Econ 351 ch 16 testbank

3) Use the following statements to answer this question: I. Incomplete information may lead to economic inefficiencies if consumers do not understand the complete set of benefits associated with a particular product. II. Market power can lead to economic inefficiency, but only if the power is held by sellers and not by buyers (e.g., monopsony). A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Answer: B

4) Externalities can lead to inefficient economic outcomes because: A) firms do not have to pay the full cost associated with using inputs that cause pollution. B) firms that produce public goods tend to be monopolies. C) Both A and B are correct. D) none of the above

Answer: A

16.1 General Equilibrium Analysis 1) Which of these is NOT an exercise in general equilibrium analysis? A) A discussion of factors within the wheat market that influence wheat prices B) An analysis of the effects of changes in oil prices upon the natural gas market C) An evaluation of relationships between the markets for tires and automobiles D) none of the above

Answer: A

4) The markets for movie theater tickets and videocassette rentals are highly interdependent. Suppose that a tax is imposed on movie theater tickets. The type of analysis that examines the effects of this tax on the markets for movie theater tickets and videocassettes simultaneously is called A) macroeconomics. B) general equilibrium analysis. C) partial equilibrium analysis. D) full market analysis. E) psychoanalysis.

Answer: B

4) The slope of the production possibilities frontier is A) positive. B) negative. C) zero. D) undefined.

Answer: B

16.6 An Overview--The Efficiency of Competitve Markets 1) An economy produces outputs X and Y using inputs L and K. Which of the following is NOT required for economic efficiency? A) MRTSLK = MRSXY for all producers and consumers. B) MRTXY = MRSXY for all producers and consumers. C) MRSXY is equal for all consumers. D) MRTSLK is equal for all producers. E) None of the above. All of these are required for economic efficiency.

Answer: A

2) General equilibrium analysis is different from partial equilibrium analysis in that general equilibrium analysis A) explicitly takes feedback effects into account and partial equilibrium analysis does not. B) does not take into consideration specific problems, but partial equilibrium analysis does. C) takes into consideration specific problems, but partial equilibrium analysis does not. D) allows one to arrive at a specific conclusion, but partial equilibrium analysis does not.

Answer: A

5) Use the following statements to answer this question. I. Output efficiency requires that goods are produced in combinations that match people's willingness to pay for the goods. II. Output efficiency requires that goods are produced at costs that match people's willingness to pay for the goods. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Answer: A

6) Canada produces MP3 players and lumber, and the marginal costs for the two products are $200 per 1,000 board-feet of lumber and $100 per MP3 player. China also produces these goods, and the marginal costs are $300 per 1,000 board-feet of lumber and $100 per MP3 player. Which country has the comparative advantage in lumber production? A) Canada B) China C) Both countries share the comparative advantage. D) We need more information to answer this question.

Answer: A

10) Use the following statements to answer this question. I. A nation may have a comparative advantage in the production of a good without having an absolute advantage in the production of any goods. II. A nation may have a comparative advantage in the production of two or more goods. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Answer: B

16.3 Equity and Efficiency 1) The slope of the utility possibilities frontier is A) positive. B) negative. C) zero. D) undefined.

Answer: B

2) If one of the agents in an Edgeworth Box has monopoly power and maximizes profit as the sole seller, then the economic outcome is: A) inefficient because the monopoly has no incentive to be technically efficient. B) inefficient because the monopoly produces less than the optimal amount of output. C) Both A and B are correct. D) none of the above

Answer: B

2) Suppose MRTS is not the same across all producers. In this case, the economic outcome is not fully efficient because: A) exchange is inefficient. B) the use of inputs in production is inefficient. C) the mix of outputs in inefficient. D) none of the above

Answer: B

3) An allocation in which one person can be made better off only by making someone else worse off is A) inefficient. B) efficient. C) a partial equilibrium. D) a general equilibrium.

Answer: B

3) What does the negative slope of the utilities possibilities frontier imply? A) Diminishing marginal utility. B) The only way to increase one person's utility is to decrease another person's utility. C) Diminishing marginal rates of substitution. D) The only way to increase output of one good is to decrease output of another.

Answer: B

4) An efficient allocation of goods in an exchange economy means that A) goods were produced by the most efficient technology available. B) no one can be made better off without making somebody else worse off. C) those made worse off are not hurt as badly as the benefits resulting from those made better off. That is, there is a net positive gain. D) in a particular production process one gets the maximum output for a given input.

Answer: B

16.2 Efficiency in Exchange Scenario 16.1: Irrespective of the amount of cheese doodles and pretzels that Sam consumes, his marginal rate of substitution of cheese doodles for pretzels is 2. Also, irrespective of the amount of cheese doodles and pretzels that Sally consumes, her marginal rate of substitution of cheese doodles for pretzels is 3. 1) Refer to Scenario 16.1. Initially Sam and Sally are allocated 10 cheese doodles and 10 pretzels each. Which of the following statements are TRUE? A) The initial allocation is Pareto optimal as it is equitable. B) The initial allocation is Pareto optimal as Sally and Sam have equal amounts of both goods. C) The allocation is not Pareto optimal. An allocation that gave Sam all of the cheese doodles and Sally all of the pretzels would make both of them better off. D) The allocation is not Pareto optimal. An allocation that gave Sam four of the cheese doodles and sixteen of the pretzels (leaving Sally the rest) would make both of them better off.

Answer: C

16.4 Efficiency in Production 1) A competitive equilibrium is efficient in the production and exchange of two goods X and Y when A) MRSXY = MRTLK (where L = labor input and K = capital input). B) MRTXY = MRSLK (where L = labor input and K = capital input). C) MRSXY = MRTXY. D) MCX/MCY = PY/PX.

Answer: C

16.5 The Gains from Free Trade 1) Use the following statements to answer this question. I. There are potential gains from trade when the economies of two countries differ so that one country has an absolute advantage in producing one good, while the second country has an absolute advantage in producing another good. II. A country has an absolute advantage in producing a good if its cost is lower than the cost in another country. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Answer: C

16.7 Why Markets Fail 1) Which of the following is not a cause of market failure? A) Incomplete information B) Externalities C) Individuals acting according to their own self-interest D) Public goods

Answer: C

2) What is TRUE about every point along a utilities possibilities frontier? A) Markets are perfectly competitive. B) It is possible to move to from one point on the frontier to another point and make everyone better off. C) All allocations are efficient. D) It includes some unattainable points.

Answer: C

4) All points within the utilities possibilities frontier are A) unattainable. B) efficient. C) inefficient. D) profitable.

Answer: C

4) Suppose MRS does not equal MRT for all consumers. In this case, the economic outcome is not fully efficient because: A) exchange is inefficient. B) the use of inputs in production is inefficient. C) the mix of outputs in inefficient. D) none of the above

Answer: C

5) What is TRUE about every point along a production possibilities frontier? A) Both people are maximizing utility. B) It is impossible to increase production of either good. C) All allocations are efficient. D) It includes some unattainable points.

Answer: C

2) In an economy which produces two goods X and Y, using two inputs L and K, efficient input use occurs when A) MRTSLKX = MRSLKY B) MRTXY = MRSXY C) MRSX/PX = MRSY/PY D) MRTSLKX = MRTSLKY

Answer: D

3) Which of the following is a condition for efficiency in the output market? A) MRT = MPL/MPK B) The marginal rate of substitution is the same for all customers. C) The marginal rate of technical substitution must be the same for all producers. D) The marginal rate of transformation must equal the marginal rate of substitution.

Answer: D

5) In a problem involving exchange, the contract curve shows A) all exchanges that make both parties better off. B) the one exchange that makes both parties better off. C) all possible allocations of goods between both parties. D) all possible efficient allocations between both parties.

Answer: D

5) Inefficient outcomes can arise in markets for public goods because: A) too much of an exclusive good is produced. B) too little of an exclusive good is produced. C) too much of a nonexclusive good is produced. D) too little of a nonexclusive good is produced.

Answer: D

5) Which of the following is true? Partial equilibrium analysis will A) overstate the impact of a tax for both substitutes and complements. B) understate the impact of a tax for both substitutes and complements. C) understate the impact of a tax for complements and overstate the impact for substitutes. D) understate the impact of a tax for substitutes and overstate the impact for complements.

Answer: D

3) The United States and Brazil are competitors in the world soybean market. In the late 1960s and early 1970s, the Brazilian government developed regulations designed to encourage Brazilian soybean production and exports. An unanticipated effect of the Brazilian regulations was to stimulate U.S. soybean production and exports. The type of economic analysis that would explain and predict these effects is called A) closed economy macroeconomics. B) international economics. C) partial equilibrium analysis. D) full market analysis. E) general equilibrium analysis.

Answer: E