Question 1

Waste produced by a power plant that harms local fishing industries is an example of a:

Accepted Answer

The waste produced by the power plant has a negative impact on the local fishing industries, which is an example of a negative externality. An externality is a cost or benefit that affects a third party who did not choose to incur that cost or benefit. In this case, the power plant is not considering the impact of their waste on the fishing industries, which is a negative externality.

Question 2

Market failures:

Accepted Answer

While government intervention can sometimes correct market failures, it is not always the case. In some instances, government failures may exacerbate market failures. Therefore, option A is incorrect. Option B is incorrect because some market failures may be addressed through other means, such as private sector solutions or social movements. Option D is incorrect because market failures lead to an undesirable allocation of resources. Option C is the best choice as it acknowledges that government intervention is not always a guaranteed solution to market failures.

Question 3

Some argue that Sweden's generous welfare benefits, which pay people who lose their jobs as much as 80 percent of previous incomes for three years, has resulted in too-high unemployment. This can be seen as an example of:

Accepted Answer

The argument suggests that Sweden's welfare benefits have led to high unemployment rates, implying that the government's interventions have failed to foster a competitive market environment. The generous benefits may have created disincentives for people to actively seek employment or for companies to create new jobs. This highlights the importance of designing efficient welfare policies to avoid unintended consequences such as market inefficiencies. The other options do not fit the scenario described.

Question 4

A public good is a good that:

Accepted Answer

A public good is a type of good that is non-excludable, meaning that it is impossible or extremely costly to exclude anyone from its benefits, and non-rivalrous, meaning that consumption by one individual does not reduce the amount available to others. This means that public goods can be consumed by multiple individuals without decreasing availability, making option B the correct answer.

Question 5

New developments in computer monitors have made flat panel LCDs cheaper and better than the older CRT models. Given that monitors can contain as much as 8 pounds of lead, disposing of the old monitors creates a:

Accepted Answer

Disposing of old CRT monitors creates a negative externality because it creates a cost (such as environmental damage and health risks) that is not paid for by the individuals or companies disposing of them, but rather by society as a whole.

Question 6

Assuming government's goal is to benefit society as much as possible:

Accepted Answer

In order to benefit society as much as possible, actions with negative externalities (such as pollution, traffic congestion, or noise pollution) should be restricted. These actions impose costs on society that are not reflected in the market price, and therefore lead to market failure. By restricting these actions, the government can internalize these costs and ensure that the market operates efficiently.

On the other hand, actions with positive externalities (such as education, vaccination, or research and development) should be encouraged. These actions provide benefits to society that are not fully captured by the individual or firm that undertakes them. By encouraging these actions, the government can ensure that the market is producing the optimal level of these goods and services.

Therefore, the best choice is option D, which recommends restricting negative externalities and encouraging positive externalities.

Question 7

Which of the following is a good example of government's attempt to correct for macroeconomic externalities?

Accepted Answer

The answer of Which of the following is a good...

Question 8

When a government bans prostitution, it may do so because it considers prostitution to be a:

Accepted Answer

Prostitution is considered a demerit good, which means that it is a good that is harmful to society and individuals. The government may ban it to protect the public from the potential harms of prostitution such as sexually transmitted diseases, human trafficking, and exploitation.

Question 9

Some nutritionists consider junk food or eating junk food an example of:

Accepted Answer

Eating junk food is considered a demerit activity as it has negative impacts on health such as obesity, high blood pressure, and increased risk of chronic diseases. Demerit goods or activities are those that have negative effects on the individual or society and are discouraged.

Question 10

Determining whether a good is a merit good is:

Accepted Answer

Whether a good is a merit good or not depends on individual preferences and values, making it a subjective exercise. Economic theory can provide some guidance, but ultimately it is up to individuals to determine whether they believe a good has merit or not. While economists may have expertise in this area, it is not necessary to be an economist to make this determination.

Question 11

Which of the following is the best example of a macroeconomic externality?

Accepted Answer

Many people saving more without considering the effect on unemployment is an example of a macroeconomic externality because it involves the actions of many individuals affecting the overall economy. If too many people start saving more, this could lead to a decrease in consumer spending, which could then lead to decreased demand for goods and services, which in turn could lead to higher unemployment rates. This externality affects the entire economy, rather than just one person's individual actions.

Question 12

What kind of externalities affects the levels of unemployment, inflation, or growth in the economy as a whole?

Accepted Answer

Macroeconomic externalities affect the economy as a whole, including factors like unemployment, inflation, or growth. These are broad economic effects that impact the overall economic environment rather than individual decisions or outcomes, which are typically the focus of microeconomic externalities.

Question 13

Which of the following is the best example of a demerit good?

Accepted Answer

Demerit goods are those goods which are considered harmful to the consumer or the society as a whole. Cigarettes are a perfect example of demerit goods as they have negative effects on a person's health and also contribute to societal problems like air pollution and littering.

Question 14

The best example of a merit good or activity is:

Accepted Answer

Teaching baseball to boys and girls in the community is an example of a merit good or activity. Merit goods are those that are considered to have positive externalities, meaning that the benefits of consuming or engaging in them extend beyond the individual consumer or participant. In this case, teaching baseball to children in the community not only provides them with a fun and healthy activity, but can also help to develop social skills, teamwork, and a sense of community.

Question 15

International market failures:

Accepted Answer

International market failures are complex and often require coordinated policy responses that a world government could theoretically provide, making solutions more feasible through centralized decision-making and enforcement mechanisms.

Question 16

When the Sarbanes-Oxley Act that established new accounting rules was passed, analysts suggested that the new rules would not improve protections for the investing public, but it would result in more work for accountants. If the professors are right, these regulations are an example of:

Accepted Answer

The professors' assessment that the regulations would not improve protections for the public but would result in more work for accountants suggests that the regulations may represent a government failure, as they are not achieving their intended goals and may have unintended negative consequences.

Question 17

Which of the following is one of the macroeconomic goals established by the 1946 Employment Act?

Accepted Answer

The goal established by the 1946 Employment Act was to provide an economic environment conducive to growth. The Act established the Employment Act of 1946 as a way to chart a course for maintaining an expanding economy by establishing several macroeconomic goals, including promoting maximum employment, production, and purchasing power. The Act also mandated that the federal government use fiscal policy to guide the economy towards these goals.

Question 18

Healthy food and charitable giving are examples of:

Accepted Answer

Merit goods or activities are those that have a positive impact on society and are often under-consumed in the market because people do not realize their true value or cannot afford them. Healthy food and charitable giving are examples of merit goods because they promote health and well-being and contribute to the greater good of society, but may not always be purchased or donated because of individual financial constraints or lack of awareness of their benefits.

Question 19

Which of the following occur in the real world?

Accepted Answer

Both market failures and government failures occur in the real world. Market failures result from a variety of reasons including monopolies, externalities, information asymmetry and public goods. Government failures occur when the government intervention causes inefficiencies, unintended consequences, or leads to rent-seeking behavior.

Question 20

Global corporations:

Accepted Answer

Global corporations can create jobs, stimulate economic growth, and bring in foreign investment to the countries in which they operate. They also have the ability to innovate and introduce new technologies and products to these countries. However, they may also have negative impacts such as exploiting labor and resources and contributing to wealth inequality.

Quiz 3: Economic Institutions