Micro Midterm Part 1, 2019

107) Markets are A) a mechanism through which prices of goods and services are determined by the forces of supply and demand. B) specific geographic locations. C) hypothetical constructs used to analyze how people form their tastes and preferences. D) places where people can inspect goods and services carefully.

A) a mechanism through which prices of goods and services are determined by the forces of supply and demand.

89) A public museum is an example of a A) government-sponsored good. B) public good. C) good which generates a positive externality. D) good which generates a negative externality.

A) government-sponsored good.

Federal antitrust laws in the United States are intended to A) promote competition by prohibiting monopolies. B) promote income equality. C) create new monopolies. D) create only government-owned organizations.

A) promote competition by prohibiting monopolies.

78) The purpose of antitrust legislation is A) to reduce unemployment. B) to reduce the power of monopoly. C) to increase the power of monopoly. D) to maximize employment for a given price level.

B) to reduce the power of monopoly.

82) Private goods are those goods A) that violate the principle of rival consumption. B) for which no public market exists. C) that can only be consumed by one individual at a time. D) to which the non-exclusion principle applies.

C) that can only be consumed by one individual at a time.

74) The legal system in the United States tends A) to support monopolies. B) to actively discourage unionization. C) to discourage the entry of new firms into industries. D) to promote competition.

D) to promote competition.

102) Which of the following is an example of the law of demand? A) An increase in the price of magnetic optical disks is followed by a reduction in the amount of magnetic optical disks purchased. B) An increase in the price of tablets is followed by an increase in the sale of tablets. C) A decrease in the price of milk has no effect on the amount of milk consumed. D) The amount of smartphones sold increases while the price of smartphones is constant.

A) An increase in the price of magnetic optical disks is followed by a reduction in the amount of magnetic optical disks purchased.

62) Which of the following is an example of a negative externality? A) There is an increase in injuries to pedestrians caused by accidents resulting from electronic billboards distracting drivers. B) The opening of a new shopping mall increases the business of nearby restaurants. C) A consumer pays a higher price than another consumer does for the same product. D) Consumers pay a sales tax in addition to the price of a product.

A) There is an increase in injuries to pedestrians caused by accidents resulting from electronic billboards distracting drivers.

101) A fundamental principle in demand analysis is that a change in price leads to A) a movement along the demand curve. B) a rightward shift of the demand curve. C) a leftward shift of the demand curve. D) a complementary movement on the supply curve

A) a movement along the demand curve.

60) An example of third parties in the market of automobiles is A) a pedestrian that is affected by the polluted air from automobiles. B) a seller of an automobile. C) a buyer of an automobile. D) None of the above belongs to third parties.

A) a pedestrian that is affected by the polluted air from automobiles.

96) Scarcity of resources A) affects both market and public sector decision making. B) affects market, but not public sector decision making. C) affects public sector, but not market decision making. D) is really not an issue in such a wealthy nation as the United States.

A) affects both market and public sector decision making.

68) Which of the following is NOT an example of a negative externality? A) inoculation against disease B) pollution C) playing a boom box loudly in a crowded park D) rush hour traffic

A) inoculation against disease

77) U.S. antitrust laws view monopolies as undesirable because A) monopolies restrain trade and promote inefficiencies. B) monopolies create inferior products. C) monopolies produce only capital goods. D) monopolies produce only cheap, low quality goods.

A) monopolies restrain trade and promote inefficiencies.

70) A tax is sometimes used by the government to correct the problems associated with A) negative externalities. B) positive externalities. C) internal benefits. D) external benefits.

A) negative externalities.

84) Public goods are desired because A) people want and value them but the private sector will not make them available. B) we want the government to spend our tax dollars. C) they came in small units. D) they make supply equal to demand for private goods.

A) people want and value them but the private sector will not make them available.

51) Market failures A) prevent the price system from attaining economic efficiency. B) result in quantities and prices that are socially desirable. C) strengthen economic efficiency by forcing unprofitable firms to close. D) weaken the argument for government intervention in the economy.

A) prevent the price system from attaining economic efficiency.

93) Public education in the United States is A) subsidized mainly by state and local governments. B) funded by the federal government only. C) paid for mostly by the parents of students. D) paid for through the Social Security program.

A) subsidized mainly by state and local governments.

65) Assume the production of a good gives rise to external benefits. The government may increase efficiency by A) subsidizing consumption of the good. B) requiring all producers of the good to be licensed. C) taxing production of the good. D) imposing taxes on the good.

A) subsidizing consumption of the good.

The concept of "demand" in economics refers to A) the different quantities of a good or service people will buy at different possible prices. B) the different types of goods and services that people of different income levels want to buy. C) how changes in the prices of all goods affect people's buying behavior. D) changes in people's consumption behavior over time.

A) the different quantities of a good or service people will buy at different possible prices.

57) Market failure occurs when A) the price system fails to generate an efficient allocation of resources. B) the price system fails to generate an equal distribution of income. C) the price system fails to generate an equal distribution of wealth. D) the price system allows consumers to make their own decisions.

A) the price system fails to generate an efficient allocation of resources.

Which of the following is the largest component of federal spending today? A) income security B) Social Security C) Medicare D) national defense

B) Social Security

88) Examples of transfer payments are A) wages, profits, and rents. B) Social Security checks and unemployment insurance payments. C) salaries of educators, police, and firefighters. D) federal government spending for national defense.

B) Social Security checks and unemployment insurance payments.

61) An externality can best be defined as A) a party not directly involved in a transaction. B) a consequence of a transaction that spills over to affect third parties. C) a right of an owner to use and exchange property. D) a cost associated with the production of one more unit of output.

B) a consequence of a transaction that spills over to affect third parties.

103) The demand curve is downward sloping because A) the price must rise to induce firms to increase quantity supplied. B) a reduction in the price of a good causes individuals to increase their purchase of that good. C) an increase in the price will cause a leftward shift in the demand curve. D) all of the above.

B) a reduction in the price of a good causes individuals to increase their purchase of that good.

85) Which of the following is the best example of a public good? A) inoculation against a contagious disease B) a streetlight C) garbage collection D) Internet access

B) a streetlight

90) The funding of public education is A) a private program. B) a subsidy program. C) done by voluntary contributions. D) provided by Social Security.

B) a subsidy program.

71) Costs that spill over to third parties are called A) opportunity costs. B) external costs. C) variable costs. D) public costs.

B) external costs.

95) A difference between the market and the public sector is that A) scarcity exists only in the market sector. B) government can use force, while the market does not. C) we can only vote in the public sector. D) the cost of private goods to society is zero.

B) government can use force, while the market does not

64) Government can correct for negative externalities by A) decreasing taxes. B) increasing taxes or regulation. C) allowing the market system to correct the problem. D) decreasing the costs to those responsible for the externality.

B) increasing taxes or regulation.

99) The law of demand is based on the observation that A) people buy less of a product when the product becomes less fashionable. B) people buy more of a product when its price falls. C) people are indifferent to price changes. D) people always want more than they need.

B) people buy more of a product when its price falls.

79) Public goods are A) any goods or services produced by the government. B) provided to additional users at no additional cost. C) provided only by the capitalistic system. D) provided only by the communist system.

B) provided to additional users at no additional cost.

105) When the term "price" is used in the law of demand, price refers to A) the dollar price of the good. B) the price of the good relative to the price of another good. C) the absolute price of the good. D) the nominal price of the good relative to its nominal price in the previous year.

B) the price of the good relative to the price of another good.

108) In economics, the meaning of demand refers to A) how badly someone wants a good. B) the quantities of a good that people will buy at various prices. C) the quantities of a good that people will sell at various prices. D) the total satisfaction that consuming a good provides people at different prices.

B) the quantities of a good that people will buy at various prices.

98) According to the law of demand, other things being equal A) when the price a good goes up, then people buy more of that good. B) when the price a good goes down, then people buy more of that good. C) when people's income goes down, then they buy less of a good. D) when people's income goes up, then they buy less of a good.

B) when the price a good goes down, then people buy more of that good.

58) A price system is considered to be efficient when A) it fails to have the goods that consumers want. B) an underground market develops. C) all resources are allocated to the highest-valued uses. D) firms produce more than what consumers want.

C) all resources are allocated to the highest-valued uses.

59) A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called A) a public good. B) a merit good. C) an externality. D) the free-rider problem.

C) an externality.

76) Federal antitrust laws in the United States are enforced A) solely by the Federal Trade Commission. B) solely by the Department of Justice. C) by the Department of Justice and by the Federal Trade Commission. D) by the Department of Commerce.

C) by the Department of Justice and by the Federal Trade Commission.

80) One characteristic of a public good is that it A) is available for consumption by only a few individuals at any particular time. B) always eliminates the free-rider problem. C) can be consumed simultaneously by many individuals. D) can be easily subdivided into small units.

C) can be consumed simultaneously by many individuals.

91) The largest spending category for state governments is A) welfare. B) health care. C) education. D) highway construction.

C) education.

67) When costs spill over to third parties, there is a(n) A) cost overrun. B) excessive competition. C) negative externality. D) government subsidy.

C) negative externality.

83) The economic functions of the government deal with A) discouraging smoking in youths. B) making sure supply equal demand. C) promoting economic efficiency. D) excess demand.

C) promoting economic efficiency.

81) In the absence of government A) public goods are likely to be overprovided. B) market failure is less likely to occur. C) public goods are likely to be underprovided. D) the free-rider problem is more likely to occur.

C) public goods are likely to be underprovided.

56) In its most ideal form, a price system allows A) firms to act in such a way that they eliminate scarcity. B) consumers to satisfy all their wants. C) resources to move from lower-valued uses to higher-valued uses through voluntary exchange. D) government policy makers to allocate resources to the uses which they consider to be in the best interests of society.

C) resources to move from lower-valued uses to higher-valued uses through voluntary exchange.

104) Suppose that the price of cornflakes is $6.75 per box and the price of oatmeal is $4.50 per box. Both boxes contain the same number of ounces of cereal. The relative price of cornflakes in terms of oatmeal is A) 0.67. B) 1.0. C) 0.75. D) 1.50.

D) 1.50. 6.75/4.50= 1.50

72) What would happen in a free market system when production of a good generates negative externalities? A) There is a shortage of the good. B) There is a surplus of the good. C) The equilibrium quantity of the good is less than the efficient amount. D) The equilibrium quantity of the good is more than the efficient amount.

D) The equilibrium quantity of the good is more than the efficient amount.

A transfer payment is a payment A) made by the government to its current workers. B) associated with items exported to other nations. C) for in-kind services provided to the government. D) for which no services or goods are rendered.

D) for which no services or goods are rendered.

52) Which of the following is a benefit of the price system? A) the existence of positive externalities B) the production of public goods C) Consumers have what they want since politicians and business managers decide what is to be produced. D) the freedom of consumers to decide what they want to purchase

D) the freedom of consumers to decide what they want to purchase

53) When market failures occur A) the invisible hand will correct for the market failures. B) the price system will correct the market failures. C) buyers and sellers will correct the market failures. D) the government can step in to correct the market failures.

D) the government can step in to correct the market failures