than in a country such as the United States.

A careful study has determined that bus transit has an external benefit for society valued at $2 per bus ride as a result of the reductions in urban congestion and air emissions that result.

Consider the current demand for and supply of bus transit, which in this locale is provided by a number of firms in a competitive marketplace and which currently do not account for the$2 per-ride external benefit.

To reach the optimal level of production shown in your graph, the government should

A. pay a subsidy to either the producers or riders

B. start to produce the good

C. tax those receiving the extra benefit

D. do nothing

A cost or benefit of an economic activity that has an impact on an individual’s well-being, even though the individual was not directly involved in the activity, is known as a(n)

A. externality.

B. free-rider.

C. capital loss.

D. public good.

In the figure, P and Q locate the socially optimal price and quantity of a good. In the case of a good that generates positive externalities, the market price would be _____P and the market quantity would be ______ Q, while in the case of a good that generates negative externalities, the market price would be ________ P and the market quantity would be ____________ Q.

A. equal to; lower than; higher than; equal to

B. lower than; equal to; higher than; equal to

C. lower than; lower than; higher than; higher than

D. lower than; lower than; lower than; higher than

Pollution produced by a factory is being dumped into a local river. The community uses local funds to clean the river. This is an example of

A. an effluent fee because it is as if the factory is taxing the community.

B. an external benefit since it creates jobs in environmental science.

C. an external cost as the community, not the factory, is paying for the clean up.

D. a public good.

Which one of the following is a primary difference between a public good and a private good?

A. Private goods are purchased by money transfers while public goods are purchased by in-kind transfers.

B. A private good is subject to the free-rider problem while a public good is not.

C. Private goods are manufactured because of the workings of the price system while public goods come about through antitrust legislation.

D. Private goods are subject to the principle of rival consumption while public goods are not.

A true public good must be provided by the government. Which of the following goods provided by the government is a true public good?

A. Highways where tolls are collected.

B. Postal service.

C. Tax collection.

D. Flood control.

Suppose Canada spends less per capita on national defense than many other countries of similar size and income. A reasonable economic explanation would be that

A. Canadians perceive national defense as generating external costs rather than as a public good.

B. Canada’s tax system is less efficient than other industrial nations.

C. Canada is able to free-ride on the defense spending of the United States.

D. national defense is not a public good in Canada.

Other than correcting externalities, other economic functions of government include

A. providing a legal system, allocating public goods, promoting competition, and stabilizing the economy.

B. income redistribution and the regulation and provision of merit and demerit goods.

C. deciding what to produce, how to produce it and for whom to produce for all sectors of the economy.

D. deciding which states may or may not impose income taxes, charge fees and enforce contracts.

Which of the following is not a political function of the government that leads to involvement in the economy?

A. Merit and demerit goods.


 

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