Question 1

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

Accepted Answer

There is a point where the cost of making cars safer outweighs the benefits, so it is not efficient to make them completely safe.

Question 2

When production of a good generates external costs, the

Accepted Answer

D

Question 3

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. When more people are vaccinated against the flu, the overall spread of the flu is reduced, which benefits everyone in the community. This is known as a positive externality. A, B, and D are incorrect as they do not describe an external benefit resulting from an individual's purchase of a winter flu shot.

Question 4

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

Accepted Answer

Economic efficiency is achieved when the benefits gained from an activity or product outweigh the costs incurred to produce it. This means that resources are used in the most effective way possible, maximizing benefits and minimizing waste. This concept is central to the field of economics and is a key consideration in decision-making processes, as it provides a framework for evaluating the trade-offs between different alternatives. Therefore, option B is the correct answer as it represents the most accurate definition of economic efficiency.

Question 5

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

Accepted Answer

Public goods are non-rivalrous and non-excludable, meaning that one person's consumption does not reduce the amount available for others, and it is difficult to charge individuals for its use. Therefore, individuals have an incentive to become free riders, consuming the public good without paying for it. Private firms may also have difficulty generating enough revenue to produce an efficient quantity of the public good due to the difficulty in charging individuals for its use. This is why public goods are usually provided by the government or other public entities.

Question 6

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

Since the benefits of constructing the roadway are greater than the costs, it would lead to a net improvement in the welfare of society. Therefore, from an economic efficiency standpoint, the roadway should be built.

Question 7

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

Accepted Answer

This statement refers to the law of diminishing marginal returns, which states that as we continue to increase our input in an activity, the additional benefits we receive from doing so will gradually decrease. Therefore, continuing indefinitely may not be the most efficient use of resources. It is better to stop and move on to other activities that may yield greater benefits. Choice B suggests stopping well before perfection to maximize benefits, which aligns with this concept.

Question 8

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 may have the power to set prices higher than their marginal costs, leading to a decrease in output and a deadweight loss of economic efficiency. This means that the output of the product will be less than the amount consistent with ideal economic efficiency.

Question 9

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 10

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

Accepted Answer

The most fundamental function of government is to protect individuals and their property. This includes maintaining law and order, enforcing contracts, and defending the nation from external threats. The other options listed may be functions of government, but they are not as fundamental as protecting individuals and their property.

Question 11

Economic efficiency requires that

Accepted Answer

Economic efficiency is achieved when the benefits of economic activity exceed the costs. This means that only those economic activities should be undertaken that generate more benefits than costs. This is the basic principle of cost-benefit analysis, which is used to determine the economic efficiency of an activity. Therefore, option D is the correct answer.

Question 12

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

Accepted Answer

National defense is a public good because it is non-excludable (everyone benefits from it regardless of whether they pay for it or not) and non-rivalrous (one person's consumption of national defense does not diminish another person's consumption of it).

Question 13

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, cleaning only the most visible areas of the house is consistent with this idea, as it is better to clean some areas than to not clean at all. The other options are focused on achieving perfection or eliminating any negative consequences, which is not consistent with the idea of doing something imperfectly.

Question 14

Economic efficiency indicates that

Accepted Answer

Economic efficiency suggests that resources should be allocated in a way that maximizes the benefits gained from their use. Pursuing an activity until perfection is achieved may not be economically efficient because the cost of doing so may outweigh the benefits. Hence, it nearly always makes sense to stop an activity well before perfection is achieved.

Question 15

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 16

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

Accepted Answer

Undertaking an economic action that generates more costs than benefits is not efficient and therefore, should not be pursued. It would waste resources and ultimately decrease economic welfare.

Question 17

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 be undertaken if and only if the benefits it generates exceed the costs incurred. This means that resources should be allocated in a way that maximizes the overall welfare of society. Therefore, option A is the correct answer. Option B, public welfare maximization, is similar but slightly different as it focuses specifically on maximizing the welfare of the public, rather than overall efficiency. Option C, marginal comparative advantage, is not directly related to the concept of benefits and costs. Option D, monetary construction of values, is not a recognized economic concept.

Question 18

Does economic efficiency indicate that all pollution should be eliminated?

Accepted Answer

Economic efficiency suggests that we should aim for the optimal level of pollution, where the cost of reducing pollution is equal to the benefits gained from a cleaner environment. As we continue to reduce pollution, the cost of doing so becomes higher, and the benefits become lower. Therefore, at some point, we reach a level where the benefits no longer justify the cost, and it becomes economically inefficient to eliminate all pollution. However, this does not mean that pollution should be ignored, and efforts should still be made to reduce pollution to the optimal level.

Question 19

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

The answer of Suppose paper pulp mills are permitted to...

Question 20

Competitive markets generally give consumers and producers correct incentives when

Accepted Answer

In a competitive market with well-defined and enforced property rights, consumers and producers have the correct incentives to make efficient market decisions. Externalities can cause distortions in the market, and pure public goods are not efficiently provided by the market. A lack of information can also lead to inefficient outcomes.

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