Question 1

When production of a good generates external costs,the

Accepted Answer

D

Question 2

Economic efficiency indicates that

Accepted Answer

Economic efficiency suggests that stopping an activity well before perfection is achieved is more cost-effective than striving for perfection. This is because the cost of achieving perfection often outweighs the benefits of doing so. Therefore, option D is the correct answer. Options A, B, and C are not incorrect, but they do not directly relate to the concept of economic efficiency.

Question 3

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?

Accepted Answer

If pulp mills are allowed to emit harmful pollutants for free, they do not have to bear the cost of producing the pollution. As a result, their production costs are lower compared to competitors who are bearing the cost of pollution control. This leads to an increase in the supply of paper which shifts the supply curve to the right, resulting in a lower price for paper. At the same time, since the mills can produce more at a lower cost, the output of paper will be too large. This situation is known as market failure since the market is failing to allocate resources efficiently. In an ideal economic efficiency scenario, the mills would have to bear the cost of pollution control which would increase their production costs, leading to higher prices and lower output levels that would align with social costs.

Question 4

If the construction of a new hospital would create $6 million worth of benefits for citizens and would cost $8 million to construct,then using the criterion of economic efficiency,the hospital

Accepted Answer

The answer of If the construction of a new hospital...

Question 5

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

The external benefit of an individual's purchase of a winter flu shot is that it reduces the likelihood others will catch the flu. This is due to the concept of herd immunity, meaning that when a large portion of a population is vaccinated, it becomes difficult for the disease to spread, thus protecting even those who may not have received the vaccine. None of the other choices describe an external benefit resulting from the individual's purchase of a winter flu shot.

Question 6

From the viewpoint of economic efficiency,when competitive forces in an industry are weak,market allocation will often lead to

Accepted Answer

When competitive forces in an industry are weak, firms have the power to restrict output and raise prices, resulting in an output of the product that is less than the amount consistent with ideal economic efficiency. This is because firms can charge prices that exceed the marginal cost of production without losing customers to competitors, reducing the overall welfare of society.

Question 7

Which of the following best explains why making automobiles completely safe is not efficient?

Accepted Answer

Making cars completely safe would be extremely expensive and may not be worth the additional cost after a certain level of safety is reached.

Question 8

When economists say that an activity meets the criterion for economic efficiency,they mean

Accepted Answer

Economic efficiency is achieved when the benefits of an activity outweigh the costs. This means that the resources used in the activity are being allocated in the most efficient way possible. It does not necessarily depend on majority opinion or the number of people affected by the activity. Option C is partially correct but it is more specifically referring to the concept of Pareto efficiency, which is a subset of economic efficiency. Option D is the opposite of economic efficiency.

Question 9

The idea that an action should be undertaken if and only if the benefits exceed the costs is known as the concept of

Accepted Answer

The concept of economic efficiency states that an action should only be taken if the benefits exceed the costs. This is because economic efficiency aims to ensure that resources are used in the most efficient way, maximizing the benefits to society. Public welfare maximization and marginal comparative advantage are related economic concepts, but they do not specifically address the idea that benefits must exceed costs. Monetary construction of values is not a recognized economic concept. Therefore, the correct answer is A, economic efficiency.

Question 10

Which of the following is most consistent with the idea that if it's worth doing,it's worth doing imperfectly?

Accepted Answer

The idea that if it's worth doing, it's worth doing imperfectly suggests that it is better to do something imperfectly than to not do it at all. Therefore, the act of cleaning the most visible areas of the house is consistent with this idea, as it is better to at least clean those areas instead of not cleaning the house at all. The other options (eliminating all pollution, making automobiles completely safe, and stating that a price cannot be put on human life) suggest a more black-and-white approach, which is not consistent with the idea that it's worth doing imperfectly.

Question 11

Markets may have difficulty providing the proper quantity of a public good because

Accepted Answer

Public goods are non-excludable and non-rivalrous, meaning that once they are provided, everyone can benefit from them and consumption by one person does not decrease the amount available to others. This creates a free-rider problem where individuals have an incentive to not contribute towards the provision of the good but still enjoy its benefits if it is provided. Private firms may have difficulty generating enough revenue to produce an efficient quantity of the good because they cannot charge individuals for their individual use of the good, and providing the good to everyone may be too expensive. As a result, government intervention is often necessary for the provision of public goods. The other options are not accurate, as the value of the good or the number of people who benefit from it do not necessarily make it difficult for markets to provide it, and the profit incentive is typically a motivator for firms to produce goods, rather than a hindrance.

Question 12

Because the benefits derived from an activity decline as it is expanded,it is generally

Accepted Answer

The answer of Because the benefits derived from an activity...

Question 13

Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?

Accepted Answer

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

Question 14

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

Accepted Answer

National defense is a classic example of a public good because it is non-excludable (everyone benefits whether they pay for it or not) and non-rivalrous (one person's enjoyment or use does not diminish the availability or enjoyment of the good by others). The other options are either not non-excludable (health care system and Walt Disney World) or not non-rivalrous (long-distance telephone service).

Question 15

If the construction of a new roadway would create $10 billion worth of benefits for citizens and would cost $8 billion to construct,then using the criterion of economic efficiency,the roadway

Accepted Answer

According to the criterion of economic efficiency, if the benefits of a project exceed the costs, then the project should be undertaken. In this case, the benefits of the new roadway are $10 billion and the costs are $8 billion, so the roadway should be built as it would create a net benefit of $2 billion for society.

Question 16

If an economic action generates more costs than benefits,the action

Accepted Answer

If an economic action generates more costs than benefits, it means that the action is not efficient as the costs outweigh the benefits. Therefore, it should not be undertaken from an efficiency standpoint as it will result in a net loss. Subsidizing such an action would only waste more resources and harm the economy further. Therefore, the best option would be to not undertake the action at all.

Question 17

Does economic efficiency indicate that all pollution should be eliminated?

Accepted Answer

Economic efficiency involves finding the optimal level of pollution that balances the costs and benefits of reducing pollution. At some point, the cost of further pollution reduction will outweigh the benefits, so not all pollution should be eliminated. However, this does not mean that pollution should be completely ignored or allowed without any regulation. A balance must be struck between economic efficiency and environmental concerns.

Question 18

Which of the following is the most fundamental function of government?

Accepted Answer

While all functions listed may be important, the protection of individuals and their property is the most fundamental function of government as it ensures the safety and security of its citizens. Without this function, the other functions listed would not be possible as citizens would not feel safe and secure enough to participate in society.

Question 19

Economic efficiency requires that

Accepted Answer

Economic efficiency is achieved when the benefits of an economic activity exceed the costs. This means that resources are being allocated efficiently and the economy is producing goods and services that satisfy consumer needs and wants in the most optimal way. Therefore, choice D is correct. Choices A, B, and C are not correct as they do not necessarily lead to economic efficiency. Maximizing individual production may not always lead to optimal resource allocation, producing only high-quality products may not be cost-effective, and equal income distribution may not necessarily lead to the most efficient allocation of resources.

Question 20

Competitive markets generally give consumers and producers correct incentives when

Accepted Answer

When property rights are well-defined and enforced, it means that there is no room for externalities to influence the market which means consumers and producers get the correct incentives in the competitive market. Option A, C, and D are incorrect because externalities, pure public goods, and lack of information can create market failures and distort incentives in a competitive market.

Quiz 5: Difficult Cases for the Market and the Role of Government