Suppose you were shopping and saw a widget you’d like to buy – but there was no

Question

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:

Deadweight loss

Consumer surplus

Producer surplus

Deadweight gain

QUESTION 19

The society as a whole is better off when:

The sum of producer and consumer surplus has been maximized

The sum of producer and consumer surplus is zero.

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

Producer surplus has been maximized and consumer surplus has been minimized

2 points   

QUESTION 20

Market failure is said to occur whenever:

prices rise.

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

government intervenes in the functioning of private markets.

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?

Negative externalities.

Positive externalities.

Public goods.

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:

government failure.

supply-side market failure.

demand-side market failure.

negative externality.

QUESTION 23

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

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

maximizes the net benefit to society.

costs more to produce than it provides in benefits.

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?

Positive externality.

Demand-side market failure.

Supply-side market failure.

All of these.

QUESTION 25

The two main characteristics of a public good are:

nonexcludability and production at rising marginal cost.

nonrivalry and large negative externalities.

nonrivalry and nonexcludability.

production at constant marginal cost and rising demand.

QUESTION 26

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

A sofa.

A television set.

A bottle of soda.

A weather warning system.

QUESTION 27

The market system does not produce public goods because:

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

there is no need or demand for such goods.

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

their production seriously distorts the distribution of income.

  

QUESTION 28

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

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

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

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

Private economic activities create externalities; government activities do 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?   

Weakening enforcement of laws and contracts.

Coercing all firms to innovate and invest.

Promising to cover every risk of loss for private firms.

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

QUESTION 30

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

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

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

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

enhance government's ability make effective decisions quickly.

QUESTION 31

Individual accountability within the government bureaucracy:

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

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

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

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

QUESTION 32

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

special-interest effect.

extensive positive externalities from public and quasi-public goods.

pressure by special-interest groups.

bureaucratic inefficiency.

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:

the principal-agent problem.

rent-seeking behavior.

moral hazard.

logrolling.

QUESTION 34

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

chronic budget deficits.

misdirection of stabilization policy.

unfunded liabilities.

all of these.

QUESTION 35

Chronic budget deficits can be attributed to:

inappropriate monetary policy.

state budget laws.

unfunded liabilities.

voters wanting government programs but not wanting to pay taxes.

QUESTION 36

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

Social Security.

national defense.

unemployment insurance.

Medicare.

A.

Deadweight loss

B.

Consumer surplus

C.

Producer surplus

D.

Deadweight gain

Explanation / Answer

Answer 18 - Consumer surplus is the difference between price which consumer is willing to pay and the actual market price. Here, the consumer is ready to pay $25 per widget but the actual price was $7 per widget. The difference would be called 'Consumer Surplus'.

Option B is the correct answer.

Answer 19 - The society as a whole is better off when the 'sum of producer surplus and consumer surplus is maximized' in the economy. Producer surplus is the difference between price that a producer is willing to take and the actual price in the market. If society as a whole maximizes social surplus then it said that society is better off.

Option A is the correct answer.

Answer 20 - Market failure is said to occur whenever private markets do not allocate resource in the most economically desirable way. It happens in all markets in the economy. Price markets are profit motive that is why they do not achieve economic efficiency necessarily in the product and distribution. It results loss in social welfare.

Option B is the correct answer.

Answer 21 - The example of market failure is externalities (Positive and Negative) and public good. The externalities occur when action of one person affect well-being of another person. Public goods are provided but the government through budget like public health and welfare program.

Option D is the correct answer.

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