Question 1

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $68, consumer surplus is $4.

Accepted Answer

A) True 
 B)False

Question 2

The government often provides goods that are nonrivalrous and nonexclusive to overcome which market failure?

Accepted Answer

A)   asymmetric information
B)   negative externalities (external costs) 
C)   positive externalities (external benefits) 
D)   public goods

Question 3

A $2 maximum price on a gallon of gasoline would be an example of a price floor.

Accepted Answer

A) True 
 B)False

Question 4

(Figure: Determining Surplus and Loss)  In the graph, if the government sets a minimum price of $12, there is a

Accepted Answer

A)   shortage of 20 units.
B)   surplus of 20 units.
C)   shortage of 40 units.
D)   surplus of 40 units.

Question 5

(Figure: Determining Surplus and Loss) In the graph, a minimum price of $8 would allow for a binding price floor.

Accepted Answer

A) True 
 B)False

Question 6

Jill plants flowers in her yard to supply a local florist. Her neighbor is enjoying the flowers. Therefore, Jill

Accepted Answer

A)   should stop planting flowers because her neighbor does not pay for the benefit he gets.
B)   should not plant flowers because their economic value is low and opportunity cost is high.
C)   should plant fewer flowers because the external cost is greater than the external benefit.
D)   is creating an external benefit for her neighbor.

Question 7

"Laissez-faire" is a _____ term that means _____.

Accepted Answer

A)   French; "all else equal"
B)   French; "let it be"
C)   Spanish; "all else equal"
D)   Spanish; "let it be"

Question 8

(Figure: Determining Surplus and Loss) In the graph, a minimum price of $12 would allow for a binding price floor.

Accepted Answer

A) True 
 B)False

Question 9

Implementing a price ceiling can cause

Accepted Answer

A)   a shortage.
B)   poverty.
C)   a surplus.
D)   scarcity.

Question 10

Consumer surplus is defined as the gap between the supply curve and the market price.

Accepted Answer

A) True 
 B)False

Question 11

Market failure occurs when the market does not provide the socially optimal amount of goods and services.

Accepted Answer

A) True 
 B)False

Question 12

The gap between the supply curve and the market price is called producer surplus.

Accepted Answer

A) True 
 B)False

Question 13

Mr. Smith, who knows the proposed site of a major new highway from reading the newspaper, buys a ranch from Mr. Jones, who never reads the newspaper. This is an example of

Accepted Answer

A)   asymmetric information.
B)   adverse selection.
C)   moral hazard.
D)   opportunity cost.

Question 14

Laws that prohibit price gouging are often politically

Accepted Answer

A)   popular, but result in shortages.
B)   popular, but result in surpluses.
C)   unpopular and result in shortages.
D)   unpopular and result in surpluses.

Question 15

If an agricultural pesticide costs $10 per gallon to produce and it adds $3 worth of damage when it runs off into a river, the cost that is borne by society is

Accepted Answer

A)   $13.
B)   $7.
C)   $10.
D)   $3.

Question 16

Producer surplus is defined as the gap between the supply curve and the market price.

Accepted Answer

A) True 
 B)False

Question 17

If demand for a product rises, what happens to consumer surplus, assuming supply does not change and the market sells at the equilibrium price?

Accepted Answer

A)   Consumer surplus will be larger after the increase in demand.
B)   Consumer surplus will be smaller after the increase in demand.
C)   Consumer surplus will remain unchanged after the increase in demand.
D)   There is no way to predict whether consumer surplus will change.

Question 18

Jamestown offers a free community bus service to anyone wishing to use it. Is this service a public good?

Accepted Answer

A)   No, it is not a public good because people still need to walk to and from the bus stop.
B)   No, it is not a public good because there are only a limited number of seats on each bus, which can fill up.
C)   Yes, it is a public good because it is provided by taxpayer dollars.
D)   Yes, it is a public good because there is no cost to ride the bus.

Question 19

The best definition of "externalities" is

Accepted Answer

A)   the cost associated with consumption of one more unit.
B)   accurate information.
C)   the economic effects of individual actions on third parties.
D)   the right to own private property.

Question 20

The gap between the supply curve and the market price is called consumer surplus.

Accepted Answer

A) True 
 B)False

Exam 4: Markets and Government

The gap between the supply curve and the market price is called consumer surplus.

Correct AnswerverifiedShow Answer

(Figure: Determining Surplus and Loss) In the graph, if the government sets a minimum price of $12, there is a

Correct AnswerverifiedShow Answer

Consumer surplus is defined as the gap between the supply curve and the market price.

Correct AnswerverifiedShow Answer

(Figure: Determining Surplus and Loss) In the graph, a minimum price of $8 would allow for a binding price floor.

Correct AnswerverifiedShow Answer

(Figure: Determining Surplus and Loss) In the graph, a minimum price of $12 would allow for a binding price floor.

Correct AnswerverifiedShow Answer

Implementing a price ceiling can cause

Correct AnswerverifiedShow Answer

The best definition of "externalities" is

Correct AnswerverifiedShow Answer

The government often provides goods that are nonrivalrous and nonexclusive to overcome which market failure?

Correct AnswerverifiedShow Answer

Jamestown offers a free community bus service to anyone wishing to use it. Is this service a public good?

Correct AnswerverifiedShow Answer

Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $68, consumer surplus is $4.

Correct AnswerverifiedShow Answer

"Laissez-faire" is a _____ term that means _____.

Correct AnswerverifiedShow Answer

Laws that prohibit price gouging are often politically

Correct AnswerverifiedShow Answer

If an agricultural pesticide costs $10 per gallon to produce and it adds $3 worth of damage when it runs off into a river, the cost that is borne by society is

Correct AnswerverifiedShow Answer

A $2 maximum price on a gallon of gasoline would be an example of a price floor.

Correct AnswerverifiedShow Answer

Market failure occurs when the market does not provide the socially optimal amount of goods and services.

Correct AnswerverifiedShow Answer

If demand for a product rises, what happens to consumer surplus, assuming supply does not change and the market sells at the equilibrium price?

Correct AnswerverifiedShow Answer

Jill plants flowers in her yard to supply a local florist. Her neighbor is enjoying the flowers. Therefore, Jill

Correct AnswerverifiedShow Answer

Mr. Smith, who knows the proposed site of a major new highway from reading the newspaper, buys a ranch from Mr. Jones, who never reads the newspaper. This is an example of

Correct AnswerverifiedShow Answer

Producer surplus is defined as the gap between the supply curve and the market price.

Correct AnswerverifiedShow Answer

The gap between the supply curve and the market price is called producer surplus.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

"Laissez-faire" is a _ term that means _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified