Question 1

Which of the following is not one of the problems associated with common ownership of resources and a job that needed to be done?

Accepted Answer

The problem of paying someone else to do a job is not directly related to the issue of common ownership of resources. The other options all represent common problems that arise when there is a lack of accountability and responsibility in a group setting.

Question 2

When 95% of the students in your economics receive a flu shot, the remaining 5% have less chance of getting sick with the flu. This is an example of a(n)

Accepted Answer

This is an example of a positive externality because the decision of some students to receive a flu shot has a beneficial effect on others who did not receive the shot, reducing their chances of getting sick.

Question 3

If the owners of SUVs are not forced to compensate the people affected by their pollution, the market result will be

Accepted Answer

If there is no compensation for the pollution caused by SUVs, their cost of production will be lower than it should be, as the true costs of their impact on the environment will not be factored in. This will result in a lower price for SUVs, leading to more people buying them, and therefore, too many SUVs being driven. This is because the market price is not reflective of the true cost of production, creating a market failure.

Question 4

By September 2008, ____ of all U.S., mortgages outstanding were either delinquent or in foreclosure.

Accepted Answer

According to the given statement, by September 2008, 14% of all U.S. mortgages outstanding were either delinquent or in foreclosure.

Question 5

Several years ago, schoolchildren began mailing the Styrofoam containers from McDonald's meals they had purchased back to McDonald's headquarters. The schoolchildren wanted McDonald's to stop using Styrofoam and instead use biodegradable packaging, which the company did. From an economic perspective, the schoolchildren were pressuring McDonald's to

Accepted Answer

The schoolchildren were pressuring McDonald's to reduce their negative externality, specifically the environmental impact of using non-biodegradable Styrofoam packaging. By switching to biodegradable packaging, McDonald's could reduce this negative impact.

Question 6

Situations where the market does not work efficiently or does not allocate resources to their highest valued uses are called

Accepted Answer

Market failures occur when the market is unable to produce an efficient allocation of resources. This can be due to externalities, public goods, asymmetric information, or market power. Market failures lead to a loss of economic welfare and may necessitate government intervention to improve efficiency.

Question 7

If taxpayers are forced to pay for the schools needed to meet the needs created by a new real estate development in an area,

Accepted Answer

When developers create new real estate developments, they are creating a need for schools in the area, which is a negative externality. However, if taxpayers are forced to cover the cost of building the schools needed to meet this need, the developers have transferred the cost of the negative externality onto taxpayers. In other words, the developers are not paying for the cost of the schools and are not taking responsibility for the impact of their actions on the community. This is an example of a negative externality being internalized by the public, resulting in a transfer of the externality's cost to taxpayers.

Question 8

Several politicians have proposed a "guzzler" tax that would be added to the cost of few-miles-per-gallon vehicles. If enacted, this tax would most likely

Accepted Answer

The "guzzler" tax on few-miles-per-gallon vehicles would make these vehicles more expensive to produce or sell, effectively decreasing the supply of such vehicles. This is represented by an inward shift of the supply curve for these automobiles. The tax does not directly affect the overall demand for oil, nor does it inherently change the equilibrium price or output without considering demand-side effects.

Question 9

The immediate cause of the 2006-2010 economic crisis was:

Accepted Answer

The immediate cause of the 2006-2010 economic crisis was the bursting of the U.S. housing bubble. This was caused by the widespread issuance of subprime mortgages, which were given to people with poor credit ratings, and were often packaged together with other mortgages and sold as securities to investors. As these mortgages began to default, the value of these securities plummeted, leading to a financial crisis that spread throughout the global economy.

Question 10

A situation where everybody owns something but nobody takes care of it illustrates the market failure problem associated with

Accepted Answer

This situation is an example of the tragedy of the commons, which occurs when a resource is owned collectively by a group, but individuals have no incentive to care for it because they do not bear the full costs of their actions. This leads to overuse and degradation of the resource. This problem is a result of common ownership, as there are no clear property rights or responsibilities allocated to individuals.

Question 11

"Too big to fail" is a term used to describe a firm

Accepted Answer

"Too big to fail" refers to a firm whose failure could have a significant impact on the overall economy, particularly due to its interconnectedness with other firms and industries. This term is often applied to large financial institutions whose collapse could trigger a wider economic crisis.

Question 12

A subprime loan is a loan ____, while an ARM is a loan ____.

Accepted Answer

A subprime loan is made to individuals with a high risk of default, while an ARM (Adjustable Rate Mortgage) is a loan that has a low initial interest rate, but the interest rate adjusts according to market conditions. Therefore, choice E is the best answer.

Question 13

Monopoly regulation occurs primarily because

Accepted Answer

Monopoly regulation occurs primarily because compared to competitive firms, monopolies tend to restrict output and raise prices. This leads to an inefficient allocation of resources and reduced consumer welfare. Therefore, regulating monopolies is seen as necessary to ensure fair competition and protect consumers from high prices and reduced product quality.

Question 14

Between 1997 and 2006, the price of the typical American house increased by ____, a rate significantly higher than at any other time during the previous decades.

Accepted Answer

According to the sentence, between 1997 and 2006, the price of the typical American house increased by a rate significantly higher than any other time during previous decades. The answer choice that best fits this description is D) 124%.

Question 15

To reduce road congestion in Singapore, cars traveling into certain districts at specified times pay a toll. This attempts to address a(n)

Accepted Answer

The policy of tolls on cars traveling into certain districts at specified times is an attempt to address the market failure of road congestion. When roads are congested, the marginal cost of driving (in terms of time and fuel) for each additional driver exceeds the marginal benefit (in terms of reaching their destination). As a result, there is overconsumption of the road, leading to traffic jams and delays. By imposing tolls, the government aims to internalize the cost of congestion and reduce the number of cars on the road during peak hours.

Question 16

Lojack anti-theft devices installed on some cars located the stolen cars and helped shut down chop shops, where thieves cut up stolen cars and resold the parts. This reduced car theft in general, creating a(n)

Accepted Answer

The installation of Lojack anti-theft devices not only located stolen cars but also helped shut down chop shops, which is a positive externality. This results in a reduction of car theft in general, benefitting society as a whole.

Question 17

An externality is a cost or benefit created by a transaction that

Accepted Answer

An externality is a cost or benefit that is not paid for or enjoyed by those involved directly in the transaction, which means it affects parties outside of the transaction. For example, air pollution from a factory affects the surrounding community, but the factory owners and customers do not bear the full cost of the negative impact.

Question 18

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

Accepted Answer

The real estate developer's pollution of the stream has a negative impact on the environment and the fish population, which are not taken into account by the market, making it a clear example of a negative externality.

Question 19

Which of the following is not in the category of economic regulation?

Accepted Answer

Economic regulation refers to government intervention in markets to promote efficiency and fairness. Setting output and job standards that apply across several industries is not a type of economic regulation, but rather falls under the category of social regulation or labor regulation.

Question 20

Nobel Prize-winning economist Ronald Coase perceives market failures as a problem associated with

Accepted Answer

Ronald Coase is known for his work on the economics of property rights and transaction costs, and his analysis of market failures often revolves around the lack of clearly defined and enforced property rights.

Quiz 7: Business, Society, and the Government