Question 1

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 suggestion that the Sarbanes-Oxley Act would result in more work for accountants without actually improving protections for the investing public suggests that the government failed in its attempt to regulate and protect. Therefore, this is an example of government failure.

Question 2

Global corporations in general are:

Accepted Answer

Global corporations operate across multiple jurisdictions, making it harder for any single government to regulate them effectively. Additionally, they often have significant financial and political power, which can make it difficult for governments to enforce regulations.

Question 3

Determining whether a good is a merit good is:

Accepted Answer

Determining whether a good is a merit good depends on subjective perceptions and values, not objective criteria or economic theory. Therefore, it is a subjective exercise.

Question 4

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

Accepted Answer

Actions with negative externalities, such as pollution or smoking, impose costs on society as a whole, so they should be restricted. On the other hand, actions with positive externalities, such as education or vaccination, benefit society as a whole, so they should be encouraged. Therefore, the best choice is to restrict actions with negative externalities and encourage actions with positive externalities in order to maximize the benefit to society.

Question 5

Market failures:

Accepted Answer

While government intervention may help correct some market failures, it is not a guaranteed solution and can sometimes exacerbate the problem. Additionally, some market failures may be less serious than others and not require government intervention at all. Therefore, option C is the best choice since it acknowledges that government failures can sometimes worsen market failures. The other options are incorrect because they either suggest that government intervention is always effective (option A), never effective (option B), or can lead to a desired outcome in the presence of market failures (option D), which is not necessarily true.

Question 6

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 by individuals who do not recognize their long-term benefits. Healthy food and charitable giving can be considered merit goods because they promote public health and well-being and have positive externalities such as reduced healthcare costs and improved community support.

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

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

Accepted Answer

The waste produced by a power plant that harms local fishing industries is an example of a negative externality because it imposes costs on third parties (in this case, local fishing industries) who are not involved in the production or consumption of the power plant. The power plant does not take into account the full social costs of its production, leading to an inefficient allocation of resources.

Question 9

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 the best example of a macroeconomic externality because it involves the actions of a large number of individuals having an unintended consequence on the overall economy. If many people suddenly start saving more money, it can lead to decreased consumer spending and a decrease in demand for goods and services, potentially leading to an increase in unemployment. This externality affects not just the individuals saving more, but also the economy as a whole.

Question 10

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

Accepted Answer

Junk food is considered a demerit good as it has negative impacts on health and well-being. It is often highly processed and high in calories, sugar, and unhealthy fats, which are linked to obesity, diabetes, and other health problems. Therefore, consuming junk food is considered an unhealthy or undesirable activity.

Question 11

Global corporations:

Accepted Answer

Global corporations can provide many benefits to the countries in which they operate, such as bringing in foreign investment, creating jobs, and boosting exports. They can also transfer technology and knowledge and contribute to the growth of local economies. Therefore, they play an important role in the global economy.

Question 12

International market failures:

Accepted Answer

The answer of International market failures:
...

Question 13

Which of the following occur in the real world?

Accepted Answer

Market failures occur when the market fails to allocate resources in an efficient way, such as when there is monopoly power, externalities, or public goods. Government failures occur when government intervention leads to inefficiencies, such as when there is bureaucratic red tape, corruption, or rent-seeking. Both market failures and government failures are common in the real world.

Question 14

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

Accepted Answer

Prostitution is often considered a demerit good because it is seen as harmful or morally objectionable by society, leading governments to ban or regulate it.

Question 15

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 generous welfare benefits provided by the government have created disincentives for people to work, resulting in a high unemployment rate. The government's failure to foster a competitive market environment has contributed to this situation. The labor market has become less responsive and efficient, causing a long-term adverse impact on the economy.

Question 16

A public good is a good that:

Accepted Answer

A public good is a good that is non-excludable, meaning that individuals cannot be excluded from consuming it, and non-rivalrous, meaning that consumption by one individual does not diminish the amount available to others. Therefore, when consumed by one individual, it can still be consumed by others, making choice B the correct answer.

Question 17

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

Accepted Answer

The Employment Act of 1946 established that the federal government has the responsibility to promote maximum employment, production, and purchasing power. This overall objective creates an economic environment conducive to growth. While preventing large fluctuations in exchange rates and ensuring that employers pay workers a minimum wage sufficient to escape poverty are important economic policies, they were not specifically established by the Employment Act. Maintaining a constant level of consumer expenditure is not a macroeconomic goal established by the Act.

Question 18

The best example of a merit good or activity is:

Accepted Answer

Teaching baseball to boys and girls in the community is a merit activity as it has positive externalities such as promoting physical activity, teamwork, and socialization skills. It is an activity that benefits not only the individual players but also the community as a whole. Excessive consumption of pork and exercising too much are not merit goods or activities, and providing free beer to teenagers is actually a demerit activity as it has negative externalities such as increased rates of underage drinking and impaired driving.

Question 19

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

Accepted Answer

The answer of What kind of externalities affects the levels...

Question 20

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

Accepted Answer

A demerit good is a product or service that is considered harmful to individuals or society and is overconsumed in a free market because the negative effects of consumption are not reflected in the market price. Cigarettes are widely considered a demerit good because their consumption is linked to numerous health problems and public health costs. The other options, whole-wheat bread, bicycles, and education, are not typically considered demerit goods.

Quiz 3: Economic Institutions