Econ #2 Set 2
Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers?
If quality is not maintained, the franchiser will be limited in his ability to sell other franchises and collect franchise fees.
Does economic efficiency indicate that all pollution should be eliminated?
No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost.
A free-rider problem exists when a good that has the following characteristic?
Nonexcludable.
Which of the following is a valid reason for government provision rather than market provision of certain economic goods and services?
Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers, while the government can use taxes to overcome this problem.
Which of the following is most likely to lead to the underpricing and overuse of an economic resource?
The absence of an enforceable property right.
How does an additional individual's consumption of a public good, such as an aerial fireworks display, affect the amount of the good available to other consumers?
The amount available to others is unaffected.
Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?
The efficient price would be higher than $84.
Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?
The equilibrium quantity of MBAs will equal the efficient quantity of MBAs.
Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?
The flu shot reduces the likelihood others will catch the flu.
Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?
The price will be too low, and the output will be too large.
Economic efficiency requires that
all economic activity generating more benefits than costs be undertaken.
Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?
all the above
From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to
an output of the product that is less than the amount consistent with ideal economic efficiency.
The laws that make it illegal for firms to collude or attempt to monopolize a market are known as
antitrust laws.
Brand names such as "Nabisco" or "Sony"
benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about.
When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the
firm's cost of producing electricity will be lower than the community's true opportunity cost.
The government sometimes provides public goods because
free-riders make it difficult for private markets to supply the efficient quantity.
A car sells at different prices at different dealerships in a local market. If a consumer has imperfect information about the price of a car at each dealership, he should
gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it.
Markets may have difficulty providing the proper quantity of a public good because
individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.
A good is considered to be a public good if it
is both nonrival-in-consumption and nonexcludable.
If production of a good creates external benefits, a competitive market may produce
less output than is efficient.
Which of the following is the best example of a public good?
national defense
Relative to a competitive situation, if a market lacks competition, economic theory suggests that
output will be lower and price higher
Many external costs occur because
people do not pay the true cost of using a resource.
Competitive markets generally give consumers and producers correct incentives when
property rights are well-defined and enforced.
Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a
public good.
Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would
result in a price that is lower than the efficient price for both goods.
If the construction...
should be built
If an economic action generates more costs than benefits, the action
should not be undertaken from an efficiency standpoint.
When production of a good generates external costs, the
supply curve for the good will understate the true social cost of producing the good.
When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this
the imperfect information problem
Externalities are fundamentally the result of
the lack of well-defined or enforced property rights
Sellers will tend to be most concerned with customer satisfaction when
they depend on repeat customers for most of their business.
In which of the following markets are information problems likely to be most serious?
used cars
